An L.A. Story

An L.A. Story

By Sasha Struthers, Esq., Struthers Legal, APC

I've had the pleasure of speaking at several, in person events for the Apartment Association of Greater Los Angeles, and at real estate offices going over tenant buyout agreements (a/k/a, "Cash for Keys" agreements). The presentation is relatively short, just 15 minutes, give or take. But the most valuable part is the “Q&A” time.

I have gotten some common questions from attendees, and some real curve balls too. The “Q&A,” I find, is always interesting for the audience and myself. If you know of an opportunity to speak to a group about “Cash for Keys” agreements that is interested in a presentation by me, feel free to contact me – my information follows at the end of this article. 

A question I get asked a lot about is: What are the main terms of the buyout? There are many principle terms, so a few details you want to “hash out” when doing a tenant buyout deal are set forth in the discussion that follows.

The Amount

The “flagship” term of any buyout agreement involves the amount the tenant is to receive in exchange for moving out. There are several main factors to consider here: (i) the situation of the tenants, (ii) local buyout rules, and (iii) landlord budget. There are numerous approaches and tactics to negotiating and ultimately settling on the amount. There are nuances such as the landlord-tenant dynamic, prior attempts, age, family composition, and incomes. The strategy to be deployed must be specific to the tenant situation because no two tenants are in the same boat.

The Move Out Date

The next big thing involves how much time will the tenant have before moving-out. Typically, it is 60 days, but this can vary. I've seen move out dates as fast as four days. The move out date can be a good point of flexibility during negations. However, too long of a move out runway can make the buyout agreement diluted.

If you are familiar with Parkinson's Law, you know that the work expands to fill the time allotted. If you give tenants a year to move, they will take the entire year to move. Meanwhile the advantage of being able to get market rent (if that is your goal) gets weaker and weaker the longer it takes to turn the unit and re-rent it (Recall the time value of money means the value of money today is worth more than the value of money in the future!).

The Security Deposit

Often overlooked, if there is a security deposit, you must decide what is going to happen with it. There are three options here: (i) landlord keeps it, (ii) landlord returns it, or (iii) landlord itemizes deductions per state statute (that accounting is due 21 days from move out date here in California).

With the security deposit, it is a mixed bag. The last option is rarely used. Usually what happens is you go either way, where landlords sometimes keep the security deposit to cover any damages or rental arrears or sometimes landlords return it to sweeten the deal. If the unit is going to be completely remodeled, returning the security deposit is common. If the tenant has some delinquency, then usually the landlord keeps the security deposit to try and recoup some sort of loss.

Delinquent Rent

If a tenant owes delinquent rent, this is usually forgiven along with some compensation to help with moving costs. This can be appealing because it avoids eviction court for both landlord and tenant. The tenant also gets a shot to come out from underneath that debt and leave with a clean slate of sorts.

The Payday

Tenants are commonly paid when they move out. Sometimes tenants do not have the funds for movers or a security deposit on a new place. In those situations, it is good to tie an advance against the payment to some milestone, like the tenant provides a signed lease for a new place that you verify, and/or tenant provides an estimate or invoice for moving expenses.

Preferably, in these situations, the landlord pays the new landlord or mover directly. Rarely do tenants exercise this, but they do agree to it because in principle it makes sense.

You also want to be mindful of doing tenant buyouts in cities that have rules that allow the tenant to cancel an agreement within a certain time. You may want to wait until after the cancellation period has expired before providing any compensation.

Cash for keys agreements can be very straight forward exchanges, but it does help to have a game plan in place before approaching tenants. Keep in mind, not all deals are possible, and some deals may take longer than others. I've helped lots of landlords come up with successful strategies that have pleasantly surprised them.  It always works out best if you seek appropriate, professional advice to make your buyout go smoothly.

If you are interested in learning more about tenant buyout agreements and wish to have a one-on-one session to go over your specific situation, you can sign up for a consultation with Sasha. Sasha Struthers is a California licensed Attorney and Real Estate Broker with a law practice that focuses on 'Cash for Keys'/ tenant buyouts and government agency complaints such as REAP, CRD, and Orders to Comply. Sasha's experience managing a 15-building real estate portfolio, including five apartments subject to LARSO has allowed her to help landlords strategically reposition their portfolios, maximize income, and reduce management stress. You can check out her law practice at www.struthers.legal.