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  • Writer's pictureMaxwell Shenk

Tenant Buyout Agreement - Cash For Keys

Even though it is commonly referred to by investors as “Cash for Keys”, a buyout agreement is more indicative of the exchange according to AB 1482 tenant protection ordinances and the changes added May 25, 2023. With added disclosures and (we recommend) the need to have an attorney involved we find the term buyout agreement, similarly to co-owners of a business making a deal, more fitting of the situation. With tenants getting more and more rights to your property it is important to understand these buyout agreements and to execute them correctly, especially as you may only have one shot to get the deal done (at least for 6 months).

Cash For Keys

To preface: Cash for Keys and buyout agreements are far from a “sure thing”. You need to always have a back up plan when evaluating properties as your offer may be rejected and you may not be able to make another offer, by law, for 6 months after the initial offer. If you don’t have the funds to carry the loan without new renters and a 10% increase doesn’t cut it then make sure you know what you are getting into. In 2021 we offered long term tenants, paying roughly $2000 under market rent on a newly purchased property, $10,000 if they would vacate in 3 months or less. They denied the agreement and moved 11 months later but we were prepared to cover the difference in rent for the duration of their lease.

New disclosures that must be presented to the tenant BEFORE you can even discuss a buyout agreement with a tenant:

  • Tenant has a right not to enter into a buyout agreement;

  • Tenant may choose to consult with an attorney before entering into a buyout agreement;

  • The landlord may not retaliate against the tenant for refusing to enter into or negotiate a buyout agreement;

  • All tenants of a residential rental property may refuse to receive future buyout offers by providing landlord written notice of their refusal, which shall be effective for six months, and all tenants of a residential rental property may rescind the refusal to receive future buyout offers by providing landlord written notice of the rescission;

  • Tenant is eligible for relocation assistance pursuant to section 98.0706(c). The amount ofThe relocation assistance is an amount equal to two months of actual rent under the tenant’s lease in effect at the date of the notice, or, if the tenant is a senior or disabled, the direct payment to the tenant shall be in an amount equal to three months of actual rent. Relocation is estimated to be a total of $______________.

Find a buyout disclosure forms from the SCRHA (remember we give clients a free membership at close of escrow!).

When looking for an actual buyout agreement template you might be hard pressed to find one. An attorney should be drafting this for you so there is nothing missing. You need the buyout agreement to be able to hold up in court if the tenant tries to back out as once they sign an official agreement they will not be able to back out without repercussions.

Here are our thoughts on the amount you should offer as it shouldn’t be a blanket situation: Reading articles from older cash for keys situations and Reddit forums from tenants it seems there is a wide array of amounts offered. From what I have gathered, and what I will be putting into action next week, is to create an amount offered based on moving and incentives. You cannot offer just 3x relocation assistance and think someone will uproot their lives, especially if they are in a situation they are accustomed to.

We find the best way to look at this situation is how to get the tenant to want to move to a better or different situation while covering the gap in their rent for at least a year. There are stories of major construction projects offering 3 years difference in rent to market to get low rent tenants to move. We also like to provide extra incentives like free hauling (the easiest and most affordable service to provide) of anything they leave behind. We’ll keep you posted on how our offer goes next week (we’re hoping between 10-15k per unit will work). If you have had experience with cash for keys or buyout agreements comment below!

Our blogs are provided on selected topics and should not be relied upon as a complete report of all new changes of local, state, and federal laws affecting property owners and managers. Laws may have changed since this article was published or may have been misinterpreted. Before acting, be sure to receive legal advice or consult a licensed CPA.

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