Cash for Keys Q&A- Buyers Negotiating Tenant Buyouts During Escrow

This week I thought I would do another FAQ on tenant buyouts from buyers:

Q: I'm a potential buyer of a property that has tenants in the units paying below market or in a unit I want to owner occupy. What information should I ask the seller for?

When buying a residential property that is tenant occupied you will want to know from the seller if the seller has ever approached the tenants with a buyout offer. If they have you want to know when they gave an offer, what was offered, and the tenant's response. Some jurisdictions have limits on how often a buyout can be offered to a tenant. For example, Santa Monica only allows a landlord to make an offer once every six months. If the seller has approached the tenants and the tenants responded it will help you gauge what the reality is of the property. Maybe the tenant was open to a buyout but the seller does not have the money to pay the buyout amount and would need it to come from escrow. Maybe a tenant said flat out "no" and they are protected, meaning they cannot be evicted for owner occupancy regardless. Based on past interactions this property may not be a good fit, or there may be potential and you can try to finish a deal with the tenants that the seller may have started.

Q: I am doing my due diligence, what information should I request from the seller about the tenants?

It is important to know, as much as the seller has records or information, when the tenant moved in, the names and birthdates of all occupants, the number of bedrooms, and if any of the tenants are disabled, elderly, or are minor children. This is good information to make sure who is on the lease or estoppel certificate matches who is in the unit. It is also good information because all or some of those factors play into what would be a reasonable buyout offer based on relocation set by the applicable rent control. Relocation often comes down to length of tenancy, number of bedrooms, and/or if the tenant has minor children, is above a certain age (usually 60 or 62+), or if the tenant is disabled.

Q: What happens if I can't get any buyouts done during my contingency period?

This is largely based on how your offer is written. If your offer is written that the landlord must deliver units vacant, then the landlord would bear the burden of getting the tenants out by the deadline or you cancel. If your offer is written that one of your contingencies is that you get a buyout deal done then that has to be crafted more mindfully. In that instance you should consult with an attorney on how the offer should be drafted.

The information in this post is for general information purposes only. Nothing on this post should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship.