Buyers of residential rental properties occasionally consider as one of the ways to increase their investment return the approach of paying existing tenants whose rents are low an amount to vacate voluntarily. This is also a technique some landlords who have owned their properties a while utilize in an effort to enhance cash flow. The practice is commonly known as a “buyout” or “cash for keys.”
While cash for keys can in some circumstances be effective and lawful, it has now become the subject of widespread abuse. Landlords have started to use the technique to try to sidestep rent stabilization regulations pertaining to vacancy decontrol and relocation assistance (such as the one in the City of Los Angeles requiring relocation payments between $7,900 and $19,700 and at least sixty days’ advance notice, more for elderly and disabled occupants). Other situations where this has been observed as a technique to exploit tenants who do not know their rights include conversion of an apartment project to condominiums, taking units off the market under the Ellis Act and renovation or demolition of some or all of the structures on the site.
The response to these abuses in Berkeley, San Francisco and a number of other California municipalities has been to enact ordinances designed to curb predatory practices. The City of Los Angeles has just passed legislation of the same type named the “Tenant Buyout Ordinance.” Any landlord seeking to offer a tenant cash for keys for residential rental property in the City now must comply with the following rules:
- The landlord must provide any such tenant a written disclosure of the tenant’s legal rights, including applicable relocation assistance amounts.
- Buyout amounts must be written in the tenant’s primary language and must specify that the tenant has a thirty-day right to rescind without penalty any buyout agreement entered into with the landlord.
- Buyout agreements are to be in writing and filed with the Los Angeles Housing and Community Investment Department.
We do not yet know what will be the City’s enforcement penalties and whether they will be as substantial for technical or negligent violations as for to intentional ignoring of the new ordinance. For example, what happens if the tenant signs an agreement written in English and more than thirty days later says that his “primary language” is Vietnamese? What happens if the tenant has vacated and moved into a new residence before the tenant learns that the landlord did not fully or accurately comply with the ordinance? These and a number of other questions will need to be addressed in real life situations. We expect to learn more soon. Stay tuned!