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Home Sharers of San Francisco

 

 

Position Paper

 

On

 

Supervisor David Chiu’s

 

Proposed

Legislation to Legalize Short-Term

Rentals

in San Francisco

 

 


 

I.     INTRODUCTION

 

A.        Home Sharers of San Francisco

 

Home Shares of San Francisco (“Home Sharers”) began in October, 2012 as group of San Francisco residents engaged in short-term, vacation rental of spaces within their homes through Airbnb, a popular website company based in San Francisco and other platforms (“home sharers”).  The purpose was to form a self-help group for home sharers dedicated to examining legal, taxation, insurance issues, as well as to provide mutual assistance as to best practices related to all aspects of home sharing.

 

Currently, Home Sharers has over 900 members and has incorporated as a mutual benefit association under California law.  Since inception, members have met and continue to meet at least once a month to discuss and educate each other on topics of mutual concern related to home sharing.

 

B.        Proposed Legislative Changes

 

On April 15, 2014, President of the Board of Supervisors David Chiu introduced legislation to legalize home sharing under a set of conditions and restrictions (“Chiu’s Bill”). 

 

The full text of Chiu’s Bill and its Digest can also be found at:

 

http://homesharersf.com/draft-bill/

 

The following is a summary of the main provisions of Chiu’s Bill:

 

1.              Home Sharing will be legally permitted under San Francisco law for the Primary Residence of a Permanent Resident.

2.              The Permanent Resident may only rent out the entire Primary Residence a maximum of 90 days per year.

3.              The Permanent Resident must be registered on a newly created Department of Building Inspection Registry (“Registry”).

4.              The Permanent Resident must pay all taxes, including the Transient Occupancy Tax (“Hotel Tax”).

5.              The Permanent Resident must maintain property insurance of not less than $150,000 per incident or transact though a platform that provides a property damage guarantee program in the same amount.

 

As a consequence of the introduction of Chiu’s Bill, Home Sharers undertook a review of its provisions with a view to examine how its provisions impact Home Sharer members and home sharing. 

 

We commend Supervisor Chiu for taking this initiative and introducing this legislation.   His bill has many features that represent an attempt to improve vastly the status quo; for example, the provision giving home sharing tenants a thirty-day right to cure in order to avoid eviction.[1]

 

However, there are many provisions that raise concerns.  This Position Paper aims to point out those concerns and to recommend ways Chiu’s Bill can be improved to address them. 

 

C.        Home Sharers Review Process

 

Home Sharers formed three Committees of members who volunteered to undertake the examination of Chiu’s Bill as they pertain to the interests of the following groups of home sharers:

 

(a) single family home owners,

(b) tenants, and

(c) landlords/condo owners. 

 

These Committees met at least twice, exchanged ideas online and submitted a Report on their findings.  Finally, a draft Position Paper was made available online to the general Home Sharers membership during a comment period before the publication of the final Position Paper.

 

This Position Paper represents the collective work of the Committees and the result of the above process.

 

D.        Executive Summary

 

The following are the Position Paper’s main recommendations for amendments to Chiu’s Bill:

 

1.              That the inclusion of specified non-profits be deleted from the definition of “Interested Party.”

2.              That the requirement of consecutive days of occupancy be deleted from the definition of “Permanent Resident.”

3.              That the term “two or more units” be replaced with “three or fewer units” in the definition of “Residential Unit.”

4.              That the proposed Registry be replaced with a permitting process where the information regarding permits are kept by the Department and only made publicly available to the extent required by and allowed under law. 

5.              That there is a clear statement as to the kinds of records and documentary evidence sufficient to prove Primary Residence.

6.              That the maximum annual number of days permitted for short-term rental of ones Primary Residence be increased from 90 to 180 days.

7.              That there is an exception to the ban on sharing secondary units for those secondary units that have customarily and occasionally been used by the owner in his building to accommodate family members.

8.              That the provisions requiring the payment of the Transient Occupancy Tax clearly refer only to the tax liability that accrues from the effective date of Chiu’s Bill.

9.              That the provisions allowing for an upward adjustment to the registration fee be capped at $100.

 

 

II.   REVIEW OF SPECIFIC PROVISIONS OF CHIU’S BILL

 

A.        Section 41A.4              Definitions


“Complaint. 
A complaint submitted to the Department by an interested party alleging a violation of this Chapter 41A and that includes the residential unit’s address, including unit number, date(s) and nature of alleged violation(s), and any available contact information for the owner and/or resident of the residential unit at issue.”

