BILL ANALYSIS                                                                                                                                                                                                    





                             SENATE JUDICIARY COMMITTEE
                         Senator Hannah-Beth Jackson, Chair
                             2015-2016  Regular  Session


          SB 761 (Hall)
          Version: April 6, 2015
          Hearing Date: May 12, 2015
          Fiscal: No
          Urgency: No
          RD/TH


                                        SUBJECT
                                           
             Advertising:  Internet private residence rental listings:   
                                       notice

                                      DESCRIPTION  

          This bill would require that a hosting platform provide a  
          specific notice to hosts listing a residence for short-term  
          rental on a hosting platform, as specified.  The notice must be  
          provided immediately before the occupant lists each real  
          property on the online platform or Internet Web site, and must  
          require the occupant to interact with the online platform  
          Internet Web site to affirmatively acknowledge that he or she  
          has read the notice.  The bill would define various terms,  
          including "hosting platform," for these purposes. 

          (This analysis reflects author's amendments to be taken in  
          Committee.) 

                                      BACKGROUND  

          It is not uncommon for a tenant with a lease to need to move out  
          before the lease ends, or require assistance in paying their  
          rent. In these situations, the tenant may want to sublease the  
          rental unit or assign the lease to another tenant; however, the  
          tenant cannot sublease the rental unit or assign the lease  
          unless the terms of the lease allow the tenant to do so. A  
          "sublease" is a separate rental agreement between the original  
          tenant and a new tenant to whom the original tenant rents all or  
          part of the rental unit.  In contrast, an "assignment" is a  
          transfer of person's rights as a tenant to someone else.  The  








          SB 761 (Hall)
          Page 2 of ? 

          tenant might use an assignment if he or she has a lease and  
          needs to move permanently before the lease ends.  Many rental  
          agreements, however, specifically forbid the tenant from  
          subletting all or any part of the premises without landlord  
          approval, or using the premises for any commercial purpose.  

          In recent years, California has seen a rise in what is known as  
          the "sharing economy," with the influx of ridesharing businesses  
          such as "Lyft" and "Uber" and homesharing businesses such as  
          "Airbnb," "FlipKey," and "VRBO." Generally, homesharing is  
          recognized as an agreement between two parties, in which one  
          party rents out all or part of his or her home to another party  
          on a temporary, one-time basis (i.e. Airbnb and HomeAway)."   
          (DuPuis and Rainwater, The Sharing Economy: An Analysis of  
          Current Sentiment Surrounding Homesharing and Ridesharing,  
          National League of Cities (2014)  
           [as of  
          May 7, 2015].) 

          With the increasing popularity of short-term vacation rentals  
          made available through websites such as Airbnb and VRBO, among  
          others, however, questions have arisen as to whether tenants (as  
          opposed to homeowners) of rentals are in violation of their  
          rental agreements if they list their rental on these platforms  
          for short-term rent.  According to some, "[w]ith an Airbnb  
          rental, the tenant is using the premises for an illegal  
          commercial purpose, and is often creating a nuisance and  
          substantial interference with the comfort, safety or enjoyment  
          of the other building occupants by allowing strangers access who  
          have not been screened by the landlord.  These are grounds for  
          terminating tenancy." (See San Francisco Apartment Association,  
          SF Apartment: August 2014, Legal Q&A  
           [as of May 7,  
          2015].)  Moreover, while the tenant could be subject to eviction  
          for those activities, there is debate over whether the 3-day  
          notice that may be served needs to offer a right to cure.  
          "Short-term rental, like other forms of subletting, falls into a  
          gray area. Some argue that it is curable simply by stopping any  
          future subletting. Others argue that the subletting, having  
          already occurred, is no longer curable."  (Id.)  

          While questions may linger, it is clear that a tenant could be  
          at risk of eviction if not careful, and that many are not even  
          aware of the possibility of this risk as they are exposing  







          SB 761 (Hall)
          Page 3 of ? 

          themselves to as they participate in this relatively new  
          economy.  This bill seeks to provide a specified notice to the  
          tenant that would make them aware of the potential restrictions  
          in their rental agreement that could subject them to eviction.

