Owners also barred from short-term rentals on any of their properties until May 2025

SAN FRANCISCO (Nov. 5, 2018) — City Attorney Dennis Herrera announced today he had secured $2.25 million in penalties and investigation costs from two property owners, who, after being caught in 2014, returned to flouting the law and unlawfully rented out 14 other apartments on Airbnb until being caught again in a lengthy investigation that culminated in May 2018.



The defendants, landlords Darren and Valerie Lee, had been running an illicit hotel chain during San Francisco’s housing crisis rather than lawfully renting the units to residential tenants.



As part of the settlement announced today, the Lees are prohibited from renting out any units as short-term rentals in the 17 San Francisco buildings they own or manage. That restriction is in place until at least May 2025, preserving the more than 45 units for use by long-term tenants. The settlement requires the couple to pledge their real estate as collateral to ensure compliance. A modified injunction was filed in San Francisco Superior Court today laying out these exacting requirements.



“This is a win for San Francisco residents,” Herrera said. “Whether you’re a tenant or a landlord who has been following the law, this is a victory. 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. 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. I also want to thank the Office of Short-Term Rentals for their invaluable work that helped us bring this case.”

“The Lees are some of the most egregious, repeat violators of the City’s short-term rental laws,” Office of Short-Term Rentals Director Kevin Guy said. “They have taken units off of the market that should be reserved for long-term San Francisco residents. It is extremely gratifying to see them being brought to account for their actions.”



Case Background

Herrera first sued the Lees in April 2014 after the couple evicted tenants from their property at 3073-3075 Clay St. using the Ellis Act and then unlawfully converted it into short-term rentals. The Lees settled in May 2015, agreeing to pay $276,000 and have a court-authorized injunction prohibiting them from maintaining any of their San Francisco properties as short-term rentals in violation of the law. The injunction covers 17 buildings with more than 45 units.



After a painstaking two-year investigation, the City Attorney’s Office found that in just the first 11 months that the injunction was in place, the Lees violated it more than 5,000 times, booking more than $900,000 in short-term rentals and pocketing more than $700,000 in illicit profits from 14 units. It was only after this rash of later violations was uncovered that the Lees finally stopped their illegal conduct. To ensure that the Lees did not get to keep their ill-gotten gains — and to send a message to anyone else considering this scheme — Herrera filed a motion in court to enforce the injunction in May 2018, prompting today’s settlement. The $2.25 million settlement will cover the costs of the investigation and fund future consumer protection enforcement, including of the City’s short-term rental law.



San Francisco requires, among other things, that anyone renting a unit less than 30 days register with the City’s Office of Short-Term Rentals and be a permanent resident of that unit. If you own or rent a multi-unit building, you may only rent out one unit for short term rentals, and it must be the unit in which you reside. The rules are designed to prevent residential housing from being turned into de facto hotels.



Elaborate Scheme

None of the units in question were ever registered with the Office of Short-Term Rentals, making each short-term rental illegal and a violation of the 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. The scheme included drawing up phony leases and even staging the apartments to look like they were being lived in — complete with dirty dishes and damp towels — before City investigators inspected them.



However, every apartment was staged in the same way. 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.



An exhaustive investigation found that all but one of the different Airbnb “host” accounts for the properties were created from the same IP address, showing that the rental accounts were almost entirely created from a single computer, smart phone or similar device.



The buildings covered under the injunction are: 439 Broderick St., 645-647 Broderick St., 3073-3075 Clay St., 417-419 Clayton St., 1146-1148 Fell St., 1324-1328 Fell St., 1522-1524 Fell St., 140 Graystone Terrace, 150 Graystone Terrace, 1109-1123 Leavenworth St., 1925-1927 Lyon St., 822-828 Masonic Ave., 1145-1149 Mission St., 14 Surrey Ave., 543 Oak St., 831-833 San Jose Ave., and 1362-1364 Utah St.



The case is: City and County of San Francisco and People of the State of California v. Darren Lee et al., San Francisco Superior Court No. CGC-14-538857, filed April 23, 2014. More information can be found on the City Attorney’s website: www.sfcityattorney.org.



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