SFAA Position Paper: Short Term Rental Websites and the Illegal Conversion of Our
Residential Rent-Controlled Housing Stock
Insurance
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SFAA has contacted five insurance carriers (Travelers, Sequoia, Golden Eagle, CIG
(California Insurance Group), Philadelphia Insurance), and two insurance programs
(CIBA, and Specialty Property) that are actively pursuing apartment risks (accounts) in
California. SFAA asked them if they would offer insurance, at any price, to an apartment
building with tenants renting units via Airbnb. All are aware of, and have underwriting
policies regarding Airbnb. All decline any risk that is known to have an apartment unit on
Airbnb. The issues they state are: 1) the tenant has no insurable interest in the unit and
thus the carrier has no duty to defend the tenant nor respond to losses occurring due to
tenant’s commercial activities; 2) they carrier has no relationship with the tenant, 3)
inability to underwrite (evaluate) the tenant who is renting the unit. We do have a surplus
lines broker looking into this as well. He suspects the cost to be two to three times the
cost of coverage of an apartment building without Airbnb rental unit(s).
We also asked carriers and program managers how they would respond to learning of
Airbnb rentals at a location they already insure. All said they would cancel coverage midterm due to a significant increase in hazard, and/or change in risk classification.
Regarding Airbnb’s insurance coverage (see https://www.airbnb.com/terms Host
Guarantee tab): This contract protects the entity renting the unit. Please note the
following:
Excluded Accommodations means:
o 1.
Any condominium, townhouse, co-operative, apartment, or other unit
within a multiple-dwelling structure, complex, or similar type development to the
extent owned in whole or in part by anyone other than you, and
o 2.
Any common area or easements in or associated with any Dwelling Unit
located within a multiple-dwelling structure, complex, or similar type
development, even if owned or partly owned by you, . . .
o Clearly, any apartment unit is not afforded any guarantee (a form of insurance)
from Airbnb, as they apartment tenant does not have an ownership interest in the
unit.
o Furthermore, with in the Term of Service between Airbnb and the renter one will
find:
 If you accept or agree to these Airbnb Host Guarantee Terms . . . you
represent and warrant that you have the authority to bind the company or
other legal entity to these Airbnb Host Guarantee Terms . . .
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o A tenant cannot warrantee the authority to the terms as they are specifically
excluded from the terms.
Building owners do not (and cannot) carry insurance for their building to adequately
cover the commercial and transient use of their residential property.
Our residential buildings are insured as an apartment building operation, not a
hotel/motel operation. The underwriting and pricing for these two operations is very
different. An apartment building assumes that all tenants are at least month to month and
have agreements directly with you as the owner, so that you can monitor and manage
your tenant roster. This is important from many aspects, not the least of which is
building security.
Residential building policies do not allow any operations other than the operation of
“apartment building”, unless it has been disclosed and approved, so any tenants running a
business that requires customers to enter the premises would have to be underwritten
with the appropriate changes and charges on the policy. This is true whether they are
selling things, providing services for fee such as massage or renting their space as a living
or other-use quarters.
Under essentially all insurance policies tenants are not allowed to operate any business
operations from their unit without the building owner’s written consent if those
operations require customers to enter the premises.
Running a business from a premises declared as an apartment building could jeopardize a
claim if it were the result of an operation which was not known and disclosed in the
application for insurance.
Enforcement (Or Lack Thereof)
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The legislation is an unfunded mandate. It requires significant resources and enforcement
from City departments without including a dedicated source of funding (or any funding
whatsoever) to provide for enforcement.
With no enforcement, legalizing the use of Airbnb will proliferate more than it already
has, to the detriment of our housing stock. The Planning Commission report expressed
concern over lack of enforcement and the impact it is having on our housing: “based on
the trends that the Department has seen over the past three years, residential units being
rented out as short-term rentals will continue to grow for the foreseeable future.”
The Planning Commission must recommend a per-unit or per-night administrative fee
that gives City departments the ability and resources to enforce the law as they are being
asked to.
How will Planning enforce the rules for short term rentals:
Where will the funding for enforcement come from?
