When landlords Darren and Valerie Lee evicted the tenants of 3073-3075 Clay Street nearly a decade ago and decided to turn the units into swanky tourist lodgings, they likely expected to rake in the dough. But that rake's getting hung up this week, after the couple agreed to pay the city of San Francisco $276,000 in penalties and fees, and to follow all state and local rules for short-term rentals or face even harsher fines.
According to San Francisco's City Attorney Dennis Herrera's office, which filed a lawsuit that ended in the settlement, the trouble started in 2004 when the Lees bought the Pacific Heights Victorian and used the Ellis Act to evict the tenants, a family and a disabled person.
Starting in 2009, they offered the two properties on HomeAway and VRBO as an "exquisitely renovated home, in prime Pacific Heights," a listing that got them between $395 and $595 per night.
At the time, a rarely-enforced the law required people who rented their homes on sites like HomeAway, VRBO, and Airbnb to get a conditional use permit to convert the use of the space. According to the city's suit, not only did the Lees fail to file for those permits, but rented to longer-term tenants for prices that were four to seven times the amount they could legally given their use of the Ellis Act.
In 2013 the Lees told the Planning Commission that both units had long-term tenants, but it seems like they might have been lying, as they continued to list both online as available to short-term guests.
They "defiantly resumed marketing and renting their property to tourists, which ultimately led Herrera to file his lawsuit," the City Attorney's office said in a statement.
As of February, as you know, San Francisco has enacted(a basically unenforceable) new law that allows short-term rentals without need for a conditional use permit. However, even under the new rules the Lees would be out of luck, as the regulations mandate that owners must live in the rental unit for at least 275 days per year, and can rent it only for the remaining 90.
According to the terms of the settlement, the Lees “deny all liability and all allegations of wrongdoing directed at them” but wanted to "avoid further expense and litigation." Hence the agreement.
The Lees own 16 other properties across SF. According to the settlement, if they try to convert any others (or any new buildings they buy) into tourist rentals within the next five years, they'll get hit with fines of $6,000 per violation.
"Illegal conversions that push long-term tenants out of their homes diminish the availability of residential rental units for San Franciscans, and they're a significant contributor to our housing affordability crisis," Herrera said.
"The penalties and tough injunction in this particular case reflect just how egregious the Lees' conduct was. They repeatedly defied state and local laws to conduct their illegal business, and they also evicted San Franciscans — including a disabled tenant."
The City Attorney's Office suspects that the Lees aren't the only landlords flouting state and city laws in that fashion, and is eager to pursue other cases like this one. Folks who want to report violations like the Lees' are encouraged to contact the City Attorney's code enforcement hotline at (415) 554-3977.