Tenant Buyout Updates

Tenant Buyout Updates

Tenant Buyout Updates

Update December 30, 2018: While the strategies I suggested for tenants considering taking buyouts have not changed much over the years, the stakes are much higher for both landlords (huge potential profits) and rent-controlled tenants (an absurd rental market, despite its ups and downs.) The law has also changed dramatically, at least procedurally.

Rent Ordinance section 37.9E now governs tenant buyouts.

In an effort to 1) increase the fairness of buyout negotiations by requiring landlords to provide a statement of the rights of a tenant; to create a right of rescission for tenants; 2) to allow a tenants time to consult a tenant’s rights specialist; and 3) to collect tenant buyout data, the San Francisco Board of Supervisors passed Rents Ordinance § 37.9E to regulate tenant buyouts in March 2015.

The Rent Board created a Pre-Buyout Disclosure Form that the landlord must submit to the tenant before engaging in negotiating a buyout. The landlord must file the form with the Rent Board along with a Declaration of Landlord Regarding Service of Pre-Buyout Negotiations Disclosure Form. If the landlord and tenant agree to a buyout, the landlord must file the agreement with the Rent Board within 46 and 59 days from the execution of the agreement. All agreements must be in writing. The tenant has 45 days to rescind the agreement. The Rent Board will post all buyout agreements in a searchable database, available to the public.

What do I do if I receive a pre-buyout disclosure form?

I receive many calls from tenants who have received these forms. You really don’t have to do anything if you receive the form—you can toss it, use it as scratch paper or wad it into a ball as a cat toy—but that wouldn’t be my advice.

Even if you haven’t received a pre-buyout disclosure along with a lawyer’s “win-win” letter (a letter containing a threat that the landlord will move into your unit despite the fact that that he’s a pineapple grower who lives in Hawaii or an Ellis Act eviction threat), you must still treat service of the disclosure as an implicit threat.

My advice would be to sign the form and send it back to the landlord. Signing a pre-buyout disclosure form does not obligate you to negotiate a deal or even to take a deal you negotiated. Signing this form doesn’t obligate you to anything. But signing the form does give you an opportunity to engage with the landlord to get more information. As I stated in my article Tenant Buyouts, it’s very important that you get as much information about the landlord to understand his real intentions.

Calculate your absolute bottom line for tenant buyouts.

My article, Tenant Buyouts: Your Absolute Bottom Line is as appropriate today as when it was written eight years ago. I recently updated the statutory relocation payment amounts to demonstrate how to figure your bottom line. In the article, I asked you to evaluate your household’s absolute bottom line by looking at the statutory relocation payment based upon the number of tenants in the unit, their ages and their disabilities. I also point out that you should always include your security deposit and accrued interest in your bottom line. To calculate your interest see the San Francisco Security Deposit Interest Calculator on this page.

You should never take a buyout for less than what you could get if the landlord follows though on his or her threat to evict.

Sadly though, one can can peruse some of the latest tenant buyouts data and find many tenants who accepted buyouts worth less than the statutory minimum relocation payments.

Some landlord attorneys recommend that landlords only offer a buyout based upon the average buyout in a given neighborhood or even  based upon citywide statistics, The number of uninformed tenants bamboozled into taking less than statutory relocation payments significantly lowers the average buyout price.

Do the math—location, location, location!

In Tenant Buyouts: Strategy for Success, I discussed the fact that you’re probably not going to get a down payment for house in San Francisco from a buyout—not that it shouldn’t be required by law—but that it’s unlikely. I also discussed the (now diminished) ramifications of Subdivision Code § 1396.2 (multiple evictions and evictions of disabled tenants and elderly tenants as a bar to condominium conversion.) I also provided some techniques for negotiation, including gathering information, allying with other tenants in the building and assessing the landlord’s true intentions.

Here, I want to show you exactly how much a given building will increase in value if the landlord can buy out only out one tenant. Let’s do the math.

Calculate the building’s increased value if you vacate by using a capitalization rate.

What is a capitalization rate? The capitalization rate, often just called the cap rate, is the ratio of Net Operating Income (NOI) to the property’s asset value. So, for example, if a property recently sold for $1,000,000 and had an NOI of $100,000, then the cap rate would be $100,000/$1,000,000, or 10%.

Tenant Buyouts Capitalization Rate

If you already know the approximate capitalization rate for for buildings similar to yours (in size, desirability and condition of the property), in the same or similar neighborhood, you can use this formula:

Tenant Buyouts Value

How can I find out the capitalization rate in my neighborhood and how does that apply to me anyway?

