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In another only-in-San Francisco moment, the city became the first megalopolis to clamp down on the use of residential units as "corporate hotels." These furnished, extended-stay apartments are units offered for occupancy for a duration of greater than 30 consecutive days but less than one year, a category known as intermediate-length occupancy (ILO).

San Francisco politicians are not particularly fond of these living arrangements, not only because they pose a threat to affordable housing but because they effectively circumvent the city's restrictions on short-term rentals by requiring tenancies of 30 days or more. The city's regulations on Airbnb-style short-term rentals apply to tenancies of 30 days or less.

ILO's in San Francisco are certainly nothing new and the previous system worked without incurring the ire of lawmakers. So what changed?

There was nothing problematic about temporarily housing such passersby as actors who came to the city on a four-month run of a Broadway play, out-of-town attorneys participating in a lengthy trial, traveling nurses, construction workers, or musicians on a six-month gig with the Symphony. There was nary opposition to these types of temporary living arrangements. Introductions were made largely through word of mouth and the number of units used for these purposes took up relatively little housing stock. Certainly, no rent-controlled units were removed, it was submitted.

The system worked until, well, it didn't.

Tech companies with VC backing found a way to extract wealth from the city with a disruptive business model of master-leasing units from a building owner and handling all aspects of landlording, including their marketing, leasing, and servicing.

Lawmakers were especially incensed when a 60-unit development at 2100 Market Street was approved as rental housing but was leased almost exclusively by the lodging startup, Sonder.

It's unknown how many of these units are in the shadows, but the Corporate Housing Providers Association estimates the number to be around 3,000. In 2020, the association appealed to the Planning Department in a letter stating that none of its members currently operate affordable, rent-controlled, or student housing. Thus, none of these units are being taken off the rental market, it was submitted.

Lawmakers were not amused by this inventive form of housing and took action, enacting Ordinance No. 78-20 in April 2020, that created a "new residential use characteristic." Here are some its highlights:
1. Caps the number of units that can be legally used as short-term housing citywide at 1,000.
2. With an ILO license, landlords may advertise and offer fixed-term tenancies for less than a year, but must make clear that the city's "just cause" eviction protections apply. Tenants who elect to stay more than a year cannot be forced out absent a just cause; a tenant rights disclosure must be included when advertising units.
3. Corporate rentals in buildings with nine units or fewer are permitted as long as these hybrid units do not take up more than 25% of the building's total units.
4. Buildings with three or fewer units are not eligible for a license. In no case can ILO's gobble up more than 20% of residential units in any one building.
5. Annual reporting requirements due no later than March 1 of each year make it incumbent on owners or operators to share reams of information. Big Brother is watching.

Many in our community were caught by surprise. The original ordinance designed to rein in ILOs was passed in 2020, a tumultuous time, of course, as we all grappled with the pandemic. Landlords had other things on their minds and were struggling for their very survival. When the ordinance became law, it granted an exemption period of two years to units operating as an ILO to apply for authorization without penalty. So, we've only had to deal with this recently.

We can't help but draw a parallel with San Francisco's requirement for landlords with 10 or more units to participate in a rent registry. That ordinance also became effective during the heart of the pandemic, but our clients only had to deal with it by July 1, 2022. In that case, the "license" was the ability to impose annually allowable and/or banked rent increases.

Timing is everything
Policymakers have attempted to do a juggling act. The goal is to strike a balance between what is best for the city and accommodate the many corporations and nomadic guests who call San Francisco their temporary home or need a bridge to transition into more permanent surroundings. In doing so and despite an exodus from the city, politicians have alienated people who do not want to sign a 12-month lease. However, there is a solution, and it begins at the inception of the relationship. A rental applicant wary of signing a long-term lease can be told in no uncertain terms that he or she can bow out of the lease early without any penalties. Although a 12-month lease must be inked, the transitory tenant can be assured that there is an escape hatch.

Parting thoughts
The Supervisors said "enough is enough" and enacted stricter rules relating to ILO's. While it is unclear what the repercussions are if unauthorized ILO's continue to operate without being in good graces with the city, we can draw a lesson from Airbnb. That is, the law will catch up with technology and what was a lax system will eventually be enforced by lawmakers hell-bent on maintaining transparency and control of all city units.