                                CHANGES TO EXISTING LAW
           
           Existing law  defines the rights and duties of landlord and  
          tenants, including presumptions regarding the terms of the  
          hiring, the lawful means of terminating a lease or rental  
          agreements, and the remedies available to the respective parties  
          in the event of a breach of a lease or rental agreement,  
          including remedies in the event of a tenant's wrongful  
          assignment or sublet of a lease.  Generally, the landlord may  
          elect either to continue the lease in effect or to terminate it  
          and collect damages.  (Civ. Code Secs. 1940 et seq., 1951.4)  
          
           Existing law  provides that a tenant of real property, for a term  
          less than life, or the executor or administrator of his or her  
          estate heretofore qualified and now acting or hereafter to be  
          qualified and act, is guilty of unlawful detainer if he or she  
          engages in certain activity.  (Civ. Code Sec. 1161.)  Existing  
          law defines an unlawful detainer to include, among others, the  
          situation where a tenant continues in possession, in person or  
          by subtenant, after a neglect or failure to perform other  
          conditions or covenants of the lease or agreement under which  
          the property is held, including any covenant not to assign or  
          sublet, than the one for the payment of rent, and three days'  
          notice, in writing, requiring the performance of such conditions  
          or covenants, or the possession of the property, shall have been  
          served upon him or her, and if there is a subtenant in actual  
          occupation of the premises, also, upon the subtenant. Within  
          three days after the service of the notice, the tenant, or any  
          subtenant in actual occupation of the premises, or any mortgagee  
          of the term, or other person interested in its continuance, may  
          perform the conditions or covenants of the lease or pay the  
          stipulated rent, as the case may be, and thereby save the lease  
          from forfeiture; provided, if the conditions and covenants of  
          the lease, violated by the lessee, cannot afterward be  
          performed, then no notice, as last prescribed herein, need be  
          given to the lessee or his or her subtenant, demanding the  
          performance of the violated conditions or covenants of the  
          lease.  (Civ. Code Sec. 1161(3).) 
          
           Existing law  provides that a tenant who assigns, sublets, or  







          SB 761 (Hall)
          Page 4 of ? 

          commits waste upon the premises contrary to the conditions or  
          covenants of the lease, or maintains, commits, or permits the  
          maintenance or commission of a nuisance upon the premises, or  
          uses the premises for an unlawful purpose, is guilty of an  
          unlawful detainer and may, upon service of three days' notice to  
          quit, be evicted from the premises by the landlord.   (Civ. Code  
          Sec. 1161(4).)  

           Existing law  requires an operator of a commercial Web site or  
          online service that collects personally identifiable information  
          through the Internet about individual consumers residing in  
          California who use or visit its commercial Web site or online  
          service to conspicuously post its privacy policy on its Internet  
          Web site.  (Bus. & Prof. Code Sec. 22575 et seq.)  Existing law  
          also limits advertising by an operator of an Internet Web site,  
          online service, online application, or mobile application  
          directed to minors, as provided.  (Bus. & Prof. Code Sec. 22580  
          et seq.)  Existing law also provides provisions that protect the  
          privacy of student's online personal information.  (Bus. & Prof.  
          Code Sec. 22584 et seq.) 

           This bill  would establish requirements for a hosting platform  
          providing internet private residence rental listings.  This bill  
          would define "hosting platform" to mean a marketplace that is  
          created for the primary purpose of facilitating the rental of a  
          residential unit offered for occupancy for tourist or transient  
          use for compensation to the offeror of that unit, and the  
          operator of the hosting platform derives revenues, as specified,  
          from providing or maintaining that market place. "Facilitating"  
          includes, but is not limited to, the act of allowing the offeror  
          of the residential unit to offer or advertise the residential  
          unit on the Internet Web site provided or maintained by the  
          operator. 

           This bill  would require a hosting platform to provide the  
          following notice to hosts listing a residence for short-term  
          rental on a hosting platform:

            If you are a tenant who is listing a room, home,  
            condominium, or apartment, please refer to your rental  
            contract or lease, or contact your landlord, prior to  
            listing the property to determine whether your lease of  
            contract contains restrictions that would limit your ability  
            to list your room, home, condominium, or apartment.  Listing  
            your home may be a violation of your lease or contract, and  







          SB 761 (Hall)
          Page 5 of ? 

            could result in legal action against you by your landlord,  
            including possible eviction.  

           This bill  would provide that the mandated notice must be in a  
          font size that is equal to or greater than 100 percent of the  
          standard font size of the other paragraphs on the online  
          platform or Internet Web site or equal to the default font size  
          on the online platform or Internet Web site.  

           This bill  would require that the notice be provided immediately  
          before the occupant lists each real property on the online  
          platform or Internet Web site, and that the occupant interact  
          with the online platform Internet Web site to affirmatively  
          acknowledge that he or she has read the notice. 
           
                                       COMMENT
           
          1.    Stated need for the bill  

          According to the author: 

            Over the past few years, there has been significant growth in  
            online Web site companies that allow people to rent a room or  
            their entire unit on a short-term basis. These companies  
            include AirBnb, VRBO, Homeaway, Flipkey, and others.  They  
            allow not only property owners to list, but tenants who rent  
            apartments as well. Unlike homeowners, however, tenants who  
            list their rooms or units, create a host of potential problems  
            for the property owner and neighboring tenants, while at the  
            same time, they jeopardize their own tenancy.