Check residential income property listings in various real estate sales websites, such as loopnet, or look at commercial real estate brokers’ listings on their websites.. The listing will often show the capitalization rate which wil likely be between 3% to 5% in San Francisco, depending upon the neighborhood. Some listings will also base the value of a building based upon the gross rent multiplier (GRM). More on that in a moment. Or you can use this handy table from Paragon Real Estate Group’s San Francisco Bay Area Apartment Market Report.

Note that almost all buildings with less than five units will have a lower capitalization rate and are not strictly evaluated on capitalization rate because they are more desirable for condo conversion, TIC sales, etc., thus increasing their value.

Now let’s figure out the true value of tenant buyouts from the landlord’s prospective using one more calculation.

Tenant Buyouts value

Here’s a fairly typical scenario: Tenant has lived in a two bedroom flat in a four unit building in the Lower Haight for ten years and a new landlord has just purchased the building. More often then not a new landlord will be the one offering the tenant a buyout. He’s an investor, a capitalist, an MBA bean counter who never considered starting a company to make something useful. He’s only in tis fro the money. He doesn’t care what happens to you.

The tenant is considering taking a buyout and wants to know how much it might be worth. Her rent is $2,000 per month and, after checking rents in the neighborhood, she thinks the landlord could charge $5,000 per month on the open market without much renovation. Her rent differential (market rate minus rent controlled rate) is $3,000 per month or $36,000 per year. This can be considered as net income because it is based on the fact that all the landlord needs to do is re-rent the unit at market rate. His expenses will be minimal. I always try to be conservative when I estimate the value of a buyout to the landlord, so I calculate the value based upon a 5% cap rate. $36,000 divided by 5% (36,000/.05). The value of the building will increase by $720,000 if the tenant accepts a buyout. The landlord (or his lawyer) will likely claim that he will have to remodel the unit to assure that he can rent it for $5,000 per month. Fine, even if he pays $50,000 to remodel, and at that price, it may include a gold plated toilet or two, the value of the building will increase by $670,000.

I took a quick look at a few residential income property listings in the Lower Haight. A conservative gross rental multiplier of about 12X might be appropriate here. I actually saw a few at 17X. The projected gross rent for the unit would be $5,000.00 per month or $60,000 per year. 12  X $60,000 = $720,000. Waddaya know?

Is my hypothetical client going to get half of the increased value in a buyout? Not likely. However, with more research she may be able to understand the landlord’s true breakpoint and increase her buyout accordingly. Most tenants simply don’t realize how much money they may be leaving on the table.

Tenant buyouts are only as good as the agreement that sets the terms.

In my article, Tenant Buyouts: The Agreement, I listed all of the terms that, I think, belong in a buyout agreement. Get half of your money up front in the agreement. Make your move-out date on the first of the month rather that the last day of the month. Don’t agree that the landlord will refund your security deposit “according to law.” Add a clause that allows you to leave the unit in “broom clean” condition. Releases in the agreement should always be mutual. Insist on an attorneys fees clause to a the prevailing party enforcing the agreement. All of these are still important today.

It’s still a game of chicken.

In my experience, landlords threaten eviction, but offer buyouts because they don’t really want deal with the ramifications of an eviction. An Ellis Act eviction would prevent the landlord from renting for five years and/or prevent condo conversion. Landlords may threaten to move in, but most really don’t want to live in the unit for the required three years. Remember, a buyout agreement will usually contain a release of all the tenant’s future claims—lucrative claims for wrongful eviction.

That’s why it is very important to gather all the facts you can to help you decide whether to take a buyout. Even then, some landlords will serve an Ellis Act eviction because it’s part of their business plan. Even then, some landlords will serve an OMI eviction because they either—can’t or won’t—pay enough to justify a tenant’s waiver of future rights.

If you are facing an Ellis or OMI eviction threat you should contact the Displaced Tenant Housing Preference Program prior to the landlord’s service of a notice to understand if the program is one that you can use, and more importantly, to assign a monetary value to the housing voucher that you can consider as part of your bottom line for negotiation.

Taking a buyout will be one of the most difficult decisions you ever make, unless you plan to move in the near future any way, or the money you get will complete the down payment you been saving.  Only you can decide whether to take a buyout.

We do not charge contingency fees based upon a percentage of the buyout amount. We only charge for the time we spend to negotiate, correspond, draft, review and finalize the agreement, resulting in substantial savings for our clients.

See our other articles about Tenant Buyouts

Call the Tenant Lawyers now for a free consultation.
(415) 552-9060

My 24-Unit Building Is For Sale, Should I be Worried?

My 24-Unit Building Is For Sale, Should I be Worried?

My 24-Unit Building Is For Sale, Should I be Worried?

