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Who Can Get Licenses Is the Hottest Potato in the Mayor's Vacation Rental Proposal

Mayor Kevin Faulconer’s proposed vacation rental rules allow people – not companies – to seek up to two licenses to operate rentals but those who own more could pursue a workaround.

Vacation rental opponents hold up signs during a City Council meeting. / Photo by Adriana Heldiz

Mayor Kevin Faulconer is urging the San Diego City Council to approve regulations Monday that would let vacation rental hosts rent out their entire primary residences up to six months a year and give them and others the right to rent out one other home each year-round.

There’s more to the plan but that one issue – who can get licenses to rent out whole homes and how many – is the stickiest and most hotly debated part of it. It’s not clear how a majority of City Council members feel about it.

The mayor dubbed his measure a compromise but neighborhood activists claim it has major loopholes that will allow problematic vacation rentals and investor hosts to run rampant. Supporters of the mayor’s plan argue it provides a pathway for vacation rental hosts who own second homes in San Diego to rent them out only for periods that they aren’t using them.

The proposed rules require that a person – not a company – seek licenses to operate up to two short-term vacation rentals.

But companies could still own vacation rental properties. They would just have to find someone to rent them who would then rent them out as vacation rentals.

Under the mayor’s proposal, two types of homes can be rented out for stays less than 30 days.

One is a primary residence.

In this case, the mayor’s draft ordinance says license-seekers must show a current water bill, deed or lease agreement – with their name on it – proving they live in their home or apartment. Then that person must pay a $949 fee to rent out their whole home up to six months a year.

So ostensibly, unless a person’s name is on a water bill, deed or lease agreement, he or she couldn’t get a license to operate a primary residence as a vacation rental.

City Councilwoman Barbara Bry and neighborhood groups have argued it should stop there – San Diegans should only be allowed to rent out their primary residence. They note that cities such as Pasadena and San Francisco have passed regulations that only allow hosts to rent out their primary residences. They argue more permissive regulations could rob San Diegans of needed housing in the midst of a housing crisis.

Faulconer’s proposal gives San Diegans and out-of-towners with a property here an opening to continue operating – if they’re willing to jump through some hoops.

Per his rules, any person with a legal right to occupy a property can seek a $949 license to operate a year-round vacation rental.

Companies, namely the investors that vacation rental opponents most fear, are not allowed to apply though they could designate someone else to do so for them.

“A host cannot be a company or an LLC,” said Elyse Lowe, who led efforts to craft Faulconer’s policy. “It has to be a single, individual person.”

Lowe said the mayor’s proposed rules would technically allow a property owner to lease a property to someone who then rents the home or apartment to vacationers year-round.

“They would have to lease and allow someone to sublet, essentially, in order for the people to become the hosts, to have the legal right to occupy the dwelling unit,” Lowe said.

The mayor’s plan doesn’t specify how it defines the legal right to occupy – or what records it might check to ensure applicants hold property rights.

Lowe said the city could check property deeds or leases though applicants would not be required to provide them.

The city’s Development Services Department has long allowed people with a legal right to occupy a property to seek city building permits. To get it, they sign a form attesting that the information they are providing is accurate.

Lowe said the city could prosecute or pull the licenses of rental hosts who are found to have lied or have run afoul of city rules, and may hire an outside company to help it keep tabs on hosts.

She said the mayor’s staff decided they could not legally treat property owners and renters differently – which led them to propose regulations allowing primary residences that are rented or owned and another property that may not have a local owner.

City attorneys have repeatedly cautioned that the City Council must try to ensure groups such as homeowners and renters or San Diegans and out-of-towners are regulated similarly unless the city can provide a rational basis to treat them differently.

A July 6 memo by Deputy City Attorney Shannon Thomas noted the mayor’s proposal could still face equal protection challenges. In her memo, Thomas specifically called out Faulconer’s proposal to allow San Diegans who live in a home at least six months a year to also rent out a second home.

Lowe said the mayor’s team has consulted with the city attorney’s office and believes its proposal is legally sound.

“There have been several city attorney memos that have made it clear the city cannot discriminate between renters and owners, so the proposal instead regulates based on hosts,”  Lowe said. “We recognize there are fundamental disagreements about how short-term rentals should be regulated, but the mayor’s objective is not to favor one side over the other but rather to establish clear rules that can be enforced.”

Matt Valenti, a Clairemont attorney who is also board member of anti-vacation rental group Save San Diego Neighborhoods, believes the city’s definition of host – any person with a legal right to occupy a property – will allow investors with multiple vacation rentals to continue operating or even buy up new properties.

“This is immediately going to lead lots of people who own multiple units to try to get a straw man for each unit to pull the permit,” Valenti said.

But Jonah Mechanic, whose company manages hundreds of vacation rentals in the city, said Valenti’s concerns are misplaced.

Mechanic said nearly all his clients are part-time San Diego residents who own a single home near the coast, meaning they’d be seeking a vacation rental license themselves. He said he doesn’t expect a wave of companies to seek hosts to operate their rentals if the mayor’s proposal passes.

Still, Mechanic said he expects the city will likely have to revisit its vacation rental rules after they go into effect.

“I think it’s safe to say that any attempt at regulation, especially with a relatively new industry, there are always some loopholes that are going to need to be filled,” Mechanic said.

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