What is a Tenant Buyout Agreement or Cash for Keys?
It is a legally binding written agreement where the landlord pays a tenant money or other valuable consideration to voluntarily vacate the premises. The landlord pays cash and the renter returns the keys and gives up access to the rental property. It’s important to understand a Tenant Buyout Agreement is not an eviction notice because it is voluntary.
There are usually four reasons for a landlord to pursue a Tenant Buyout Agreement.
With rent control expanding and the disparity between rent controlled rates for established tenants and newer market rate tenants continues to grow, landlords have an economic incentive to induce renters in rent controlled units to move out. Because a rental property’s sale value is usually established by the ratio of how many years rental income the property would take to pay for itself, having rent controlled tenants move out so units can be rented at market rate can dramatically increase a rental property’s resale value.
A second reason is when the owner wants to do a remodel or renovation, which would require the renter having to be evicted “without cause” which is regulated by LARSO. Evictions without cause requires several conditions be met like length of time before moving and assistance with moving expenses that a Tenant Buyout Agreement having fewer restrictions may be a faster, better solution for the landlord than eviction without cause.
A third reason is when a landlord purchases a new rental property and wants to rent to tenants they have personally screened and approved going forward.
The fourth reason a tenant buyout or cash for keys agreement is often used is where it may simply be cheaper to pay a bad tenant to leave than pursue the costs of eviction. It saves the renter from having an eviction on their record which is an inducement to leave amicably. This may or may not be a good solution for a landlord depending upon avoiding several common mistakes that are discussed later in this article.
Whatever the reason for pursuing a Tenant Buyout Agreement let’s first look at the landlord requirements in Los Angeles City and County.
What is the LARSO Tenant Buyout Notification Program?
The City of Los Angeles has a Rent Stabilization Ordinance or LARSO that governs rental housing both in the city and has been expanded to now include the entire county of Los Angeles. Ordinance # 184673 defines the Tenant Buyout Notification Program that requires landlords to provide two documents to tenants prior to executing a cash for keys agreement and registering the agreement when completed with HCIDLA
The first document is a Disclosure Notice which informs the renter of all their rights in the buyout process. This notice must be signed and dated before the tenant accepting the offer. All documents must be in the primary language of the renter
The second document is the Tenant Buyout Agreement and spells out the terms of the contract. It must include the amount of money the tenant will receive and the date for payment and turning over the keys. It should also state that the landlord and tenant will inspect the property together at the time the payment is made and the keys are surrendered.
It also must include in 12 point bold language above the signature line the following: “You, (tenant name), may cancel this Buyout Agreement any time up to 30 days after all parties have signed this Agreement without any obligation or penalty.”
The agreement must be signed by the landlord and tenant and a copy of the fully executed Tenant Buyout Agreement needs to be provided to the renter. The landlord is required to file a copy of the signed and dated LARSO Disclosure Notice and Tenant Buyout Agreement with HCIDLA within 60 days of both parties signing the contract. This can be done by mail at: HCIDLA – Rent Stabilization Division – 1200 W. 7th Street, 8th Floor, Los Angeles, CA 90017 or by Email: firstname.lastname@example.org
How Does the Program Protect Tenant’s Rights?
LARSO protects tenant’s rights by making certain the renter is not required to accept or sign the Tenant Buyout Agreement. The tenant has the right to consult with an attorney or HCIDLA before accepting a property owner’s offer.
The renter has the right to cancel the Tenant Buyout Agreement for any reason within 30 days of signing it without penalty. If the landlord does not comply with the LARSO requirements, the tenant has the right to cancel the agreement – and may assert an affirmative defense against an attempted eviction and can sue the landlord as a private civil remedy through the applicable statute of limitations period.
How Landlords Should Approach a Tenant Buyout Agreement
Again, there are usually four reasons landlords pursue a cash for keys agreement. The owner wants to get renters who have been there longest to move out in rent controlled areas to bring rents up to market value with new tenants. The landlord wants to do a remodel or renovation, the rental property changes ownership and the new owner wants tenants they have screened and agreed to, and to get rid of bad renters who haven’t paid rent or is damaging the property.
In all of these circumstances, speed of getting the tenant out faster and cheaper than going through the eviction process is usually the overriding consideration for the landlord. While your approach may vary somewhat with each of these different scenarios, certain parts of the landlord’s approach are the same and in all cases the most common mistakes must be avoided.
Ask for a Meeting to Discuss their Tenancy
No one likes to have their life uprooted. Being an empathetic landlord who can convey they understand the uncertainty this throws their tenant’s life into can go a long way in achieving the desired outcome.
Whatever the reason for the Tenant Buyout Agreement, be clear and earnest that you are running a business with expenses you have to meet and that you would like to reach the best outcome for everyone involved.
If you are dealing with a tenant who is delinquent in rent or damaging the property motivating them to leave in days rather than months in many instances is the best outcome for the landlord.
The immediate gut reaction of most landlords is that if they are already being taken advantage of, “Why should I be paying this guy who already owes me money?”
This is a natural feeling – but emotions need to be set aside to focus on solutions and the best hoped for outcome under bad circumstances. You need to explain verbally face to face they are violating the rental or lease agreement and you are intending to start the eviction process.
State the facts. Don’t intimidate. Be very wary of using any language that could be construed as threatening as this can come back to haunt you and you will wish you had never said it!
The laws are very strong favoring the renter in this situation that protect tenants from threats or harassment from landlords. You need to be careful about wording your offer and especially describing the risks of eviction.
Calmly explain the consequences that if you have to evict them that stays on their record for years and will make it very hard for another landlord to want to rent to them. It goes against their credit score if judgements are obtained in court and are not paid. This is very expensive for everyone involved and requires the payment of fees and court appearances. If the Unlawful Detainer of the property is granted in court – which it usually is – the sheriff comes and removes them.
Be firm and sincere – but make clear you mean it!
You have bills you have to pay and you need to take action at this time.
Offer them a Face Saving Way Out
Then tell them you’ve got cash in hand you will pay them to move out within a certain amount of time – say two weeks. You may consider a tiered offer, where you give them more than one option. A certain amount of money to be out in two weeks, a lessor amount in one month or at six weeks.
If they are facing financial hardship, cash in hand may be a stronger motivator than fighting an eviction in court and avoiding the consequences you have already explained to them of the eviction record and the impact on their credit scores. Under the circumstances cash for keys is a win win situation and it should be presented to the tenant as such.
How Much Should a Landlord Offer for Cash for Keys?
Fact is, there is no simple formula for this. Anecdotal evidence at California Department of Real Estate reports a range of $500 to $5000 is not uncommon.
What may incentivize one tenant may not work on another, so you need to first consider the renter’s financial situation. If you are trying to get a renter out who is behind in rent, they may be more desperate and could use the money rather than fighting an eviction.
Think about what is the maximum amount you can pay. Keep in mind the average cost of an eviction is $3,500. Evictions are time consuming and stressful, and this approach can get rid of a tenant faster with a face saving approach that keeps everything amicable rather than adversarial.
Get Everything in Writing
Be sure to provide both required documents – the Disclosure Notice informing them of their rights and the Tenant Buyout Agreement in the primary language of the renter.
Meet and inspect the property together on the agreed move out date when the cash is exchanged for the keys. Provide the renter with a copy of the agreement and be sure to file it with HCIDLAwithin 60 days of the signing of the contract by both parties.
At Fast Eviction Service, help on any of the issues discussed in this article is simply a click or phone call away. Email email@example.com or call our office at (800) 686-8686 to discuss your questions for a free evaluation of your case.
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