Cash For Keys: A Solution to Deal With Problem Tenants Outside of the Protracted Legal System
Contributed by King George Property Management Services
I have always preferred to handle problematic tenants outside of the legal system. The reality is that the court system can take a long time, lawyers are expensive, and sometimes it is easier for all parties to just quickly move on. I have found that in the past, some tenants realize the benefits of a cash for keys settlement and accept it as their best option, while other times tenants prefer to go through the court system. It is not always a sure thing, but here are my top five considerations when looking to strike a “cash for keys” deal with your tenants. But before I continue, let me remind all readers that I am a property manager, not a lawyer or an accountant, so my suggestions should not be considered legal advice by any means. It is always best to seek appropriate legal advice in any tenant / landlord dispute.
Document Control: Put Everything, and I Mean Everything, In Writing
I cannot stress enough how important it is to have all your documentation organized. Everyone has their own methodology but there are some things you should consider. Keep track of when rent was paid. Was it paid in cash? Was it by check? When was it paid? Was it late? Is there a late fee accumulated on top of back rent?
Keep a record of any emails or text messages. To get the best document retention, I recommend communication with tenants in writing by email, letter, or text. In California, there are laws about recording phone conversations, so this may not be an option for keeping records. The absolute last thing you want is to get into an altercation with your tenant regarding “what was said or what was agreed upon.” When you get an agreement sorted out, be sure that all parties sign it. Make the wording crystal clear, with no chance for confusion. Once a tenant has agreed to accept ‘cash for keys’ you can draft a document (Suggestion: seek legal help.) and be sure both the tenant and landlord sign it.
What Exactly is “Cash for Keys?”
Cash for keys involves paying a tenant cash consideration that a landlord provides in order to terminate tenancy and have the tenant vacate the premises. When you say the term “cash for keys” it does not always mean you pay cash out of your pocket. Instead, you can offer to forgive any back rent that the tenant has not paid in exchange for surrendering their tenancy. Another option is paying for movers to help move a tenant’s items. Remember that when negotiating “cash for keys,” take into consideration the amount of the security deposit held. As a landlord, you are entitled to that money for back rent and this should be stipulated in any written “cash for keys” agreement.
Understand the Tenant’s Point of View
Sometimes landlords get ahead of themselves. They think that tenants aren’t paying rent because they are entitled. Or sometimes landlords think that a tenant is taking advantage of the system. A landlord might think that if my tenant doesn’t eat out every day or drive a new car then they could ‘just pay the rent’. Sure, there might be some truth to that, but as a landlord, you can’t dictate where your tenant’s paycheck goes. Once you have a better understanding of what your tenant is going through, you can then move on towards the next step which is starting the difficult conversation about vacating the premise.
Start the Conversation With Your Tenant in a Positive Light
Saying something like “I know that you haven’t been able to pay rent, and I understand you are going through some financial hardship, but at the current time you are in default of your lease terms” is a good way to begin a conversation. This conversation can lead into the conversation about letting your tenants know their options.
Give Your Tenant the Option to Come Current on Their Rent or Vacate
After having a conversation regarding the amount of back rent owed, you can move toward a discussion of either a repayment plan or termination of tenancy. Remember that your tenants have rights and you, as a landlord, cannot threaten or harass your tenants. Give your tenant a date by when they can start making payments. If this option does not work, then you can conclude that a tenant is not making a good faith effort to come current with their back rent (or cannot), and the best option is to ask them to leave.
I’ve done many “cash for keys” deals in my career, and none of them are the same. I would say that the most important aspect is understanding the tenant’s point of view. You are giving them cash (or forgiving back rent), you aren’t going to go to court so they will not have an eviction on their record, and you are helping them start with a clean slate.
King George Property Management Solutions is a Los Angeles based property management corporation. The organization has been in business since 1993. They manage a diverse portfolio and work with owners to ensure a profitable and streamlined operations – with technology put in place to increase tenant satisfaction and retention. To learn more about their services, please visit their website: www.KGPMS.com.