How does it plan to monitor and keep track of the number of times an apartment has been
rented per year?
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How does it plan to monitor and keep track of the nightly rental rates that are being
charged to make sure that the rental is compliant with the rent ordinance?
How does it plan to monitor and keep track of the insurance that every host maintains?
How does it plan to keep track of host’s “primary place of residence,” and where does the
burden to prove somebody’s primary place of residence lie?
Why do Planning Code documents only address enforcement against property owners
who are in violation, rather than travel website hosts or residents?
Legislation that cannot or will not be enforced is bad public policy and bad for San
Francisco, especially when it relates to the illegal conversion of our residential rent
controlled housing for tourist and commercial use.
Re-Zoning of Our Neighborhoods, Buildings, and Entire City
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The Planning Department has expressed concerns about how short-term rentals are
impacting neighborhood character and the quality of life for San Franciscans. “Permanent
residents have a vested interest in maintaining the unique quality of life in San Francisco.
They build community by developing longstanding relationships; help ensure that trash
doesn’t accumulate on the sidewalks, and are inherently motivated to be respectful of
their neighbors.”—SF Planning
“Having short-term rentals unregulated in residential districts is akin to allowing an
unregulated number of hotels in a residential district, something which is largely
prohibited or at a minimum requires conditional use authorization.” – SF Planning
Department
Many of our neighborhoods have been designated and zoned for residential use only.
Legalizing use of short term travel websites allows for commercial use and enterprises to
occur in our residential homes and neighborhoods.
Re-zoning all of San Francisco through short-term rental legislation is not an appropriate
method of city planning.
Landlord Permission and the Ability to Prohibit Short Term Rentals
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This legislation would become the only item in the Planning Code that does not require
the building owner’s permission for conditional use.
Landlords must have the right to prohibit short-term rentals in their buildings. Nosubletting clauses in lease agreements must be fully enforceable.
Legislation as currently written is a departure from landlord tenant law, and weakens an
owner’s ability to evict a resident who uses short-term vacation rentals in violation of
their lease agreement.
Homeowner’s Associations, Condominium buildings, and new construction rental
buildings all have the ability to rewrite their rules to prohibit use of nightly travel
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websites. Rent-controlled property owners are not able to rewrite their leases or change
any terms of tenancy. They must be able to fully enforce their existing leases.
Owners who have purchased buildings with insufficient lease agreements, and children of
owners who are increasingly taking over their parents buildings, are left with no recourse
and no ability to prevent, limit and regulate a tenant who uses short-term travel websites
and who negatively impacts the lives of their neighbors in doing so.
Impact on Our Housing
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The Planning Department staff has rightfully expressed concern over the impact shortterm rentals have on our housing stock. Chiu’s legislation to legalize short-term rentals
directly contradicts Objectives Two and Three in the City’s Housing Element, which
seeks to “retain existing housing units” and to “protect the affordability of the existing
housing stock.” Planning Department staff has conservatively estimated that at any given
moment, 4,000-5,000 entire units have been removed from our housing stock and are
being advertised online as short term rentals. For comparison, the Board of Supervisors
placed a moratorium on condominium conversions after 2,669 units were converted to
condominiums in the four years from 2009-2013.
Via SF Planning: “Any decrease in residential space available for the City’s permanent
residents puts an upward pressure on price, exacerbating an already untenable situation.
Further, based on the trends that the Department has seen over the past three years,
residential units being rented out as short-term rentals will continue to grow for the
foreseeable future.
Via SF Planning: The “commercialization of residential units may inflate the market and
keep rents artificially higher than the market would otherwise support.”
SFAA rejects the notion that this legislation is exempt from CEQA—it has severe
impacts on transportation and our neighborhoods and should require full CEQA review.
There are more than 5,000 whole apartments being rented out full time (on any given
day) on Airbnb and similar travel websites. In 2013, we lost more housing to travel
websites than to every other type of eviction combined.
Short-term vacation rentals make our housing less affordable. The practice restricts our
rental housing market even further because thousands of apartments are being operated
nightly for tourists instead of rented out as housing for San Franciscans. In restricting the
rental market travel websites drive up the cost of housing citywide.