 

Interested Party.  A permanent resident of the building in which the tourist or transient use is alleged to occur, the City and County of San Francisco, or any non-profit organization exempt from taxation pursuant to Title 26, Section 501 of the United States Code, which has the preservation or improvement of housing as a stated purpose in its articles of incorporation or bylaws.”

Complaint

1.         Concern:  Under this proposed definition of “Complaint”, any “interested party” may submit a complaint to the Department.   “Interested Party” is separately defined in this Section, but this defined term is not incorporated under the definition of “Complaint.” 

 

Recommendation: Home Sharers is concerned that an undefined “interested party” is unacceptably broad, and requests that it be replaced with “Interested Party.”

Interested Party

 

2.         Concern:  The proposed definition of “Interested Party” includes “any non-profit organization exempt from taxation pursuant to Title 26, Section 501 of the United States Code, which has the preservation or improvement of housing as a stated purpose in its articles of incorporation or bylaws.” 

 

Home Sharers objects to special standing being given to a particular non-profit organization fitting this precise description. No non-profit group should be singled out for special treatment by the City.  All non-profit groups wishing to assist residents in filing a Complaint should have equal status and should do so in the normal course of representation; that is, properly on behalf of, through and with the express consent of that resident. 

 

Recommendation: Home Sharers requests that “any non-profit organization exempt from taxation pursuant to Title 26, Section 501 of the United States Code, which has the preservation or improvement of housing as a stated purpose in its articles of incorporation or bylaws” be deleted.

 

3.  Concern:  The proposed definition of “Interested Party” includes a “permanent resident of the building in which the tourist or transient use is alleged to occur …”  “Permanent Resident” is a defined term under these Definitions. 

 

Recommendation: For consistency and precision, that defined term should replace “permanent resident.”

 

4.  Concern:  The proposed definition of “Interested Party” does not include landlords who are not Permanent Residents of the building.  Many landlords do not live in the buildings for which they are lessors and therefore have a legal right and interest in controlling short-term rentals in their buildings. 

 

Recommendation: Home Sharers requests that “landlords” be included in this definition.

 

Permanent Resident.  A person who occupies a residential unit for at least 60 consecutive days with intent to establish that unit as his or her principal place of primary residence.  A permanent resident may be an owner or a lease.”

 

1.  Concern:  The proposed definition of “Permanent Resident” includes the term “residential unit.”  “Residential Unit” is a defined term under these Definitions.

Recommendation: For consistency and precision, that defined term should replace “residential unit.”


2.  Concern:  Many San Francisco permanent residents must travel frequently and constantly due to the nature of their employment (for example: pilots, flight attendants, travel writers, event organizers, sales representatives, actors and other live performers, environmental consultants, immigration attorneys, legislators working in capital cities, etc).  Although they consider their San Francisco residence their permanent home, it may be difficult if not impossible for them to satisfy the “60 consecutive days” requirement. 

Home Sharers strongly feel that it is unfair to exclude these classes of San Francisco residents from the ability to legalize due to the nature of their work.

Recommendation: Home Sharers requests the deletion of the word “consecutive.”

 

3.  Concern:  It is unclear what kind of evidence will suffice to demonstrate occupancy “for at least 60 consecutive days.”  The definition of “Primary Residence” includes examples of sufficient documentation: “motor vehicle registration, driver’s license, voter registration, home owner’s tax exemption, or other such evidence.” 

 

Recommendation: Home Sharers requests that similar examples of sufficient documentation proving occupancy be provided.

 

Residential Unit.  Room or rooms, including a condominium or a room or dwelling unit that forms part of a tenancy-in-common arrangement, in any building of two or more units, or portion thereof, which is designed, built, rented, leased, let or hired out to be occupied for residential use, as defined in the San Francisco Housing Code.”

 

1.  Concern:  This definition does not include single family homes.  Residents in these homes are therefore excluded from the legalization provisions of Chiu’s Bill.  Single family home sharing residents bring as much economic benefits to their neighborhoods and the City as other kinds of residents.  There is no valid reason they should be excluded from legalization.  


Recommendation: To capture single family home residents and to preserve the original intent of the provision, Home Sharers requests that the words “two or more units” be replaced by “three or fewer units”.


Residential Use.  Any use for occupancy of a unit by a permanent resident.”

 

1.   Concern:  The proposed definition of “Residential Use” includes the term “permanent resident.”  “Permanent Resident” is a defined term under these Definitions.

Recommendation: For consistency and precision, that defined term should replace “permanent resident.”

