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City seeks $5.5 million penalty for alleged illegal Airbnb scam

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Pacific Heights landlords accused of operating 14 illegal Airbnb pads in SF.

A photo of the SF superior court building.
San Francisco superior court.
Photo by Gagliardi Images

The San Francisco City Attorney’s office announced Tuesday that City Attorney Dennis Herrera will seek a $5.5 million penalty for a pair of landlords he alleges have been operating an illegal Airbnb racket by listing more than a dozen short term rentals in violation of a settlement from a separate suit three years ago.

According to a press release from the City Attorney’s Office:

Darren and Valerie Lee, a couple who earlier had evicted tenants using the Ellis Act from their property at 3073-3075 Clay Street and then unlawfully converted it into short-term rentals. Herrera sued the couple in April 2014 over that unauthorized conversion. The Lees settled in May 2015.

[...A] two-year investigation by the City Attorney’s Office has found that in just the first 11 months that the [settlement-derived] 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 revenue from 14 units.

The $5.5 million sum is six times the value of the allegedly illegal listings. The City Attorney’s Office accuses Darren and Valerie of using a network of “straw hosts” to pose as owners of their various units on Airbnb and similar sites.

Herrera’s 2014 suit and the Lee’s 2015 plea deal were not part of the city’s present regulatory frame for short-term rentals—which didn’t exist yet—but the product of a more obscure permitting law, as SFist reported at the time:

A rarely-enforced the 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.

City Attorney Dennis Herrera standing at a podium in front of the city seal, with the late mayor Ed Lee at his right. Courtesy City Attorney

The Lees bought the circa-1900 building at 3073 Clay for $1.4 million in 2004. However, the current allegations concern not the Clay Street building, but a patchwork of homes around the city, including five on Fell Street, two on Leavenworth, two on Utah, as well as homes on Broderick, Masonic, Natick, and San Jose Avenue.

City records show that the pair bought the relevant buildings over the course of 19 years for a total of more than $10.24 million, although a few of the properties Herrera’s suit singles out are listed under other people’s names.

As always, none of the allegations against the Lees or anyone accused of assisting them in criminal activity have yet been conclusively proven in court.

[Update: Airbnb spokesperson Charlie Urbancic tells Curbed SF via email, “We are happy to see that the City’s rules are working and have zero tolerance for bad actors.”]