Planning Ahead

The Long and Short of It

written by M. Brett Gladstone, ESQ.

Owners renting apartments for lengths of 30 days to 1 year must register to avoid new restrictions. 

"Intermediate-length occupancy housing” is defined by individuals in the industry as furnished and serviced housing units that are available to rent on a temporary basis with rental contracts that are typically for more than 30 days, but less than a year. The national average length of stay in such housing was 78 nights in 2017, according to the Corporate Housing Providers Association, a trade organization. Based on input from industry providers and analysts, the San Francisco Budget and Legislative Analyst reported to the San Francisco Board of Supervisors in February 2020 that there are between 2,000 and 2,700 housing units in San Francisco being used for intermediate-length occupancy housing. 

Many providers in the city have been in the business for decades. However, since 2010, a number of newer companies have entered the marketplace, such as Sonder. Many of these companies are distinguished from the older companies by master-leasing an inventory of housing units from a building owner, furnishing them, and managing all aspects of marketing, leasing, and servicing. The newer market entrants are also distinguished by making greater use of information technology for marketing and leasing, and for the provision of tenant services. For example, one can book a space and request certain services on one’s cell phone. The most recent example of note is the leasing by Sonder of an entire new building built by developer Brian Spiers at 2100 Market Street. When this came to light, it stirred some controversy as local elected officials felt that new housing should not be used for quasi-corporate rentals; they also felt that new housing should be reserved for existing San Francisco residents who need permanent housing.

Since many affordable housing activists view these rentals as competing with long-term housing for San Francisco residents, they lined up at the Planning Commission last fall to protest. The Board of Supervisors considered banning such intermediate-length occupancies because statistics show that the nightly rate to renters is excessively high, and because housing for permanent local residents should be a priority. However, testimony made it clear that this kind of housing appropriately serves workers in higher education, healthcare, theater, and other industries, many of whom are in town too long to stay in a traditional hotel but who do not need a full one-year lease. These units also provide housing for long-term family visitors, such as grandparents visiting newborns or relatives caring for a sick family.

In June 2020, the San Francisco Board of Supervisors took a middle ground by amending the Planning Code to define Intermediate Length Occupancy (“ILO”) units as residential units “offered for occupancy by a natural person for an initial stay for a duration of greater than 30 consecutive days but less than one year,” and by adopting a new Section 202.10 to the city’s Administrative Code, capping the total number of ILO units in the City at 1,000. The new San Francisco law specifically authorizes a maximum of 1,000 ILO units in the city, but disqualifies units which are: (1) below market-rate with rents regulated by the city; (2) currently under SF Rent Control; (3) in buildings of three or fewer units; or (4) in buildings which have received a Notice of Violation from a City Department. Student housing, residential hotels, and buildings owned by nonprofits are exempt from the 1,000-unit cap.

For eligible buildings of four to nine units, no Planning Commission approval will be needed to rent up to one-quarter of the units in a particular building as ILOs. If a building has ten or more dwellings, ILO rentals will require advance approval by the Planning Commission, subject to the following restrictions: (1) no more than 20% of the building’s units may be classified as ILOs; (2) two-thirds or more of the allowed 1,000 ILO units are in the “downtown core” (a term the city has not defined), with the policy goal of ”keeping such uses near corresponding hotel and tourism districts and job centers”; and (3) no more than one-third of the city’s total allowable ILO units are found in “Census Tracts in Sensitive Communities,” as defined in the UC Berkeley Urban Displacement Project Sensitive Communities Map.

Some owners of ILO units testified that they might wish to change back and forth from long-term rentals to ILO use, and that by allowing occupancies of one year or more, they did not want to lose the right to revert later to intermediate-length use. The new law offers this flexibility, but states that authorized ILO use will be considered permanently “abandoned” under the Planning Code’s definition of “abandonment” (e.g., cessation of a particular use for a period of three or more years).

The legislation does not affect residential hotels and student housing, both of which are exempt from Section 202.10 of the Planning Code, nor does it affect housing owned by a 501(c)(3) organizations that have as a primary mission the provision of housing to the public.

Besides prohibiting ILOs in in 1-3-unit buildings, in below market units regulated by city law, and in units currently under rent control, ILOs are also prohibited (at least for the next two years) in buildings built after June 22, 2020.

The clock is now ticking on a 24-month period for existing intermediate length occupancy units to register for inclusion in the maximum 1,000 ILOs allowed; these existing ILO units are not likely to be grandfathered under the law. That means that the first owners who register ILO units under the program will be the owners whose units are first approved. Once the 1,000 ILO unit maximum is reached, all the remaining units will have to revert to a use other than intermediate length occupancy, creating a “race” among buildings to apply first.

By the end of this year, the city intends to publish procedures for evaluating requests to establish ILO units. The owner or operator of each building must submit a complete application within 24 months of the effective date of the law (June 22, 2020).

The new law has not received much public attention. It is expected that once 1,000 ILO units are approved (which may occur in the next six to twelve months) many property owners—even single-family homeowners—will be quite surprised when the city begins to send out notifications telling them that they must cease renting for periods of between 30 days and one year. Currently, the Planning Department has no funding for enforcement, so for now, ILO enforcement will likely remain complaint-based, as with most other Planning Code enforcement activities. Such complaints will likely come from tenants, former tenants and housing nonprofits.

The new law also requires all owners and operators of ILO units to submit by March 1 of each year an Annual Unit Usage Report for the prior calendar year, providing the city with details about the ILO units they control. With little public awareness of this new law, however, compliance across the city is likely to be spotty.

The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. M. Brett Gladstone, Esq. is an attorney at Goldstein, Gellman, Melbostad, Harris & McSparran, LLP.