I live in 24-unit building in the Western Addition, built long before 1979. It is three stories and, all of the units are either studios or one-bedrooms.  I’ve been there 7 years and pay about $2000 a month for a one-bedroom unit. 

Yesterday we received notice from the property management company that the owner of the building has decided to sell it. I’ve always assumed that because the building is so large it wouldn’t be turned into condos, have owner move-in evictions, etc. Now that it’s being sold, of course I’m worried about what will happen next. Do you have any advice for what we should be aware of with new ownership?  

A few years ago I would have been cautiously optimistic in my answer to your question.

Then, as now, a 24-unit building was ineligible for condominium conversion. An owner-move-in eviction of a given unit sold as a tenancy-in common (the allocation of a single unit to an owner with a shared interest in a building) would have been next to impossible to accomplish, because an OMI requires ownership of a 25% interest in the entire property. An Ellis Act eviction (removing all of the tenants from the building to exit the rental business) would have been impracticable because the highest and best use of a 24-unit building remains as a rental income property.

So it’s likely I would have reassured you that your tenancy would be safe, barring the return of the Lembi family to the San Francisco real estate investor landscape.

But that was yesterday and yesterday’s gone. No tenant is immune from the huckster-carpetbaggers who epitomize today’s new real estate tycoons.

During the last few years, I have noticed an alarming trend. Companies/LLCs often purchase larger rent-controlled buildings like yours with the intent to renovate vacant units, turning studios into one-bedrooms and one-bedrooms into two-bedrooms, etc.

You may ask, how do the units become vacant? There may be a few vacant units in the building as a result of inevitable tenant turnover—the seed units, if you will.

Often the new owners will send the remaining tenants the old “win-win letter,” which goes something like this:

“We are reaching out to you ahead of the start of construction to notify you of the work and also take the opportunity to make you aware of a program the owners have created to help tenants transition into new housing. Some tenants are understandably sensitive to construction activity in close proximity to their unit, and thus one opportunity we would like to bring to your attention is to reach an agreement whereby you would agree to vacate your unit at some agreed upon date in the future, in exchange for a payment of money.”

You know…heads we win, tails you get to live in a noisy, dusty, filthy  construction zone—unregulated by an emasculated EPA, barely regulated by a building department with bigger fish to fry and ignored by a build, build, build planning department. And from a legal perspective, not quite uninhabitable enough to justify moving and suing. You’ve just entered the Tenant Twilight Zone.

“And thus one more opportunity we have to procure a vacant unit.”

How can you find out if your building is slated to double its population?

1. Get a copy of the sales listing or a prospectus for the building. Because this type of project will attract more sophisticated investors, a more detailed proposal may be available, one that includes renovation cost estimates per unit, along with projected income for a renovated unit. If the listing includes these details, then you can begin to plan for the inevitable.

2. You can gain valuable insight into a bare bones listing by analyzing the income and expenses. If the price of the building is comparatively low based on net income, it may not be a candidate for renovation.

3. If the building sells, get as much information as you can about the new owner(s). Find other properties they own or have owned. You can search for recorded documents online here and check the San Francisco Property Information Map for more detailed information.

4. Speak to other tenants in the building. Your combined knowledge will be much more complete…and powerful. Create a listserv. Begin to work as a group, a team. Go to the San Francisco Tenants Union to learn how to organize.

5. Try to get information from the real estate agents handling the sale or the current owners. Occasionally, somebody associated with the building may blab. The first rule of speaking to those in the know: keep your ears open and your mouth shut.

6. If the new owners offer you a chance to discuss a buyout, you or a representative tenant from your group may want to consider signing the Pre Buyout Disclosure form. Signing the form does not obligate you, in any way, to accept a buyout; but it may, in some circumstances, represent another method to gain information from the new owners or their representative. Get the owner to explain why your buyout offer is so low. He may want to rationalize his offer by explaining why his costs are so high. Ask lots of questions and listen carefully.

7. If the new owners begin their construction, don’t wait to complain about the noise and the dust and the trip hazards in the hallways. Always document your complaints in writing. Coordinate your complaints with the rest of the tenants. Give the owners one chance to remedy and if they don’t, call a housing inspector at the Department of Building Inspection.

8. Finally, call your San Francisco supervisor. He or she needs to hear your complaints loud and clear and often. He or she may begin to think twice about accepting that “contribution” from the SFAA or some other shill for the so-called real estate industry.

I don’t mean to alarm you by suggesting your building will be absolutely targeted in this manner, but the impending sale of a building these days, even 24-unit building like yours, should concern tenants. An impending sale also provides tenants with an opportunity to connect, organize and take power.