 

Short-Term Residential Rental.  A tourist or transient use where all the following conditions are met:

(a)        the residential unit is offered for tourist or transient use by the permanent resident or the residential unit;

(b)       the permanent resident is a natural person;

(c)        the permanent resident has registered the unit and maintains good standing on the Department’s short-term residential rental registry.”

 

1.  Concern:   The proposed definition of “Short-Term Residential Use” includes the terms “residential unit” and “permanent resident.”  “Residential Unit” and “Permanent Resident” are defined terms under these Definitions.

Recommendation: For consistency and precision, the defined terms “Residential Unit” and “Permanent Resident” should replace “residential unit” and “permanent resident.”

 

Short-Term Residential Rental Registry:  A database of information maintained by the Department that includes information regarding permanent residents who are permitted to offer residential units for short-term residential rental.  The registry shall be available for public review to the extent required by law, except that, to the extent permitted by law, the Department shall redact any permanent resident names form the records available for public review.”

 

1.   Concerns: 

(i) This provision establishes a DBI registry and a registration mandate not required of any other similarly situated group in San Francisco.  Even hotels are not subjected to a similar registration burden.  Home Sharers believes strongly that this proposed registry unfairly singles out home sharers for unequal and discriminatory treatment. 

 

(ii) The Constitutionally protected privacy rights of San Francisco citizens outweigh any remote public purpose in making the registry data publicly available, especially online. 

Under the proposed legislation, private information of home sharers would be available to anyone, even those without a legal justification to access such information, raising real and potentially serious public safety concerns for home sharers.  This violation of privacy is unprecedented and exceeds even the protection of driver’s license and vehicle registration information held by the DMV.

 

(iii) More seriously, the registry is described as a “database of information … regarding permanent residents.”  The definition of  “Short-Term Residential Rental” includes the condition that the “permanent resident is a natural person”[2] and the legalization conditions described in Section 41A.5(g) are all requirements of personal conduct by the Permanent Resident.[3]  It is therefore an inescapable conclusion that the registry so conceived is one of a registry of persons rather than of properties. 

Home Sharers regards government mandated registries of persons with opprobrium and strongly views this registry as offensive to American citizens in general and her minority citizens in particular. 

Registries of persons in American history include those imposed on Japanese Americans prior to their internment and Arab Americans following the tragic events of 9/11.  Such registries are inconsistent with the core principles of our Constitution and of widely accepted notions of justice, including racial justice. 

To legislatively insist that San Francisco citizens personally register (name redaction notwithstanding) the addresses of their homes and make publicly available other “information regarding permanent residents who are permitted to offer residential units for short-term residential rental”[4] is particularly odious especially when considered in conjunction with the other proposed provisions that impose record keeping requirements, the right of the Director to investigate, demand records and conduct administrative review hearings, not to mention the provisions allowing any “interested party” to “institute civil proceedings for injunctive and monetary relief against an Owner”[5] and be entitled to “the costs of enforcing” this law, “including reasonable attorneys’ fees, up to the amount of the monetary award.”[6]

 

Moreover, Home Sharers is extremely concerned that such a registry, in combination with the enforcement provisions, will enable, facilitate and financially incentivize “bounty hunters” to target home sharers.

 

Recommendation: Home Sharers therefore requests the replacement of the provisions regarding the Registry with a permitting process where the information regarding permits are kept by the Department are only made publicly available to the extent required by and allowed under law. 

 

Home Sharers also requests the deletion of the following words from Section 41A.5(d) (indicated in strikethrough italics):

 

“the City and County of San Francisco or any interested party may institute civil proceedings for injunctive and monetary relief against an Owner or Business Entity … If the City or the interested party is the prevailing party …”


2.  Concern:   The proposed definition of “Short-Term Residential Rental Registry” includes the terms “residential unit,” “short-term residential rental” and “permanent resident.”  “Residential Unit,” “Short-Term Residential Rental” and “Permanent Resident” are defined terms under these Definitions.

Recommendation: For consistency and precision, those defined terms should replace “residential unit,” “short-term residential rental” and “permanent resident.”

 

B.        Section 41A.5 Unlawful Conversion; Remedies.

 

“(b) Records Required.  The Owner and Business Entity if any, shall retain and make available to the Department records to demonstrate compliance with this Chapter 41A upon request as provided herein.  Any Permanent Resident offering his or her Primary Residence as a Short-Term Residential Rental shall retain and make available to the Department records to demonstrate compliance with this Chapter 41A, including but not limited to records demonstrating Primary Residency and the number of days per calendar year he or she has occupied the Residential Unit.”