Legalizing short-term travel websites creates a financial incentive for master tenants to
replace their roommates with short-term guests.
o This directly takes housing out of the hands of San Franciscans
o This contributes to “unit hoarding,” or the continued occupancy of a large 2,3,4
bedroom apartment by one individual, who can rent a room just 2 weekends a
month to cover their former roommates’ rental rate
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o Families are already leaving the City in droves. We cannot afford to legalize
anything that contributes to the loss of our larger, more family-suitable apartment
units.
The impacts on our housing stock take place on a citywide, macro-scale, and occur over
time. It is difficult to physically see the impact of a slow, citywide conversion of
thousands of apartment units into nightly rentals, but that does not mean there is no
negative impact.
Liability and Security
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A Landlord’s first and most important obligation is to provide a safe and secure
environment for his/her residents. Residential building residents have an expectation of
security and safety in their building. This is reinforced and underscored by the fact that:
 The property owner or manager is able to screen and vet prospective residents of
the apartment building.
 The building is secure and locked. Keys are not left out front in lockboxes or
made accessible to the general public. Building access codes are not posted
online.
Every other resident in a building that has a unit for rent via short-term websites is put at
risk because a building owner’s insurance will not cover any policies or claims resulting
from damage from a short-term vacation renter. If and when a fire starts in a short-term
unit, the building owner’s insurance will not cover building damage or damages to the
other tenants. It puts all residents at risk and in a terrible and disadvantaged position in
the event of emergency.
Short-term vacation rentals jeopardize building security and disregard the permanent
resident’s expectation for safety and security within their building.
Quality of Life
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“Permanent residents are inherently motivated to be respectful of their neighbors”—SF
Planning
“Many of the complaints that the Department receives about short-term rentals have to do
with the hours of activity tourists keep compared to long-term residents with regular nine
to five work schedules.”—SF Planning
Permanent residents expect a sense of building community, and to get to know and feel
safe around their neighbors.
Permanent residents expect to not have a rotating door of hotel guests next to them.
Without a host present, short-term guests as a whole are generally louder, ruder, less
respectful of other residents, and ignorant of house rules for the building because they
have no horse in the race, no obligation to any other resident in the building, and no
obligation to the landlord or property manager.
Legislative Hypocrisy
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Two years ago, in a March 27, 2012 SF Examiner article, Supervisor Chiu claimed that
“Hotelization reduces the already-limited housing available to San Franciscans and
creates quality-of-life issues for our residents. We have to do more to protect rental
housing in San Francisco.”
o SFAA supported and worked with Supervisor Chiu on helping prevent
“Hotelization”
o Our housing affordability and availability has gotten much worse since
3/27/12. The City and Board have recognized this. The Mayor issued a
Housing Directive at the beginning of the 2014. Working groups have been
commissioned, new construction is up and more is being pushed through the
pipeline. As a city we have legalized in-law units, and passed a pilot program
to allow for the construction of new rent-controlled units, all in recognition
that we need to take a different approach to supporting our housing. Why,
when a $10 billion corporation is hurting our housing stock, do we try to
legalize their actions?
o A “limit” of 90 days is not a limit at all if the average user rents their
apartment via travel websites 88 days a year.
o The average rent-controlled tenant travel website host will make $19,888
yearly off of a property they have no investment and no equity in.
o A landlord, who has invested in the property and community, and pays taxes
and provides housing to residents in San Francisco, has their rental housing
investment capped and regulated by the local rent control ordinance and
government.
o A tenant, who has no investment and no equity whatsoever in the property,
and who pays a subsidized rental rate to the landlord, is able to profit from and
use the property in a way that the landlord is not legally able to.
Tax
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Legislation as currently written does not require Airbnb to pay back taxes as they have
been ordered by the Treasurer and Tax Collector. The estimated tax figure for the past
two years is in the $60 million range, which would provide valuable funding for our
parks, arts and civic improvements.
