Landlords have many reasons to want a tenant to leave, but they may not be grounds for eviction. Smart landlords avoid breaking the law by harassing tenants, changing locks, or stopping maintenance or repairs. If you have enough resources or are willing to forgo unpaid rent, you can negotiate a payment in exchange for a tenant’s giving up their rights.
You may love your home or office, but nearly everyone has their price when it comes to real estate. If offered enough money, would you move? The answer for most of us is yes. This includes your tenants.
What is a “Cash for Keys” Agreement?
Buyout agreements, known as “cash for keys,” are becoming an increasingly common tool for property owners to help get tenants to vacate rent-controlled apartments without resorting to eviction, reports the Los Angeles Times. But these contracts aren’t just limited to rent-controlled units. They can be used for any tenant willing to release their rights to occupy a unit in exchange for money.
How Common are “Cash for Keys” Agreements?
Los Angeles City Controller Kenneth Mejia’s office released data in January that shows that from 2019 to 2023, 4,869 “cash for keys” agreements were filed with the city. The average amount is $24,704. Thirty-five buyouts were for $100,000 or more. The areas where these agreements are most common are:
- Koreatown
- Echo Park
- Mid-Wilshire
- West Adams
- South LA
The number of agreements filed with the city may only scratch the surface. It doesn’t include informal offers (which could be made by either party) or agreements not shared with the city government. There may be many thousands more that are “off the books.”
Filing these agreements is required by the city’s Tenant Buyout Notification Program. It mandates that landlords give information to renters when giving a buyout offer. Tenants must be informed they:
- Are entitled to minimum compensation ranging from $9,900 to $24,650, depending on various factors.
- Have a right to refuse an offer and discuss it with a lawyer or the city’s housing department
The buyout ordinance allows tenants to sue landlords for violating its rules. They may recover damages plus a $500 penalty.
What Mistakes Should Landlords Avoid?
Mejia’s office characterizes these buyouts as “…a tactic that landlords use to compel tenants to move out of RSO (Rent Stabilization Ordinance) units or rent-controlled units…”
An agreement could be the carrot to the stick of illegal retaliatory action by a short-sighted landlord willing to risk legal action. A landlord could violate city ordinances, state laws, and lease obligations to make a tenant miserable enough to accept a buyout. They could also be the “good cop” and try to get on a tenant’s good side during negotiations, but if they fail, they become the retaliatory “bad cop” to force a tenant to reconsider and sign.
Whether a tenant is coerced or threatened into an agreement depends on the facts of the situation. A landlord taking this approach risks a legal challenge if the tenant didn’t truly consent. The litigation costs may more than consume the positive cash flow the landlord envisions.
When Does a Buyout Make Sense?
“Cash for keys” could result from extortion or an agreement by two parties with different goals who work out their differences. One person trading their rights for something valuable has been going on for as long as people have existed.
The “cash” a landlord could use may be forgiveness of months of unpaid rent. They would also save money by reaching an agreement with the tenant instead of paying the costs in time, energy, and money that eviction proceedings can take. They may also benefit from a more reliable tenant willing to pay higher rent.
Tenants need to consider the value of a sudden sum of money against the fact their next housing may be far more expensive, and these payments are taxable income. Landlords must calculate whether this short-term expense will produce a high enough, long-term return on their investment.
Since rents are rising, and the creation of new housing isn’t keeping up with demand, a “cash for keys” agreement may make good business sense for a landlord. They also make them look like a bad idea to a tenant, especially in a rent-controlled apartment, so they may refuse or demand a very high price.
We’re Here to Help
If you’re a residential landlord and have questions about tenant buyout agreements or want to take advantage of our flat rate for drafting lease termination agreements, call the AWB Law, P.C. team at (949) 244-4207 or complete our online contact form today. We can advise you to ensure your actions comply with applicable laws and city ordinances.
