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San Francisco goes after “scofflaw” landlords who ran “illicit hotel chain” on Airbnb

City fines property owners $2.25 million, prohibits them from renting until 2025

The city of San Francisco, which has some of the strongest laws protecting against the spread of short-term rentals in multifamily buildings, is levying serious sanctions against a pair of landlords who knowingly and willingly ignored the city’s laws by running an “illicit hotel chain” of short-term rentals on Airbnb.

According to San Francisco City Attorney Dennis Herrera, landlords Darren and Valerie Lee repeatedly violated the city’s short-term rental laws even after they were previously punished for violating those same laws.

In San Francisco, if you own or rent a multi-unit building, you are only allowed to rent out one unit for short-term rentals and it must be the unit you live in. Property owners are also required to register their short-term rental units with the city.

These laws are designed to “prevent residential housing from being turned into de facto hotels.”

But according to Herrera’s office, the Lees ran an “illicit hotel chain during San Francisco’s housing crisis rather than lawfully renting the units to residential tenants.”

And because of that, the Lees won’t be able to rent out any of their units on Airbnb or any short-term rental service until the middle of the next decade.

The city first sued the Lees back in 2014 after they evicted long-term tenants from one of their properties in the city and turned those units into short-term rentals. Eventually, the Lees settled the case for $276,000 and were prohibited from using any of their San Francisco properties as short-term rentals outside of the city’s laws.

This prohibition covered the couple’s 17 buildings in the city, which have more than 45 total units among them.

But despite those sanctions, the couple continued to rent out their units as short-term rentals in brazen fashion, blatantly and rampantly violating their agreement with the city.

In just the first 11 months that the injunction was in place, the couple violated their settlement more than 5,000 times, booking more than $900,000 in short-term rentals, and taking in more than $700,000 in illicit profits from 14 units, Herrera’s office said.

In fact, none of the units in question were registered with the City’s Office of Short-Term Rentals, meaning that each short-term rental was illegal and a violation of the injunction.

To get around the city’s laws and the stipulations of their injunction, the Lees “concocted an elaborate scheme where friends, family and associates — none of whom lived at the properties — posed as straw tenants or Airbnb hosts to illegally advertise and rent 14 residential units for short-term stays,” Herrera’s office said.

Apparently the scheme went much further than just fake hosts appearing on Airbnb.

According to Herrera’s office, the scheme included creating fake leases and even trying to fool city investigators by staging the apartments to make it look like they were being lived in — complete with dirty dishes and damp towels.

But, each apartment was staged in exactly the same way, Herrera’s office said.

“They had the same Costco food items scattered about, the same arrangement of dirty breakfast dishes in every kitchen sink, same personal products in each bathroom, same damp towels artfully draped over doors as though someone had recently showered, the same collection of shoes and clothes in closets, and the same houseplants in each apartment,” Herrera’s office said.

Over the course of the investigation, the city found that all but one of the properties’ supposed Airbnb “host” accounts were created from the same IP address, meaning the accounts were nearly all created from a single computer, smart phone or similar device.

As a result of the investigation, the city filed an additional injunction against the landlords, which then led to a settlement.

Under the terms of the new settlement, the Lees must pay a fine of $2.25 million, which will cover the costs of the investigation and fund future consumer protection enforcement, including of the city’s short-term rental law.

Additionally, the Lees are prohibited from renting out any units rentals in the 17 San Francisco buildings they own or manage – until May 2025.

The settlement also requires the couple to pledge their real estate as collateral to ensure compliance.

“This is a win for San Francisco residents. Whether you’re a tenant or a landlord who has been following the law, this is a victory,” Herrera said in a statement.

“This outcome frees up more homes for long-term tenants and stops unfair competition in the marketplace. The serious financial penalty is an important deterrent. It sends a clear message to those looking to illegally profit off of San Francisco’s housing crisis: Don’t try it. We will catch you,” Herrera continued.

“Most importantly, we preserved more than 45 housing units to be used as homes, not hotel rooms. We are fighting back against San Francisco’s housing crisis in every way possible,” Herrera added. “I also want to thank the Office of Short-Term Rentals for their invaluable work that helped us bring this case.” 

Kevin Guy, the director of the city’s Office of Short-Term Rentals, said that the Lees are “some of the most egregious, repeat violators” of the city’s laws.

“They have taken units off of the market that should be reserved for long-term San Francisco residents,” Guy said. “It is extremely gratifying to see them being brought to account for their actions.”

3d rendering of a row of luxury townhouses along a street

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