Call the Tenant Lawyers now for a free consultation.
(415) 552-9060

Should I Propose A Buyout to My Landlord?

Should I Propose A Buyout to My Landlord?

Should I Propose A Buyout to My Landlord?

Should I propose a buyout?

I live in an old 12 unit Victorian (1890s) in San Francisco’s Haight Ashbury district.

Tenants in our building suffered through the Lembi years where some of my neighbors were offered $25k to move (poor timing on my part).

The new owners are currently renting upgraded units for $3200. I would like to propose a buyout to the owner and see if they would be interested in my unit.

My rent is $1140 for a large 2 bedroom. We have a middle man management company that facilitates all correspondence. Should I send the request to them or is it a better tactic to try and locate the actual owner’s contact information to send the proposal letter to?

I have no idea if the owner would consider offering a buyout, but figured a good pitch may make them consider it considering after upgrades, they would yield a $2k profit monthly.

As you may know, I help tenants negotiate buyouts all the time. I’ve written four articles that illustrate the negotiation process, strategies to obtain the best price and the provision that should be contained in a settlement agreement:

Tenant Buyouts
Tenant Buyouts: Your Absolute Bottom Line
Tenant Buyouts: Strategy for Success
Tenant Buyouts: The Agreement

99.9% of buyout offers are initiated by landlords accompanied with a vague or overt threat of an Owner-Move-In (OMI) eviction or an Ellis Act eviction. Landlords rarely move into 12-unit buildings and almost never take them out of the rental market using an Ellis eviction because 12-unit buildings cannot be converted to condominiums.

The Lembis offered buyouts four or five years ago as a part of their scheme to inflate the projected income of their buildings to refinance them using collateralized debt obli­gations (CDOs), “a strategy that made their holdings more attractive to all that practically free short-term money—hundreds of millions of dollars—flowing in from around the globe.” Danelle Morton, “War of Values,” San Francisco Magazine.

In my experience, I haven’t  seen many successful buyout when tenants propose them. the landlord think the tenant will vacate voluntarily anyway.

The best way to deal with this is to show the landlord the value that he will gain if you move. And if you’re planning to move anyway look at a buyout as “found money.”

Call the Tenant Lawyers now for a free consultation.
(415) 552-9060

Should I Take A $40,000 Buyout Offer?

Should I Take A $40,000 Buyout Offer?

Should I Take A $40,000 Buyout Offer?

I have lived in a 12 unit Victorian apartment building in the Mission District in SF for the last 22 years.  I am 65 years old and live there alone. I pay just under $900 for a junior one bedroom apartment on the top floor.

The building was recently sold to a new owner. I have been contacted by the new owner just yesterday and offered a buyout of $40,000.  I politely took his phone number and told him I would think about it and get back to him when I can.

My question is:  Is this a good deal?  Since the majority of the units in the building are going for “market rate”,  he’s collecting at least  $20,000 a month.  So, should I ask him for $60,000.

The facts as you present them are a bit unusual. I haven’t seen many landlords offering buyouts to tenants in 12 unit building since the  Lembi/Citi-Apartments days. Of course, they wanted to replace any tenant to increase rents as high as possible in a given building. That way they could peddle their financial meltdown era, collateralized debt obligation fueled Ponzi scheme to various “unsuspecting” financial “victims” like Credit Suisse. I think and hope that practice has been abandoned, but you never know–nobody went to jail.

These days, buyouts are not that common in12 unit buildings because buildings with over 6 units  are not eligible for condominium conversion. If the landlord simply wants to sell TICs (tenancies-in-common), it would be difficult for an owner to evict you using an Owner Move-In eviction because it would be unlikely that the unit “owner” would have the requisite 25% of the building. Of course, you are completely protected for that scenario because you are over 60 years of age and you have lived in the building for more than 10 years. (See Rent Ordinance §37.9(i).)

It is also unlikely that the landlord wants to evict you using the Ellis Act because it is usually wise to keep the option to rent in a 12 unit building. Notice I said unlikely, but it’s not out of the question.

So my first conclusion without research is that the landlord feels he can rent you apartment for a hell of a lot more than $900 per month.

Before you start thinking about making a counter-offer, you should ask yourself a few questions:

  1. Do I want to move?
  2. Do I know, more or less, where I am going to move?
  3. Will a buyout of any amount of money adequately compensate me if I have to pay market rent?

The first thing to understand is you don’t have to go anywhere if you don’t want to. You’re 65 years old and, unless you have saved your money to purchase a place to retire, you may find yourself spending the bulk of your buyout on rent that has trebled since the last time your were in the market. My first advice is to understand the rental market and do the math. Then you may find that no amount of money in the world will justify your move.