            In California, the majority of rental leases contain a  
            prohibition against subletting.  Under current law, landlords  
            have the right to evict tenants for subletting and for  
            violating the rental agreement.  Unfortunately, many tenants  
            are not aware of these prohibitions.   Standard leases include  
            many legally required disclosures that can make the lease as  
            long as 25 pages and many tenants may not have reviewed their  
            lease in years. 

            Short-term rental Web sites provide little or no disclosure to  
            prospective tenants who list their rooms or units for rent.   
            By providing no information to prospective tenants, short-term  
            rental websites are putting unsuspecting tenants in a position  
            where they can face eviction.  







          SB 761 (Hall)
          Page 6 of ? 

            Short-term rental websites are great and valuable tools, but  
            they must be used responsibly in accordance with existing laws  
            and contractual agreements.  Tenants in apartments who list  
            with short-term rental Web sites can create significant safety  
            issues for their neighbors and the community.  Short-term  
            guests have had no screening or background checks, and keys or  
            gate codes are given by the listing tenant to the short term  
            guests.  The risk of liability is significant for both tenants  
            and owners.

            SB 761 is intended to protect and educate tenants about the  
            risks of listing their room or unit on short-term rental Web  
            sites.  It will simply require short-term rental companies to  
            disclose very clearly and openly that listing a room or unit  
            may be a violation of the lease and may subject the tenant to  
            eviction.  [ . . . ]

          In support, the San Diego County Apartment Association (SDCAA)  
          writes that "renting-out/sub-leasing a rental unit without  
          permission, in violation of one[']s lease agreement, could be  
          grounds for eviction.  This has become an increasing problem  
          with sites like Airbnb, et.al.  This bill will put the person on  
          notice that renting-out units may cause them to be evicted." 

          2.   Bill would provide legally factual warning to tenants
           
          The sponsor of this bill, the California Apartment Association  
          (CAA) notes that this is a problem specific to tenants of  
          rentals.  "Unlike homeowners, tenants who list their rooms or  
          units on short-term rental websites create a host of potential  
          challenges for the property owner and neighboring tenants, and  
          at the same time, listing tenants jeopardize their own tenancy."  
           This, they assert, is due to the fact that in this state, "the  
          majority of rental leases contain a prohibition against  
          subletting" and landlords have the right under existing law to  
          evict tenants who sublet in violation of the rental agreement.   
          This is also compounded by the fact that many tenants are  
          unaware of such prohibitions, especially when a standard lease  
          can be as long as 25 pages, includes numerous notices, and the  
          tenant has not reviewed the lease in years.  CAA writes that  
          "[w]hile eviction is never the preferred option for a landlord,  
          the potential liability risks associated with short term rentals  
          are too great for landlords and the neighboring tenants."  As  
          described the proponents:








          SB 761 (Hall)
          Page 7 of ? 

            Tenants in apartments who list with short-term rental websites  
            can create safety issues for their neighbors and the  
            community. Short-term guests have had no screening or  
            background checks, and keys or gate codes are given out by the  
            listing tenant to strangers.  Short-term rental web sites  
            provide little or no disclosure to prospective tenants who  
            list their rooms or units for rent. By providing no  
            information to prospective tenants, short-term rental web  
            sites are putting unsuspecting tenants in a position where  
            they can face eviction.

          Accordingly, this bill would arguably protect tenants by  
          educating them about the potential risks of listing their room  
          or unit on a short-term rental website, such as Airbnb, VRBO,  
          and others. The bill would require that a "hosting platform"  
          -i.e. a marketplace that is created for the primary purpose of  
          facilitating the rental of a residential unit offered for  
          occupancy for tourist or transient use for compensation to the  
          offeror of that unit in order to generate specified fees or  
          revenue-provide a specific notice to the hosts listing a  
          residence for a short-term rental on the hosting platform.  That  
          notice would simply put the tenant on notice that they should  
          refer to their rental contract or lease or contact their  
          landlord, prior to listing the property to determine whether  
          their lease of contract contains restrictions that would limit  
          their ability to list their room, home, condominium, or  
          apartment. The notice would also clearly indicate to the tenant  
          that listing their home may be in violation of their lease or  
          contract and result in legal action by their landlord-including  
          eviction.  