 

1.   Concern:  It is unclear what are adequate and sufficient “records demonstrating Primary Residency and the number of days per calendar year he or she has occupied the Residential Unit.”  The definition of “Primary Residence” includes examples of sufficient documentation: “motor vehicle registration, deriver’s license voter registration home owner’s tax exemption, or other such evidence.” 

 

Recommendation: Home Sharers requests amendments such that proof of Primary Residency should be prima facie proof that the requisite number of days has been satisfied.  Further, if the Department has a valid reason to request proof that the requisite number of days has been satisfied, there should be specific provisions setting out examples of sufficient documentation sufficient to prove the number of days occupied.

 

(g) Exception for Short-Term Residential Rental.

           
(1) Notwithstanding the restrictions set forth in this Section 41A.5, a Permanent Resident may offer his or her Primary Residence as a Short-Term Residential Rental if he or she:
                       
                        (A) occupies the Residential Unit for no less than 275 days out of the preceding calendar year or proportional share thereof if he or she has not rented or owned the Residential Unit for the full preceding calendar year;

                        (B) maintains records for two years demonstrating compliance with this Chapter, including but not limited to information demonstrating Primary Residency, the number of days per calendar year he or she has occupied the Residential Unit, and compliance with the insurance requirement in Subsection (D).  These records shall be made available to the Department upon request.”

 

1. Concern. The effect of this provision is to limit home sharing of an entire (as distinct from part of a) Residential Unit to a maximum of 90 days per calendar year.   Home Sharing is an important source of revenue that allows ordinary San Franciscans the ability to stay in a city where the cost of housing is rising at an alarming rate.  A recent study shows that 80% of hosts say Airbnb has helped them stay in their homes. 

Home Sharers is concerned that the proposed 90 days cap is and will increasingly become inadequate in helping San Franciscans stay in their homes. 

 

Recommendation: Home Sharers requests that this cap be increased to 180 days.


2. Concern.  The effect of this provision is to prohibit short-term rentals of secondary units (that is, units owned but not occupied by the home sharer, often within the same building). 

 

Home Sharers recognize that small-scale buildings of three units or less, including single family homes, are very common building types in San Francisco.  It is also common for these buildings to be owned by families, especially first generation immigrant families, for a substantial length of time, and handed down sometimes for generations.  Many of these owners and their immediate families have occupied the entire building as their primary residence, for their sole use and that of their extended family without ever having leased one or more of the units to long-term tenants.  These same families will occupy units on a non-continuous basis, as members leave and return home for reasons related to education or providing care for elderly members.  Income from short-term rentals help substantially to defray property expenses during periods when family members are not occupying those units, but provide the flexibility of allowing those family members to be housed and cared for upon their return or according to their needs. 


The strict ban on short-term rentals on secondary units in these buildings severely restricts the ability of these families to accommodate their extended family members (such as retirees, senior citizens and those in need of care) when the need arises, and robs them of the ability to defray the cost of maintaining the building through short-term rentals during periods when the secondary units are not used by family members.  This creates hardships on those families who are often low or middle-income immigrant families.

 

Recommendation: Home Sharers requests an express exception from the ban on short-term rentals of secondary units, and an exemption from any limitation on the number of days per year that such units may be offered for short-term rental, provided that the secondary units:

(a) are on the same property as the Permanent Resident’s Primary Residence;

(b) are intended to be occupied by the Permanent Resident’s extended family;[7]

(c) have not been leased on a long-term basis during the Permanent Resident’s ownership of the building, or the long-term tenant vacated on his or her own volition; and

(d) have been owned by the Permanent Resident for at least 36 continuous months.

 

“(C) (if the Permanent Resident) complies with any and all applicable provisions of state law and the San Francisco Municipal Code, including but not limited to the requirements of the Business and Tax Regulations Code by, among any other applicable requirements, collecting and remitting all required transient occupancy taxes;”

 

1.  Concern:  The phrase “all applicable provisions of state law and the San Francisco Municipal Code” is both vague and over-broad.  For example, it is not clear whether the term “applicable” implies all laws that apply to the Permanent Resident generally, or only as they may apply to his or her actions as a home sharer.

Recommendation:  To clarify, “complies with any and all applicable provisions of state law and the San Francisco Municipal Code” should be replaced by “has not been found in violation of any provisions of state law and the San Francisco Municipal Code that relate to short-term rentals”.


2.  Concern:  This subsection (C) makes it a precondition to legalization that the home sharer has collected and remitted “all required transient occupancy taxes.”  The term “all required” is unclear as to starting date from which the home sharer’s liability for transient occupancy taxes (“TOT”) is calculated: for example, must the home sharer show that he or she has paid all TOT from the time he or she started his or her short-term rental activities, or from the time the Tax Collector promulgated Tax Collector Regulation 2012-1 in 2012, or from the effective date of Chiu’s Bill? 