If you decide to negotiate with the landlord and you think that $60,000.00 is enough, there are two ways to approach the negotiation. The first is to simply say, “Look, I won’t move for less than $60,000.” In this case, the landlord has already made a fair initial offer. Usually they start at less than the statutory relocation benefit, $8,595.44 in your case, if the landlord evicts using the Ellis Act. He may be willing to just give you $60,000.00

The other approach is to tell him that you really weren’t expecting his offer and you think it would take at least $100,00.00 to get you out, but let him know that you might consider a lower offer. Some landlords expect to dicker and some don’t like it. You should read my blog, “Tenant Buyouts: Strategy for Success,” for a fuller explanation and to understand how to try to gauge the landlord’s expectations.

If you make a deal with the landlord, you’ll have to understand what to include in the agreement. Check out my blog, “Tenant Buyouts: The Agreement,” to understand what terms should be included.

I think to you should be careful about taking a buyout, given your age and the landlord’s limited options. I also think that you are in a position to receive a buyout that could be more lucrative than the average if you decide to go down that path. I am also beginning to sense that the market is heating up. In some cases, protected tenants are receiving more than $60,000.00. That all depends on the landlord’s goals and ability to realize them.

Talk to your friends. Make the ol’ Ben Franklin list–pros on one side, cons on the other. Don’t just come up with a number without considering all of the ramifications of a move-out. Remember too, that buyouts are taxable!.

I have written a few other articles about buyouts that any tenant considering one should read.

Call the Tenant Lawyers now for a free consultation.
(415) 552-9060

Are The Buyout Terms My Landlord’s Offering Acceptable?

Are The Buyout Terms My Landlord’s Offering Acceptable?

Are The Buyout Terms My Landlord’s Offering Acceptable?

My husband and I live in a two-unit condo that was converted from a TIC to a condo in 2007. The owners moved out during the conversion process and we moved in. They asked us to keep utilities in their name, which we did though we made the payments. I should state at this point that these people used to be friendly acquaintances of ours through a larger group of friends.

We moved in 5 years ago (March 2006) and the TCI to condo conversion was completed approximately a year after we moved in, at which point they indicated they wanted to sell the unit. This has happened twice over the past few years, they say they want to sell and ask us when we think we can be out.

They have never mentioned eviction, but have tried to stick us in the middle of negotiations with potential buyers to “guarantee” a move-out date with no mention of compensation. Of course no buyer has followed through with an offer since we were still in residence without a legal notice of vacating the property (though the property was advertised “delivered vacant”).

The owners have contacted us again this winter with the same game plan. Our response was, let’s talk about a buyout–otherwise we’ll deal with the new owners and an OMI eviction or whatever…

They were not happy about it but agreed to work with us on this and stated that they would have their lawyer draw an agreement. We have been very generous in not pushing them for more than statutory relocation payments and return of our deposit plus interest.

What we received was not what we expected. I believe it is a Stipulation of Judgment (which you mention in your article: Tenant Buyouts: The Agreement) with no accompanying document or agreement language. It seems very owner/landlord oriented, naming themselves as the plaintiff and us as the defendants.

My husband and I expected a letter of agreement stating terms and conditions etc. that would be witnessed/notarized and sent to us certified mail to sign a copy. I’ve attached what we received instead.

We have had some feedback from friends involved in real estate who all said don’t sign it. Our intent moving forward is to take control of the situation, let our landlord know that the document we received is not something we can agree too, draw the agreement ourselves, have it reviewed by a lawyer, sign notarize and send the document with copies to the owner. Does this seem a reasonable course of action?

In San Francisco a two unit building may bypass the condominium conversion lottery if both units were owner occupied for at least one year before submission of the conversion application. (San Francisco Subdivision Code §1359.)

I bring this up because I always think something is fishy when a landlord, engaged in the process of conversion, asks a tenant to keep the utility bills in his name or receive his mail. My first thought is that the landlord may be falsely claiming that he lives in the unit–defrauding the City. You can search the condo conversion process on a given building by checking with the Department of Public Works.

I’ve said this before: Tenants, never lie for your landlord. Never cover for them by receiving their mail or paying bills in their name.

You should also be aware that your unit is still covered by rent control regarding annual allowable rent increases. Even though it is now a single-family dwelling, it is not exempt because the original “developers” of the condominium have not sold the unit.

Buyouts are controversial among tenant advocates. Essentially, a buyout removes another rent controlled unit from the already dwindling supply. These days, buyouts rarely compensate tenants for increased market rent amortized over a given period of time. That said, I will represent tenants in negotiating buyouts, if after I tell them all the downsides, they feel a buyout is appropriate.

