A Berlin city court is due to make a landmark ruling with ramifications for home rental firms such as Airbnb when it decides if homeowners can engage in.
Several home-sharing companies have lodged a complaint against an effective ban on such lets in Berlin in the first substantial challenge to such city legislation in Europe.
People renting out their homes in the German capital for periods of less than two months face fines of up to 100,000 euros (NZ$162,302).
Although landlords can seek a permit, city officials have said they will reject 95 percent of requests.
The Berlin showdown comes a week after the European Commission cautioned member states against erecting roadblocks or even outright bans on the emerging "sharing economy" in everything from apartments to local rides by enforcing decades or even centuries-old laws.
Airbnb and other home-sharing companies, such as Rocket Internet's Wimdu, requested the legal opinion of the former head of the city of Berlin's constitutional court following Berlin's crackdown. Helge Sodan deemed the new regulation unconstitutional and drafted the complaint.
Airbnb, whose website lists 11,700 apartments in Berlin, did not join as a plaintiff but a company spokesman said the verdict would impact Airbnb's business and it was watching closely.
Berlin's authorities estimate that a total of 15,000 apartments have been taken off the city's rental market to be operated as businesses housing tourists. City officials say rising rents and a significant housing shortage left them with no choice but to impose the measures.
Home-rental groups say the city is using the new legislation to whitewash structural housing problems, turning short-term home-sharing companies into scapegoats.
Although a positive verdict would not have binding legal consequences for other jurisdictions, experts expect it to have repercussions throughout Europe, as cities try to balance the interests of the travel and tourism industry with those of tenants who fear rising rents.
"Cities are closely watching each other to see what types of regulations are possible and Berlin's verdict will surely impact the behaviour of other cities," said Gracia Vara Arribas, a lawyer who advised the EU on the sharing economy.