Translation:The people who are there are very unpleasant.
That was my answer too and it is the way you'd usually say it in English. But on reflection there can be a slight difference. For example, you might want to say 'the people who are there' to mean people who are temporarily there e.g. airbnb occupants, as opposed to 'the people there' meaning people who are always or generally there such as those in a particular establishment or area.
Valrew comments that either expression is acceptable in French too, so if I'm right about the possibly different shade in meaning, this exercise enables us to make the same subtle distinction in French!
I think "the people there are very unpleasant" carries the same value as "the people who are there are very unpleasant" in English. But I also suspect that duolingo is trying to teach you the use of the relative pronoun qui here and I doubt that it will be accepted as an alternative if you report it. You can try it though.
The most succinct way to say "the people there are very unpleasant" in French would probably be "les gens là sont très désagreable".
Je suis d'accord. La phrase est bien employée, aussi en anglais. J'essayais seulement d'expliquer à l'OP que bien qu'il ait raison, l'alternative phrase anglaise suggérée pourrait ne pas être acceptée par duolingo parce qu'ils ont un programme spécifique. Mais il peut essayer, peut-être qu’ils l’accepteront.