In my opinion, the terms of your buyout are unacceptable. In the agreement you attached (a stipulation for judgment) the landlords are only offering you the minimum relocation payments ($10,200.00, should be $10,202.00!) and the statutory minimum time (60 days) to vacate and waive all of your tenant rights.

Why would you agree to that, if you can get the same terms when a new buyer purchases the property and serves a legal OMI notice? I wrote about this in Tenant Buyouts: Your Absolute Bottom Line.

Remember, when you waive your tenant rights you’ll give the landlords the opportunity to increase the rent to market rate. This may be their goal anyway. Your rights are valuable and the landlords know it. They’re just being Cheeseballs.

As a rule, I don’t mind a stipulated judgment as a form of agreement, but I admonish my clients, “If there is any reason you think you will not be able to move out per the agreement, don’t sign it.”

Another common misconception is that agreements must be notarized. A notarized signature on an agreement like this does not lend more legal significance to the agreement. Generally, wills and documents to be recorded should be notarized.

If you want to be generous, that is your prerogative. Yet the agreement you attached does not provide for payment up front nor does it provide for enforcement in case you move and the landlords don’t pay. It should be redrafted whatever the consideration terms.

For updates to this article see Tenant Buyouts Update 2018.

Call the Tenant Lawyers now for a free consultation.
(415) 552-9060

Should I Propose A Buyout to My Landlord?

Tenant Buyouts: The Agreement

Tenant Buyouts: The Agreement

If you have negotiated a buyout agreement with your landlord, you have to get that agreement in writing. Any landlord who balks at this is going to screw you, end of story. If I was a landlord lawyer I’d say the same thing about a tenant. Unfortunately, in my experience, I find that tenants are more trusting.

Let’s say that you have come to a general agreement that provides for the landlord paying you $30,000.00 to move. Your move-out date is July 1. Now it’s time to get into the specifics.

Get half of your money up front in the agreement.

Most landlords and their attorneys understand that this is not an unreasonable request. I point out that my clients want to move as soon as they can and they usually need a good chunk of cash to accomplish that. After all it’s not unusual anymore to have to put $5,000.00 or $6,000.00 down to to secure a new apartment, not to mention moving costs. Often landlords ask for the first and last month’s rent with a security deposit equivalent to another month’s rent. I would be wary of making a deal that provided for the whole payment to come after you move. There’s just too much temptation for a landlord to find a pretext to refuse to pay you.

Make your move-out date on the first of the month rather that the last day of the month.

This is an obvious one. While I never recommend this, you have all night to tidy up if you need it. If your move-out date fall on a Friday or during a weekend and you are required to deliver the keys to the landlord’s attorney, you want to make arrangements about “surrendering” the property with that in mind.

In one of our negotiations we settled on a vacate date with a time of midnight on that date. My clients were pushing the deadline and they were still cleaning the apartment when, you guessed it, the landlord pulls up and accuses them of breaching the agreement. They finished moving at 1 a.m. Needless to say, I had a discussion about the concept of “substantial performance” with the landlord’s attorney the next day and they got paid.

Don’t agree that the landlord will refund your security deposit “according to law.”

Chances are you’re not thrilled about moving and probably a little miffed at your landlord. You don’t want to have to communicate with him again, 21 days after you move (if ever), to wrangle your security deposit. I like to get a clause that provides for the landlord to do a walk-through and refund the deposit with the final payment.

Add a clause that allows you to leave the unit in “broom clean” condition.

Here’s the one we insist upon:  Tenant agrees that, upon vacating, they will remove all Tenant’s personal property and other things from the premises, and otherwise leave the premises in broom clean condition. “Broom clean” shall be defined as follows: Free of all personal property, debris and garbage in all parts of the premises, common areas, sidewalks in front of the building and any storage areas in the building associated with the premises. The premises shall be swept with a broom. The definition of broom clean shall not include the scrubbing of walls ceilings, appliances, fixtures or carpet cleaning. The definition shall not include repair or maintenance of defective conditions, patching nail holes or painting.

Releases in the agreement should always be mutual.

Releases come in all shapes and sizes. Essentially they are comprised of lists of actions and people that you are releasing from any further liability based upon your relinquishment of your tenants rights. Here is an example of a release clause that is fairly succinct:  “Subject to the provisions of this Settlement Agreement, the Settling Parties forever release each other, their predecessors, officers, employees, members, agents, attorneys, successors, assigns, heirs and personal representatives, and partners from any and all claims, liens, demands, causes of action, obligations, damages, expenses and liabilities of any kind whatsoever, whether at this time suspected, known or unknown.”

