Cash For Keys – Tenant Buyouts Explained

Negotiating a Buyout of Your Rent Controlled Apartment

QS: I live in a rent-controlled apartment in San Francisco. My landlord recently asked me if I would be interested in a buyout of my tenancy. What do I need to know about tenant buyouts?

A:  

What is a Buyout?

Buyouts are getting a lot of attention right now in San Francisco as rents have continued to rise. A “buyout” occurs when your landlord gives you a sum of money to permanently vacate your apartment/home. Typically, when your landlord approaches you about a buyout he or she wants you out because they are looking to do one of two things: 1) charge higher rent; or, 2) sell the property.

My landlord wants to meet with me – is that okay?

Depending on who you ask the answer may vary.  I generally don’t recommend meeting with your landlord to discuss terms of a buyout until you’ve had a chance to discuss the situation with an attorney. Your landlord may want you to give him/her a dollar figure you would be willing to accept. Unless you’ve had the chance to talk through the value and strategy with an attorney you run the risk of selling yourself short. Once you put that number out there it’s hard to take it back. Better to talk to an attorney before you start trading numbers than after.

Also, even if your landlord doesn’t say it, he/she likely has already spoken to an attorney or realtor about their options and goals. If you go into a meeting without that same level of information you are at a disadvantage. This is a business decision for your landlord – I recommend you treat it the same way and keep the discussions “at arms length” by avoiding in person discussions in which you might feel pressure to cave.

Someone told me there are new laws governing buyouts is that true?

Yes. The San Francisco Rent Ordinance was amended to include a new section, 37.9E governing buyout negotiations. This new section went into effect on March 7, 2015. Among other requirements landlords are now required to provide tenants with a written disclosure form created by the San Francisco Rent Board before he or she can even talk to you about a buyout. More information about the requirements of this disclosure can be found here.

How much is my tenancy “worth?”

Tenants always ask me this question. There is no easy answer as every situation is different. Buyouts can run the gambit from a few thousand dollars to the six figures. The price you arrive at will ultimately depend on strategy, needs and relative bargaining power. Your landlord is almost certainly looking at this as a business decision. You should too. Consider these questions – where will I move? How much will my rent be? What are the risks if I don’t take this deal and am I okay taking those risks? While a lump sum of money in the bank in exchange for moving out of your apartment may seem like a sweet deal now, be sure to think about the implications such an agreement is likely to have on your life.

Before you accept any deal, make sure you have a solid exit strategy that takes into consideration what you can expect to spend on rent moving forward, moving expenses, taxes, and any attorney fees for the negotiations. As always there are many resources available to tenants be sure to use them. For a full list check out the San Francisco Tenants Union and/or Rent Board websites.