In October, the Board of Supervisors, by a veto-proof 9-2 margin, passed Board President and Supervisor David Chiu’s short-term rental legislation (aka “The Airbnb Law”.) As expected, Mayor Lee signed the bill into law. It takes effect in February 2015.
Up until now, San Francisco housing and zoning regulations have prohibited residential rentals of less than 30 days. But, as thousands of owners and renters who rent a part or all of their home or apartment short-term, know enforcement has been essentially non-existent. Airbnb, San Francisco’s leading short term rental (STR) platform, lists about 5,000 short-term rentals, two-thirds in entire homes. HomeAway/VRBO (Vacation Rentals by Owners) lists about 1,200 – all entire homes.
By passing its first law governing STRs, the City is acknowledging officially that the trend is unstoppable and rather than fight it, has chosen to regulate it and reap the substantial revenue it generates. Mr. Chiu worked nearly two years on the bill in an effort to build a framework that legalizes the practice while subjecting it to restrictions.
Supporters, who spoke in large numbers at public hearings and rallies, believe that the law, as written, strikes a balance between preserving affordable housing by ensuring landlords can’t convert permanent units to vacation rentals and enabling tenants to earn additional income by renting all or part of their apartment on a short-term basis. “We can protect our city’s housing units from being converted to hotels, while also allowing short-term rentals on a limited basis to help residents afford to stay in their homes”, said Mr. Chiu.
But housing advocates, neighborhood associations and many small property owners raised serious concerns. For owners of rental property, concerns about STRs expressed most often included these:
- They pose a threat to building security and to the safety of other tenants in the building
- They present a risk to the owner that is not covered by conventional landlord liability insurance.
- They pose a threat to the quality of life of residential neighborhoods by undermining the very zoning regulations put in place to preserve it.
Airbnb Praises Law
Airbnb, the San Francisco heavyweight in the STR market, hailed the law’s passage. The company, whose major shareholder was a big contributor to the Mayor’s 2012 campaign, was also, no doubt, pleased that a number of amendments meant to toughen the legislation failed: limiting hosted (where the resident is present) to 90 days, prohibiting STR of in-law units and requiring Airbnb to pay $25 million in back taxes. VRBO/HomeAway blasted the legislation as “tailored for Airbnb” and “wildly unenforceable.” Its opposition is understandable as VRBO/HomeAways’s listings are mainly vacation homes, so many hosts won’t meet the residency requirement under the new law.
Controversial Amendments on Enforcement
Supervisors made some minor amendments before passing the final bill. A proposal to bar vacation rentals in units where tenants had been evicted under the Ellis Act was sent back to committee, as were two enforcement proposals. These proposals introduced by Supervisors Jane Kim and London Breed termed trailing legislation because they will be considered at a later date, would give non-profit housing groups (Tenants Union, Tenderloin Housing Clinic, etc.) private right of action against violators and allow them to keep the proceeds of the judgment. Allowing fast-track lawsuits by non-profits would be, “an effective and cheaper means to do enforcement,” said Kim, adding that the City had not demonstrated that it has the resources to investigate alleged violations. Presumably, the lawsuits would target only owners, not tenants. The Tenants Union recently announced that it has 25 such lawsuits pending against owners to file.
Short Term Rental Terms
Hosted Rentals: Homes or apartment where the owner or tenant sublessor continues to reside in the unit during the short-term renter’s stay. Such units may be rented short term for an unlimited number of nights per year.
Non-Hosted Rentals: Homes or apartments, where the owner or tenant sublessor does not reside in the unit during the short-term renter’s stay. Such units may be rented for a maximum of 90 nights per year. The host must live in the unit the rest of the year.
Registered Host: A landlord or tenant who has registered with the Rent Board to do STRs in San Francisco.
Requirements to be a “Registered Host”
The new law allows local residents (tenants or owners) to “host” (rent) their home or apartment for periods of less than 30 days at a time. Those wishing to do so will have to register with the City every two years and meet the following requirements:
- Prove that they live in the unit as their primary residence for at least 75% of the year. This is a key requirement. If the host does not live in the unit, but uses it only for STR, he/she is prohibited from renting it out on a short –term basis.
- Prove that they have lived in the unit for at least 60 days prior to renting out the unit.
- Report the number of days of short-term activity annually to the Rent Board.
- Prove that they maintain at least $5,000 in liability insurance to indemnify the tenant and owner for bodily harm and property damage. This requirement may be difficult to meet at present and will be discussed later.
- Tenants living in rent-controlled units may earn no more per month renting short-term than they are paying in rent to the landlord and
- Pay the City its 14% hotel tax.
Additional Features of the Law
- The San Francisco Planning Department will enforce the law.
- A new City Registry will track the number of nights a unit has been rented, based on a report that hosts must provide the Rent Board. Information on units registered as STRs will be a matter of public record and accessible on www.sf-planning.org.
- Any posting on a short-term rental site or elsewhere not accompanied by a valid registration number will be subject to a Notice of Violation and a penalty. This applies to Airbnb, VRBO/HomeAway, Craigslist or any other way the rental might be promoted.
- Hosted rentals may rent for an unlimited number of nights per year. Non-hosted rentals may rent for up to 90 days per year. The same rules apply to single-family homes as for multi-unit buildings.
- Units in buildings with outstanding Planning or Building Code violations will be denied listing on the STR Registry until all violations have been corrected.
- A tenant may not be evicted for a first violation of the STR Ordinance provided the violation is cured within 30 days of the landlord’s written notice.
- Hosting platforms will be required to remove all non-compliant listings from the STR Registry.
Can You Prohibit a Tenant From Doing STR?
If your existing lease says, “no subletting” your tenant may not engage in STR. Evicting him/her for violating lease, however, is another matter. Your only remedy for a first or second violation is a Notice to Cure or Quit. The tenant my have to rack up three or more violations before you have sufficient grounds to evict.
Rule 12.20, passed by the Rent Board in December of 2012, prohibits changing lease conditions after the factor without the tenant’s consent. Therefore, if you have a tenant that wants to or is doing STR, and you don’t have a prohibition on subletting in writing, you may be stuck. With STRs only now coming out into the open, these are somewhat uncharted legal waters so it’s always best to consult and attorney.
Insurance Coverage for Owners is Doubtful
Property owners who engage in STR or have tenants who do so should ensure that their insurance covers bodily harm or property damage resulting from an STR rental. Although Supervisor Chiu’s office has assured us that the coverage is either currently available or soon will be as insurance carriers come up to speed, check with your carrier first. Most likely, you’ll find that you are not covered. Airbnb provides insurance coverage for the host (the renter who is engaging in STR), however, the insurance does not cover an apartment that is not owned in whole or in part by someone other than the renter host.
Gideon Kramer is the SPOSFI News Editor. 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.