I like releases to be mutual like the example above. That way all the parties walk away with assurances that they cannot be sued later. While a tenant may not have as many reasons to sue if she got paid, it’s still a good idea that she didn’t sign away rights unilaterally.

Landlord move-out enforcement.

Some landlords’ attorneys like top use a “Doe Complaint.” It’s a fairly cumbersome agreement in which that landlord actually files an unlawful detainer (eviction) lawsuit naming Jane Doe. The tenant agrees that the landlord can amend the complaint to add the tenant’s real name if the tenant does not timely vacate. It’s a draconian remedy, arguably unenforceable. Other landlords’ lawyers use a “Stipulation of Judgment.” You sign away all your rights to trial, etc. the landlord can use the document to go to court and get a judgment for possession against the tenant.

I am, surprisingly, not put off by most landlords buyout enforcement mechanisms.  I tell my clients, If there is the slightest chance you can’t move out when you agree to do so, don’t sign the agreement. Clearly if something happens to you that is unexpected like emergency hospitalization, you have defenses for non-performance. But I am not talking about waiting for that perfect $900 per month cottage in Pacific Heights.

Insist on an attorneys fees clause to a the prevailing party enforcing the agreement.

If you don’t get your last payment you do not want to have to pay a lawyer to sue to enforce the agreement without a chance to get those fees reimbursed. Attorneys fees clauses are reciprocal by law. Make sure that you’re in the right before you sue to enforce your agreement.

Here is an example:  “In the event any action or proceeding is brought to enforce the terms of this Settlement Agreement, the prevailing party shall recover his or her or its attorney fees and costs to enforce this Settlement Agreement from the other party.”

There are many other nuances to buyout agreements. These are the basics. Even if you can negotiate everything for yourself, it’s still a good idea to have a lawyer look over your final draft.

Tenant Buyout Updates.

Call the Tenant Lawyers now for a free consultation.
(415) 552-9060

Tenant Buyout Updates

Tenant Buyouts: Strategy for Success

Tenant Buyouts: Strategy for Success

“You got to know when to hold ’em, know when to fold ’em. Know when to walk away and know when to run.” —The Gambler, Kenny Rogers.

Before I begin, I need to tell you that some landlords, regardless of their real intent, simply won’t pay a tenant more than the statutory relocation payments. The landlord thinks he’s being generous. Or, and I can’t tell you how many times I’ve heard this one, the landlord claims he just doesn’t have the dough. The $2.4 million he paid for two units just tapped him out. This is probably a topic for another post, but holy hosanna, you came up with the $2.4 million and didn’t consider the tenants?  It’s unbelievable and it demonstrates callous disregard for the impact on the tenants individually and the community at large. Many of these buyers consider themselves to be politically liberal or progressive. Yeah, right.

You’re not going to get your down payment.

I occasionally meet with tenants who tell me that they want and even expect the landlord to pay them $300,000.00 to move. An ancient part of me wants to try the drugs they’ve been taking. But I do know what they’re going through. The fact is that the landlord considers a buyout to be a settlement before litigation, not after a tenant has been wrongfully evicted and all evidence collected during litigation points to a smoking gun. At this stage you are not going to get but a small fraction of a potential judgment. If the damages are going to be that great, it’s a good idea to move out and sue later or fight an eventual eviction.

The two most common scenarios for buyouts are OMI (owner-move-in) threats and Ellis eviction threats. With OMI evictions you have to prove that the landlord does not intend to live in the unit for three years. Proving intent is difficult, especially in the absence of an overt, wrongful act. For all intents and purposes, Ellis evictions have no defenses. The point is you’re not going to get rich with a buyout.

Subdivision Code §1396.2

There is one more element to consider before you can begin to negotiate. If you believe the landlord wants to eventually convert the building to condominiums take a look at San Francisco Subdivision Code §1396.2. The code essentially provides that when the landlord evicts two or more tenants using the Ellis Act or uses a no fault eviction to oust a senior 60 years of age or older or a disabled person (Americans with Disabilities Act standard), he will be prohibited, forever, from converting the building to condominiums.

When the condominium lottery was still in effect, landlords with larger buildings (three to six units) had more to lose. under the new condominium conversion law six unit buildings cannot be converted at all. Under the new expedited process, three to five unit buildings have to be tenanted with a larger percentage of TIC owners. While they do not have go through the lottery, the new expedited process takes many years and has more hurdles, e.g. landlords must offer lifetime leases to existing tenant if they wish to convert.  Moreover as of July 2017, the City is not accepting ECP applications from buildings with renters.