 

Home Sharers strongly argues that it would be unfair for the starting date to be interpreted as any time before the effective date of Chiu’s Bill.  The legal liability of home sharers to pay the TOT has been far from clear, certainly before the Tax Collector Regulation.  Even after its promulgation, there was confusion as to whether it placed the liability to collect and remit on the home sharer or the website company (as “operator”) or both.  Additionally, the bureaucratic process and requirements of actually collecting, calculating, reporting and remitting the TOT has been and continues to be unclear, confusing and unreasonably burdensome on home sharers.  Some home sharers have been actively turned away from City Hall by clerks when they tried to remit the TOT.

Recommendation:  This section should be amended to state clearly that the home sharer’s liability for collecting and remitting the TOT under this law commences from effective date of this law.  There should also be a provision of general amnesty against action by the Tax Collector to seek the TOT from the Permanent Resident before the effective date of the legislation.

2. Concern:  This subsection imposes a legal precondition to legalization that the Permanent Resident “complies with … the requirements of the Business and Tax Regulations Code by … collecting and remitting all required transient occupancy taxes.” 

Section 41A.5(g)(4)(B)[8] also provides that the “Hosting Platform shall comply with the requirements of the Business and Tax Regulations Code by … collecting and remitting all required Transient Occupancy Taxes.”

The effect of both these provisions is to impose two identical legal duties on two separate parties to pay the same TOT; in effect, double taxation.

Recommendation:  The words: "including but not limited to the requirements of the Business and Tax Regulations Code by, among any other applicable requirements, collecting and remitting all required transient occupancy taxes” should be deleted from Subsection (C).  In the alternative, language should be included to exempt the Permanent Resident from liability to pay the TOT if the same liability has already been collected and remitted by the Hosting Platform. 

 

“(2)(B) Fee.  …Not later than May 15, the Controller shall determine whether the current fees have produced or are projected to produce revenues sufficient to support the costs of establishing and maintaining the registry and any other services set forth in this Chapter and that the fees will not produce revenue that is significantly more than the costs of providing such services.  The Controller shall, if necessary, adjust the fees upward or downward for the upcoming fiscal year as appropriate to ensure that the program recovers the costs of operation without producing revenue that is significantly more than such costs. The adjusted rates shall become operative on July 1.” (Emphasis added).

1.  Concern:  The words in bold above are extremely broad.  They cover not only the cost of maintaining and operating the Registry, but also all enforcement costs relating to complaints, inspections, issuing of “Cease and Desist” letters, Department of Building Inspection prosecutions of alleged violations, administration costs related to collection and processing of penalties, recovery costs associated with unpaid penalties, etc.  Potentially, the upward adjustment of registration fees can be so high as to make home sharing in San Francisco cost prohibitive at best and punitive at worst.  There are approximately 6,500 hosts on Airbnb in San Francisco.  Together with other platforms, the number may be approximately 10,000 at most.  With an application fee set at $50 for two years, the annual revenue from these fees would be approximately $250,000.  It is unfair and unreasonable for home sharers to shoulder any annual administrative cost above $500,000.  In other words, it would be unfair and unreasonable for home sharers to have to pay a registration fee that exceeds $100.


Recommendation:  The Subsection should be amended by providing that the upward adjustment of the registration fee shall not exceed $100 (adjusted each year for inflation), which is roughly double the initial fee set by the provision.

 

 

 



[1] Section 37.9(a)(4).  References to sections contained in this Position Paper are references to sections contained in Chiu’s Bill (i.e. as it would amend existing law) unless otherwise indicated.

[2] Section 41A.4, definition of “Short-Term Residential Rental” sub-section (b).

[3] See Section 41A.4(g).

[4] Section 41A.4, definition of “Short-Term Residential Rental Registry.”

[5] Section 41A.5(d)

[6] Id.

[7] For the purposes of this exemption, “extended family” shall have the same meaning as the list of family members under Section 37.9(a)(8)(ii) of the San Francisco Administrative Code, regulating the circumstances under which a landlord may seek to regain possession of a rental unit.

[8] We note that there are typographical errors on Pages 17, 18 and 19 of Chiu’s Bill.  Subsection (3) is missing from Page 17.  Thus, Subsection (4) on Page 17 should be renumbered (3), Subsection (5) on Page 18 should be renumbered (4) and Subsection (7) on Page 19 should be renumbered (6).  For the purposes of this Position Paper, we will use the original numbering to avoid confusion.