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  • Writer's pictureSasha Struthers

What is "Cash for Keys"?

Landlords in Los Angeles have certainly heard these two buzzwords "Cash for keys" or "buyouts". Both of those refer to the same thing- a voluntary lease termination agreement. Given the rise in residential eviction restrictions one of the few ways landlords can regain possession of a residential unit or property is through the voluntary agreement between themselves and tenants. For simplicity I am going to use the term buyout for the remainder of this post.

Buyout v. Relocation

To understand buyouts you need to first understand mandatory relocation assistance. In California certain residential evictions, such as owner occupancy, substantial remodel, or compliance with a government order, may trigger the requirement for the landlord to pay mandatory relocation assistance to the tenants. The amount of relocation assistance varies depending on where the rental is located due to certain rent control boards having their own calculations.

Often times landlords don't have a reason to evict other than they would like to rehab the rental and re-rent it at market rent. That decision being purely based on the numbers and usually rising cost of property ownership. The buyout came to be so that landlords could re-rent units at market rent without having to go through administrative procedures like pulling permits or filing owner occupier applications when they did not want to be bound to those restrictions long term.

Relocation assistance and buyouts are different because the landlord and tenant agree on the amount of money to be paid and the timeline in which the tenants move out, both of which may be different than what a mandatory relocation assistance would require. However, the mandatory relocation assistance is often used as a baseline when negotiating a buyout. In other words, many buyouts start at or above the mandatory relocation assistance amount.

Local Buyout Regulations

When contemplating a buyout you want to make sure you are aware of the possible local rent control laws pertaining to buyouts. There are several rent control boards that have buyout requirements such as a mandatory disclosures, tenant right to cancel, minimum buyout amounts, agreement being in the primary language of the tenant, and required filing of the agreement with rent control board. Failure to meet the specific requirements could make the agreement later voidable by the tenant. Los Angeles City, Los Angeles Unincorporated County, Culver City, Santa Monica, West Hollywood, Inglewood and Pasadena all have specific buyout requirements.

Benefits of Buyouts

The main benefit of a buyout is that it is discussed and worked out directly with the tenant. It often provides the tenant more money and the landlord a faster timeline and less administrative work. Evictions are time consuming and extremely uncertain, costing the landlord money and aggravation.

Buyout Good Practices

When preparing to approach a tenant with a buyout offer you want to touch on a few points such as confirming all of the occupants in the unit are accounted for to avoid any hold overs, the amount to be paid, when it will be paid, to whom and in what amount(s), how the security deposit will be handled, and the move out date. There are various ways you can structure negotiations including concessions of waived rent, return of rent, and forgiveness of unpaid rent. Other provisions may include when payments against the agreed upon amount are paid based on some milestones, ie. tenant procuring a fully executed lease agreement showing they are actually moving.

At its core a buyout is a voluntary agreement and thus neither party is required to agree to something they don't want to agree to. Buyout negotiations require patience on the part of the landlord. I always tell clients- a buyout is a business decision for you and a life altering decision for the tenants. Landlords want to be mindful of approach and tone to avoid negotiations turning into perceived threats or harassment.

If you are contemplating engaging in buyout discussions you should contact an attorney familiar with buyouts, specifically with experience negotiating and drafting the agreements. You want to make sure your agreement is not only compliant with relevant laws, but drafted to protect the landlord.

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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.


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