          As a matter of public policy, insofar as hosting platforms  
          generate revenue from facilitating activities that may cause  
          unwitting tenants harm in the case of an eviction, they arguably  
          should provide reasonable notice of factually accurate  
          information of the potential legal and practical consequences to  
          the tenant from participating in those activities without legal  
          authorization from their landlord.  The possible harm can be  
          even direr in localities that are particularly attractive to  
          tourists, as the tenants in such localities (such as San  
          Francisco) face incredibly high rents and could risk losing  
          their rent-controlled home over a short-term sublet that they  
          did not realize would be in violation of their lease agreement. 

          3.   Opposition concerns  







          SB 761 (Hall)
          Page 8 of ? 


          Airbnb writes in opposition to the bill (as in print): 

            For thousands of Californians, home sharing provides a vital  
            economic lifeline that makes it possible to pay the bills and  
            pursue their dreams while the cost of living increases rapidly  
            across our state. [ . . . ] As more and more middle class  
            Californians embrace innovations that enable them to make  
            efficient use of their resources, it is important to avoid  
            unnecessary hurdles that stunt this new peer to peer economy.

            We understand [the author's] intentions with the proposed  
            disclosure and have been working with his office to craft  
            language that achieves his goal. We are concerned, however,  
            that the currently proposed disclosure implies that all leases  
            in California are constructed identically.  Indeed, there is  
            no standard lease language utilized across the State of  
            California, and the proposed disclosure should clearly and  
            adequately alert hosts, as Airbnb already does, of the  
            importance of checking their lease and understanding their  
            rights.  Internet platforms like Airbnb cannot play the role  
            of interpreting private contractual arrangements or mediating  
            disputes that might arise between private parties. 

          To address their concerns, Airbnb requested two amendments,  
          which are largely embodied in the recent amendments (see below).  
           However, whereas Airbnb would have preferred the second half of  
          the notice to provide that "Listing your home may, or may not,  
          constitute a material breach of your lease, depending on the  
          specific terms of your lease.  A material breach of your lease  
          could result in legal action against you by your landlord," the  
          bill provides, instead, "Listing your home may be a violation of  
          your lease or contract, and could result in legal action against  
          you by your landlord, including possible eviction." 

          4.   Amendments  

          This analysis reflects the following author's amendments, for  
          which mock-up will be provided in Committee. 

             Author's amendments:
             
            On page 2, in line 5, strike "private residence rental  
            listings" and insert: "Private Residence Rental Listings"








          SB 761 (Hall)
          Page 9 of ? 

            On page 2, between lines 8 and 9, insert:  "(a) "Hosting  
            platform" means a marketplace that is created for the primary  
            purpose of facilitating the rental of a residential unit  
            offered for occupancy for tourist or transient use for  
            compensation to the offeror of that unit, and the operator of  
            the hosting platform derives revenues, including booking fees  
            or advertising revenues, from providing or maintaining that  
            marketplace. "Facilitating" included, but is not limited to,  
            the act of allowing the offeror of the residential unit to  
            offer or advertise the residential unit on the Internet Web  
            site provided or maintained by the operator." 

            On page 2, in line 9, strike "(a)" and insert: "(b)"

            On page 2, in line 11, strike "(b)" and insert: "(c)" 

            On page 2, strike lines 14 to 18, inclusive, on page 3, strike  
            out lines 1 to 8, inclusive, and insert:  

            22592.   A hosting platform shall provide the following notice  
            to hosts listing a residence for short-term rental on a  
            hosting platform:

            If you are a tenant who is listing a room, home, condominium,  
            or apartment, please refer to your rental contract or lease,  
            or contact your landlord, prior to listing the property to  
            determine whether your lease of contract contains restrictions  
            that would limit your ability to list your room, home,  
            condominium, or apartment.  Listing your home may be a  
            violation of your lease or contract, and could result in legal  
            action against you by your landlord, including possible  
            eviction.

            On page 3, line 15, strike "commits to offer" and insert:  
          "lists"

          The following amendment would address a drafting error in the  
          notice language that may inadvertently imply that eviction is  
          only possible with respect to short-term rentals of homes (in  
          contrast to rooms, condominiums, or apartments).  This language  
          would track the language used elsewhere in the notice.  

            Suggested technical amendment  :

            On page 3 of the mockup, strike "Listing your home may" and  







          SB 761 (Hall)
          Page 10 of ? 

            insert "Listing your room, home, condominium, or apartment  
            may"

          The following amendments are also suggested to strike  
          unnecessary language. 

             Suggested amendment  : 

            On page 2, strike lines 9-13 


           Support  :  San Diego County Apartment Association (SDCAA)

           Opposition  :  Airbnb

                                        HISTORY
           
           Source  :  California Apartment Association

           Related Pending Legislation  :  None Known 

           Prior Legislation  :  None Known 

                                   **************