Two-unit buildings are exempt, however, and converting them is highly profitable. if you are a protected tenant defined above, and you live in a building with two units, if the landlord offers you a buyout, beware. Under Rent Ordinance § 37.9E, even a buyout would be defined as an eviction for purposes of Subdivision Code §1396.2. You should contact an attorney if you still want to take a buyout.

Negotiate before the notice is served.

Bear in mind that if you want to negotiate a buyout with your landlord it is important to do it before he serves (and files with the Rent Board) an Ellis or an OMI notice. The Rent Ordinance only allows a landlord to rescind a notice if the tenant does not move out.


You know your absolute bottom line. The real question becomes, how much can you add to that? And finally, is worth it to you to take a buyout when the deal is done? Here is a scenario to consider:

Two tenants (partners) have lived in two-bedroom apartment in a six unit building in North Beach for ten years. Their rent is $900.00 per month. They do not have any disabilities and they are both under 60. The landlord asks them to consider a buyout based upon his assertion that he will Ellis evict the building which has only one more occupied unit.

Gather information: Our tenants should speak to the other tenants in the building. Find out what the landlord said to them. Ask them about their plans. Find out if the other tenants are protected on some level by age or disability. They should also find out as much as possible about the landlord, what he’s done in the past, what other properties does he own, etc.

Form alliances with other tenants: It is always a good idea to speak to and, sometimes, to join forces with other tenants in the building. this is especially true with Ellis threats because more than one eviction can screw up the landlord’s future condominium conversion. With Ellis evictions landlords often want to make deals with all of the existing tenants at the same time. They don’t want to spend money to move one tenant and fail to make a deal with the others because, ostensibly, they would still have to invoke the Ellis act.

Do the math: These tenants are entitled to approximately $10,000.00 plus security deposit and interest. They would get a 120 day notice to move per the Ellis provisions. If the market rate of a similar unit is $2,000.00 per month, they will save $4,400.00 just by moving pursuant to a notice. Their real bottom line is closer to $15,000.00.

Assess the landlord’s intentions: Is he a developer who will definitely Ellis? Or is he fishing?  What’s it worth to him?

Assess the value of the unit: How much did the landlord pay for the building? How much will it take to renovate the building for resale? Most importantly try to figure out what your unit will be worth. In our example, if the landlord paid $1 million for the building and the units are all about the same size with the same layouts, the landlord paid about $170,000.00 per unit. If the building is in okay shape, maybe the landlord will have to spend $70,000 per unit to renovate. Because the building is in North Beach, the average sales price of a given unit could be more. If there are no garages the unit could still sell for maybe $500,000.00. (These days the market is lousy. the same unit may have sold for $800,000 two or three years ago. This is another topic, but the so-called free market ain’t so free when it’s being manipulated by purveyors of funny money.) In our example the landlord may be expecting about $260,000.00 in gross profit.

Start high, but not too high: Here’s where the game of chicken begins. If our hypothetical tenants think the landlord is serious about evicting and it looks like the other tenants will move voluntarily, they may not have much room to negotiate. They should consider the implications of a smaller settlement, but still try to negotiate something higher. They don’t want to leave any money on the table.

Our tenants think the landlord is expecting to make about a quarter million bucks per unit. In this scenario and this market I think the tenants would be very lucky to receive $50,000.00, so I might start the negotiation at about $60,000.00. Landlords and landlords lawyers will tell you that they just want to get to the bottom line, but if you give them your real bottom line immediately, they’ll always lowball you. Unfortunately in this scenario, the landlord’s top offer may still be low, as little as $20,000.00.

Don’t whine: Tenants often believe that they prevail in negotiation if they point out how hard a move is going to be for them and show, earnestly, what they will be losing. Think about it. Does the guy on the other end of the conversation really give a rats ass? If he did he wouldn’t be in the business in the first place. I make it my job to point out the benefits of the deal to the landlord. That’s why it’s important to do the research.

More time = less money: This may be obvious but the more time you demand to stay in your unit, the less money you will receive in a buyout.

If the deal doesn’t make sense, don’t take it.

Remember you are selling your future rights to sue. If there is a chance that the landlord just wants you out because your rent is too low (and there is always that chance) and you could demonstrate considerable damages in a future lawsuit, be very careful about taking the money and moving. In the example above, I don’t think I’d recommend that the tenants take $20,000.00.

Like a high stakes poker game, buyouts are complicated. If you want want to get the best deal possible, you must be prepared to analyze the deal using the strategies here. Just plug in your own set of facts. Obviously if you are protected in some manner by the Rent Ordinance, that will change the game considerably. Get ready to stare down the landlord.

For updates to this article see Tenant Buyouts Update 2018.

Call the Tenant Lawyers now for a free consultation.
(415) 552-9060