Is Cash for Keys Regulated in My City?
Is Cash for Keys Regulated in My City?
By Sasha Struthers, Esq., Struthers Legal, APC
If you own or manage rental property in California, offering a tenant money to terminate their lease (a/k/a, “tenant buyout” or “cash for keys”) is legal. However, it is heavily regulated at the local level, especially for units covered by a local rent stabilization ordinance. Therefore, understanding and following the local rules is not optional. Missteps can invalidate your buyout agreement and expose you to fines, tenant rescission rights, potential legal defenses in eviction actions, and potentially expose you to criminal liability.
What Is a Cash-for-Keys (Buyout) Agreement?
A cash-for-keys offer is a voluntary, written agreement in which a landlord offers money (or other consideration) in exchange for a tenant’s agreement to move out and terminate the lease. It is not a notice of eviction and cannot be forced on a tenant. This agreement is a useful tool that can be effective when both sides want a clean, negotiated resolution. But there can be local compliance requirements you must follow.
Key Legal Requirements in Los Angeles
Most of my work is within the City of Los Angeles. There are several cities that have rules governing cash-for-keys agreements, and some cities adopt new regulations with very little input from property owners.
The rules vary from city to city, but here are some of the most common that impose regulations over cash-for-keys agreements:
| Los Angeles City | Pasadena |
| Los Angeles County (Unincorporated Areas) | Culver City |
| Bell Gardens | Santa Monica |
| Cudahy | West Hollywood |
| Maywood | Inglewood |
Some of the “key” provisions contained in local regulations governing cash-for-keys agreements may include the following:
- Mandatory Disclosure Before Offering Money. Before presenting or even discussing a buyout offer, property owners may have to provide their tenant with a copy of a Tenant Buyout Disclosure Notice outlining the tenant’s rights such as:
- The right to refuse the offer
- The right to consult an attorney
- The right to rescind after signing
- Written Agreement with Required Language. The buyout agreement must comply with the following:
- Be in writing
- Be provided in the tenant’s primary language
- Include specific bolded rescission language above the signature line
- Allow the tenant usually between 30-45 days to cancel after all parties sign
- Filing Requirement With the City. Often, within 60 days of signing, landlords must file:
- A copy of the signed tenant buyout agreement
- A copy of the Tenant Buyout Disclosure Notice
However, this requirement varies by jurisdiction depending on if the agreement is rescinded, so some jurisdictions impose a "soonest" it can be filed time period.
What Happens If You Don’t Comply With Local Requirements?
If you skip required disclosures, fail to file paperwork, or omit mandated language, the following may occur:
- The tenant may rescind the buyout agreement
- The buyout agreement may be unenforceable in court
- You could face administrative penalties or criminal charges
- The buyout agreement could be characterized as improper tenant harassment
- Tenant can use your failure to comply as an affirmative defense in an eviction case
Compliance errors are not minor technicalities — they can completely undermine your buyout strategy. The rules in one jurisdiction are not enforceable in another. If you comply with one jurisdiction’s requirements, that may not be enough to meet the applicable rules promulgated by another jurisdiction.
Bottom Line for Real Estate Investors
Yes, cash-for-keys is legal in California, and more so in the Los Angeles Area. But tenant buyout agreements (a/k/a, cash-for-keys agreements) can be highly regulated. To stay compliant, be sure to:
- Confirm your jurisdiction’s local rules
- Provide the required disclosure notice
- Use a properly drafted, written agreement with mandated language
- File the agreement and disclosure with your local jurisdiction as and if required
When handled correctly, tenant buyouts can be an effective and lawful tool. When handled casually, they can create serious legal exposure.
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.