For a few moments we should look back at 2014 and give ourselves a little pat on the back. We defeated Prop. G – a heinous attack on property owners that sought to punish people for buying and selling property. Yes, our opponents are licking their wounds and whining that they were outspent, but spending on the part of one of the groups in our partnership did not defeat this measure.  

The money paid for printed materials, billboards, and mailers was important, but it was the volunteers, the “boots on the ground,” who talked to commuters at bus stops, hung door tags, made phone calls, spoke at neighborhood meetings—all those volunteers that spread the word and distributed flyers – that really made the difference. We are especially proud of Josephine Zhao and the army of workers who relentlessly blanketed commercial districts with window signs. When signs were torn down, they went up again, and again.

I was honored to take part in a couple of these walks and saw how volunteers asked permission to put up signs, explained our mission, and often received permission to put the signs on the inside of the window where they would not be torn down. Boots on the ground – thank you so much! 

Good News on our Lawsuits

We received positive news in the Federal courts, where the 24-month rent differential scam passed recently by the Board of Supervisors was declared unconstitutional.

City Attorney Dennis Herrera has filed an appeal, so that battle continues. In January, our State lawsuit against the same measure will be heard. Also, we await a decision on our other lawsuit against the regulations concerning unwarranted, but legal, units. At the same time, the Board of Supervisors placed regulations and severe restrictions on private negotiations between owners and renters – buyouts. The restrictions in the legislation against condo conversions are another example of unintended consequences down the road. If we can’t regain our properties with an exchange of cash and benefits, and if we want to stop being landlords, we might as well invoke the Ellis Act. This is less costly and places the same restrictions on our property. And, of course, the renter ends up with less. We may participate in a third lawsuit against this buyout measure. But this is how the great minds who want to regulate our form of commerce think. Peter Reitz, our Executive Director, and I had coffee with a man active in SPUR, who said he had a plan to ease the housing shortage. His plan was to have a city department place an appropriate occupancy number on every rental unit; if a new tenancy began in a unit, and the owner rented to fewer than that number, the tenant would have the right to sublet up to the target occupancy number.

Thus, there would be the “right” number of people living in more units. This fellow told us that he and his spouse had recently purchased their first home. Well then, opined Peter, we should put target occupancies on home purchases also, and encourage the seller to sell to groups large enough to satisfy the city’s formula.

Gulp! – was the reaction. Actually, this sort of targeting should and does take place in subsidized housing funded with public moneys (our taxes). But some planners don’t want to stop there. They know better than us what we should do with our property, and they want to exert their superior knowledge upon us. That is why SPOSFI will continue to be part of the effort to push back and represent owners of private rental property.

In the article which follows, attorney Lan Nguyen Fullerton advises our members of the risks involved in engaging in short-term/shared rentals. We know that many of our members count on short-term rentals to provide much-needed income. So we are only offering cautionary information and urging members to comply absolutely with the new regulations, particularly the insurance requirements, and to exercise due diligence.

Thank you for all the support you have offered We will continue to work hard to live up to the goals you have set for us. Please let us know how we might better serve small property owners. 

Short-Term/Shared Rentals  Come with Many Risks

By Lan Nguyen Fullerton, Attorney at Law 

On October 27, 2014, Mayor Lee signed into law legislation (the “Airbnb Law”) that amends local zoning law to legalize short-term rentals. The new Law, effective February 1, lifts a longstanding ban on residential rentals of less than 30 days, and attempts to regulate the activity. 

The law allows an owner or a lessee who meets the definition of a “permanent resident” to rent out a portion or all of his residential unit for less than 30 days at a time, under certain conditions: the permanent resident must register the residential unit with the city, pay registration fees and transient occupancy taxes, maintain liability insurance of at least $500,000, and self-report his short-term rental activity annually. Although the law attempts to resolve some of the issues related to short-term rentals, many problems may still arise that any diligent owner must consider. 

Insurance Coverage Issues

One concern relates to insurance coverage. While the law requires hosts to carry liability insurance or use a hosting platform that provides such insurance, it does not define “liability insurance,” making uncertain what types of claims need to be insured. Also, most homeowners’ liability insurance policies exclude coverage if the residential unit is being used for commercial purposes, and engaging in short-term renting may arguably be a “commercial purpose.” Therefore, a claim arising out of a rental of all or even a portion of the residential unit may cause the provider to deny the claim, leaving the owner fully exposed to liability.

Further, most insurance policies meant to protect landlords have the same exclusion if residential rental units are permitted to be used for commercial purposes. Therefore, tenants who engage in the short-term rental of their unit may cause the landlord’s insurance provider to deny coverage on certain claims.

Moreover, most hosting platforms do not provide any insurance coverage, and if they do, it only extends to damages to personal property, and only applies to hosts who are owners (not tenants) of the residential unit. Thus, owners engaging in short-term rentals, or who have tenants who do, should consult with their insurance provider to ensure they have the appropriate coverage. 

Safety of Other Tenants a Major Concern

For landlords, other concerns may arise when tenants rent out all or a portion of their rental unit on a short term basis. For example, the safety of other tenants in the building may be jeopardized by one tenant allowing a revolving door of unknown guests to enter the premises. These guests may create noise or other nuisances that interfere with the other tenants’ use and enjoyment of the premises.

This creates a problem for the landlord, who has an obligation to the other tenants to provide quiet enjoyment. The landlord can’t call the police to remove the offending guests from the premises because they have permission to be there, and are not trespassers under the law. The landlord’s only recourse then is to evict the hosting tenant, which in San Francisco is far less straightforward than it is in other jurisdictions.

Another potential problem for the landlord is how to deal with a tenant who rents out his unit in violation of the lease agreement, or violates the law by profiting (charging more rent per month than he pays to the landlord) from short-term renting. 

New law honors lease agreements, but . . .

The Airbnb Law honors lease agreements that prohibit a tenant from assigning, subletting, and short-term rental of the unit, and allows a landlord to evict on the basis of breach of the lease. However, obtaining proof of the short-term renting and how often it is occurring is difficult because hosting platforms are not required to provide that information to owners and the information is not easily searchable on the hosting platforms. It’s also difficult to identify guests and to gain their cooperation because many are likely to be foreign and reside outside of the state or country.

Additionally, while it prohibits tenants from profiting from short-term rentals, the law cuts into a landlord’s right to evict a tenant on the basis of illegal use of the rental unit. The new law makes curable a violation that was never before curable by allowing tenants 30 days to cure if they failed to comply with all of the law’s requirements and are illegally renting their unit on a short-term basis. Now, not only does the landlord face the challenge of obtaining enough information to prove that the tenant was profiting from short-term renting, she must give the tenant the opportunity to cure plus one month before commencing an eviction action. 

Conclusion

These potential problems serve as a reminder for landlords to be diligent in the management of their rental units by ensuring that they have proper insurance coverage, that their leases protect them adequately and provide an enforcement mechanism for breaches, that they thoroughly screen potential tenants, and communicate with them their expectations of the tenancy. 

Lan Nguyen Fullerton is an associate at Steven Adair MacDonald & Partners, P.C. Her practice is focused on real estate litigation and landlord-tenant law; she may be reached at lfullerton@samlaw.net  or (415) 956-6488.

 Reprinted with permission of the Small Property Owners of San Francisco Institute (SPOSFI) News.  For more information on becoming a member of SPOSFI or to send a tax-deductible donation, please visit their website at www.smallprop.org or call (415) 647-2419.