Over in /r/legaladvice there was a post titled: “San Francisco Based Startup Robs Every Customer they have for Thousands of Dollars Overnight, Fires Entire Staff” by /u/BernieSandersNephew.
It makes some pretty big claims, but in summary it’s that one of those ‘rental startups, that pairs roommates together, installs a flex wall to turn a 2BR into a 3BR, and then collects an inflated rent payment, gave up when their VC threw in the towel.
The question is, which San Francisco based startup is it?
Hello. Last week I witnessed a San Francisco based startup company rob each of their customers for thousands of dollars overnight and don’t exactly know what I can do about it. It seems like something that would need a class action lawsuit a la Erin Brockovich.
I will be referring to the 3rd party company as the ‘startup’, the company that I work for as the ‘leasing office’, and the people who moved into my building through the startup service as the ‘residents.
TL;DR at the bottom…
CONTEXT: I work for a brand new ‘luxury’ apartment community. We have been working with a startup that offers roommate matching and rent protection services for individuals who are looking to rent by the room in otherwise unaffordable apartment communities. Their niche is they provide a divider which transforms the living room into a 3rd makeshift bedroom, creating really affordable housing options for people. Each resident pays a different amount based off of their bedroom type and pays directly to the startup. The amount the resident pays the startup reflects their portion of a rent plus a monthly premium referred to as a ‘service fee’ (usually between 5-10% more than their portion of the rent). The resident also pays the startup a refundable ‘move-in fee’ equal to one month’s rent when they first move in. This is paid to cover any damages or to be used in the case a roommate fails to pay the startup for rent. The startup also offered roommate replacement and subletting services when one of the roommates failed to pay rent which was covered in the ‘service fee’. Their rent protection and roommate finding services are outlined in a service agreement between the resident and the startup. There is a separate standard lease between the residents and the leasing office which does not mention the startup at all.
This partnership seemingly worked really well for all parties involved. The leasing office gets rent paid on time every month from the startup. The startup collects a monthly profit and has a deposit on file to cover their losses. The residents do not have to worry about the accountability of their roommates. They currently have 45 people living in my building and around 3,000 people nationwide. From my understanding everything that I am going to outline happened to every single person who decided to partner with them.
On March 25th everything changed. With no prior notice the residents started their day with email that starts with the following:
“Based on feedback from partner buildings and residents alike, startup will no longer facilitate payments from existing residents. This change will take effect immediately. This means you and your housemates will begin paying rent directly to your landlord on your next rent due date of April 1, 2019.”
Further down the email reads,
“You and your housemates have signed a lease with the building and remain fully liable for all necessary payments to the landlord based on your lease agreement”.
What does this mean? Rent protection is gone. Payments made on your behalf are gone. A lot of these residents who were paying rent to the startup mid-month were told they had to pay rent by the 1st. I had some residents who paid rent as late as March 22nd and were told the next day they would be paying rent on the 1st. An almost impossible task.
The email goes on to explain that as a result of these changes the resident would be receiving a refund in the mail. The ‘refund’ is broken down like this:
‘Initial Move-In Fee’ minus ‘Future Service Fees’ minus a ‘Partition Deposit’ = Refund
Basically, the startup decided to take the monthly premium that the resident was paying (which was never explicitly outlined in the service agreement), multiply it by the remaining months on their lease and charge it to the resident in one large lumpsum and call it ‘future service fees’ while simultaneously telling the resident that they will no longer be offering the services they are paying for.
Imagine Netflix emailing you explaining that not only will they no longer be offering streaming servicing while at the same time charging you a years’ worth subscription charges with no warning.
To make it worse they decided to also charge each resident a ‘partition deposit’ to the tune of $568 for the living room partition. With no warning or agreement or consent from the resident.
And the cherry on top is that they have pulled all of these bogus charges from the ‘refundable’ ‘move-in fee’ that the resident has already paid and was expecting to get back.
If your asking yourself, ‘doesn’t this violate their service agreement?’ the answer is YES. They have violated their service agreement at least 6 different times from what I can tell. They hastily made a new service agreement, which had no mention of the rent protection or payments made on behalf of residents anywhere, outlines this partition deposit, and was never signed by the existing residents.
THE BIG PICTURE: I have a very unique perspective here as I have information from both the residents and also from an inside source of the startup. The startup had a local rep who often worked in our building touring prospects and getting people signed up with the startup. He was let go this morning. And he spilled the beans to me as to why this is all happening.
Turns out, the main VC for the startup is pulling out. The startup has been losing money and not performing. The startup did not have the money to pay the VC. Their solution? Pull money from the bank account that held everyone’s ‘refundable’ move-in fees, charge all of their customers a years’ worth of service fees upfront along with a made up partition deposit all to pay off this VC. So that’s what they did. They pulled out of every market that isn’t San Francisco fired all of their staff. They are leaving the leasing offices to deal with the aftermath of the residents who are left without answers or money. They are also at risk of eviction if their roommates don’t pay rent on time which was the case for 50% of the people in April. The landlords are left to clean up the mess.
What can I do? What can they do? Please help.
TL:DR Last week a roommate finding and rent protection based startup company went under and proceeded to take money from their customers deposits to pay off their VC, violating their service agreement and firing their entire staff.