In my news feed came some quotes from Los Angeles City Controller Kenneth Mejia (link) that denounced Tenant Buyouts as being more or less bad. I disagree with him for several reasons.
Buyouts are Voluntary
Buyout agreements are voluntarily entered into between the landlord and tenant. A tenant does not have to agree to an offer, as much as a landlord does not have to agree to a sum of money counter offered by the tenant. There is room for negotiations and creative terms.
Many buyouts are negotiated directly with landlord and tenant, where both can have a candid conversation about each's respective reality, find common ground, and reach a deal. In this setting landlords are often the most empathetic.
Plus, there is little uncertainty. The terms are defined by landlord and tenant together, not by a judge or jury's discretion.
It Helps Avoid Evictions All Together
Buyout agreements can be reached to avoid evictions such as unpaid rent or nuisance. By entering a buyout agreement the landlord usually gives the money they would pay an eviction attorney to the tenant to help them move out, as well as usually forgive past rent and some future rent.
This also avoids an eviction potentially going on a tenant's record which could make it hard for the tenant to lease in the future.
It Gives Tenants Money they Otherwise Would Not Have
Landlords and tenants don't know the inner workings of each others' lives. And really they shouldn't. But in this context a buyout affords the tenant an opportunity to get a lump sum of money they otherwise may not receive. Tenants may be in need of these funds for other matters in their lives.
It Helps Tenants Who Already Want to Relocate
You would be surprised the number of tenants that want to move but don't have the funds to do so. Some tenants want to move to a different city or state that is more affordable, or move closer to family. The buyout funds help facilitate a move that is desired but a tenant otherwise could not afford.
It Keeps Rent Control Units and Naturally Occurring Affordable Units on the Market
Probably a point that is most looked at, but to me the least understood. Rent controlled units are by and large older housing stock, pre- 1978. As you can imagine in the decades since their inception these buildings may be in need of major repairs and cosmetic makeovers. That is simply not feasible with extremely low rents. Even if a landlord wanted to take out a loan to do a major capital improvement or make over some units, the rents may not cover the cost of that loan in the long run because there is no return on that investment (market rent). Many buyouts take 1-5 years for the owner to break even on their investment (buyout funds and rehab costs) after getting market rent, but at least there is a projected increase in income.
A buyout creates the opportunity for the landlord to invest in the property, keep it alive so to speak, and re-rent it for higher rent. In turn, that unit continues on as more affordable housing than the brand new apartments that are going up. As these rent controlled units get turned over (vacated and remodeled) tenants that were bought out may move to another rent controlled unit, yes at market rent, but then they are again in a rent controlled unit, that is much nicer because that landlord was able to remodel. It becomes a cycle that greatly assists in preserving affordable housing.
If the landlord can't continue to make a decent return they will sell the rent controlled properties and they will eventually be demolished and replaced with new, more expensive units. Not to mention, many rent controlled properties have architecture that just does not exist any more and should be preserved as much as possible!
The negative comments that buyouts get aren't entirely warranted or deserved. The intention for a landlord to try to remodel a unit and get market rent is a business decision. Landlords being able to maintain these properties with a reasonable return will greatly increase the opportunities for families to create generational wealth. Lastly, it will keep mom and pop landlords in the game and allow new generations to take interest in becoming landlords as well.
You can check out my tenant buyout YouTube playlist here.
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.