Enforcement of Current Laws is (Still) a Viable Option
On January 14, 2013, Mayor Lee, City Attorney Dennis Herrera, and the full Board of
Supervisors received a letter from Nielsen, Merksamer, Parrinello, Gross & Leoni LLP on behalf
of SFAA and the Coalition for Better Housing requesting the city to enforce city residential unit
conversion, zoning, and rent control laws, and to discuss the fast-growing practice of illegal
short-term/ transient rentals for profit and requesting the City take immediate action to address
this problem. Nielsen Merksamer et. al provided evidence that Short-Term Rentals are increasing
and proliferating, that they have negative impacts on our tax revenue, on our residential
neighborhoods and communities, on our residents of multi-occupancy buildings, who are
exposed to unnecessary risk and disruption by unauthorized transient occupants. SFAA never
received a response or acknowledgement of receipt of the letter.
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Transient rentals of residential apartment units violate numerous City laws including the
Residential Unit Conversion Ordinance, the Zoning ordinance, tax law, and the Rent
Control Ordinance and regulations.
o Short-term rentals of residential apartment units violate the Residential Unit
Conversion Ordinance (SF Administrative Code Chapter 41A), which states that
“it shall be unlawful for any owner to offer a residential unit for rent for tourist or
transient use,” defined as the “use of a residential unit for occupancy for less than
a 30-day term of tenancy…” “Owner is defined so as to preclude tenants from
subletting apartments for “tourist and transient use” as well. The Director of
Building Inspection is authorized to investigate and punish violations of the
Ordinance, either in response to a complaint or on its own initiative. To our
knowledge, there has been no enforcement by the City of this ordinance against
the widespread short-term rentals of apartment units.
o The short-term rental of apartments in residentially-zoned neighborhoods and
districts violates the Planning Code, which requires a conditional use permit to
operate a “hotel” or other group housing in such districts. (SF Planning Code
209.2(d), € and 216(b), (c). The great majority of these short-term rentals are of
residential units in residential districts, violating the Planning Code and thus are
illegal for that reason as well. To our knowledge, there has been no enforcement
by the City of the zoning laws against the widespread short-term rentals of
apartment units.
o Tenants of rent-controlled units are routinely subletting their units as short-term
rentals for a profit in clear violation of the City’s rent control laws. Section 37.3©
of the Rent Ordinance requires that a “tenant who subleases his or her rental unit
may charge no more rent upon initial occupancy of the subtenant or subtenants
than the rent which the tenant is currently paying to the landlord.” Rent Board
regulations further require that when a rent-controlled unit is sublet in part, the
master tenant may not charge the subtenant more than the subtenant’s
proportional share of the rent. (SF Rent Board Rules and Regulations Section
6.15C). Nevertheless, rent-controlled apartments in San Francisco are routinely
rented on internet sites for hundreds of dollars per night—far more than the
subtenants’ proportional share of the monthly rent. This subverts rent control—
there is no permissible reason to limit rents an owner may charge a tenant for a
unit, while at the same time permitting the tenant to sublet that unit as a short-
term rental for profit without the owner’s knowledge or consent. This undermines
the entire premise of the rent control law and calls into question its legitimacy
under such circumstances. To our knowledge, there has been no enforcement by
the City of the rent control laws against the widespread short-term rentals of
apartment units for profit.
o The City has been vigilant and steadfast in admonishing and acting against
landlords who violate or undermine the rent laws, the residential unit conversion
ordinance and the zoning laws, and needs to accord tenants the same treatment. If
it is illegal for owners to rent apartments in excess of the rents allowed by the
Rent Ordinance, or to rent apartments for tourist uses, it is equally illegal for
tenants to engage in the same conduct, and there is no rational justification for
ignoring tenant violations of these laws.
o SFAA would like the City to:
 Declare publicly that tenants of rent controlled units violate the Rent
Ordinance and regulations if they charge a short-term renter more than the
renter’s daily proportional share of the monthly rent.
 Declare publicly that short-term rentals of apartment units are prohibited
in residential zones without a conditional use permit, and
 To take action to enforce these ordinances against violators (both landlord
and tenant).