A Note Before the Conversation Begins: Tenant buyout negotiations are regulated in certain jurisdictions. Depending on where the property is located, housing providers may be required to provide disclosures, notify or file documents with a Rent Board or other agency, or satisfy other requirements before initiating a buyout discussion or making an offer. Consult with counsel before approaching a tenant about a buyout.

Tenant buyouts are attracting renewed attention. As we recently discussed, negotiations are on the rise in San Francisco, and some tenants are receiving substantial sums to voluntarily surrender possession. Those eye-catching numbers can leave housing providers with the impression that creating a vacancy is simply a matter of writing a large enough check.

Money certainly matters, but it is only one variable in a much larger equation. The circumstances surrounding the tenancy, the owner's objectives, the tenant's future plans, the timing of the transition, and the way the conversation begins can all influence whether a deal gets done—and at what price.

We call this a leveraged discussion. The idea is not to manufacture pressure or invent reasons why a tenant should leave. It is to understand the legitimate circumstances that already exist and determine whether they give the parties a reason to talk. An owner contemplating a sale is in a different negotiating position from an owner who simply wants a vacancy. A tenant involved in an ongoing dispute may view a voluntary departure differently from a tenant who is perfectly content. And a tenant already contemplating relocation may need surprisingly little incentive to accelerate plans that are already underway.

The only way to uncover these variables is to stop speculating and start talking.

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The best leverage may not be money. It may be knowing what the tenant actually wants.

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Don't Open With Your Checkbook

Consider a long-term tenant comfortably occupying a rent-controlled apartment. The rent is substantially below market, the tenant likes the home, and there is no immediate reason to leave. The owner approaches the tenant and asks how much money it would take to move.

From the tenant's perspective, nothing has changed except for one important fact: the owner has just announced that vacant possession is valuable. The tenant controls something the owner wants and has effectively been invited to name a price. That can be an unnecessarily expensive way to begin a negotiation.

A better discussion begins with context. Why is the owner contemplating a vacancy? Is something changing with the property? Is there an existing issue involving the tenancy? What are the owner's actual plans? Just as importantly, what might be happening in the tenant's life?

The goal of the first conversation is not necessarily to reach an agreement. It is to gather enough information to determine whether there is an agreement worth pursuing.

Don't negotiate against yourself. Before deciding what to offer, find out what the tenant actually values.

The Owner Has Time to Give

An owner preparing a property for sale may strongly prefer a vacant unit but have no immediate deadline for obtaining possession. The tenant, meanwhile, may be open to leaving but overwhelmed by the prospect of finding replacement housing quickly.

The owner has something valuable to trade that may cost relatively little: time.

Instead of paying a premium for an immediate departure, the parties might agree upon a longer transition period. The tenant gets the breathing room necessary to find appropriate housing and organize the move. The owner gets greater certainty that possession will be surrendered on an agreed date.

This illustrates an important principle that gets lost when everyone focuses exclusively on the buyout amount: something inexpensive to one party can be extremely valuable to the other. Discovering those mismatches in value is often how a deal becomes possible.

Both Sides Would Rather End the Dispute

Sometimes the leverage exists on both sides.

Imagine an owner and tenant who have been sparring for months. There are alleged lease violations, the tenant disputes them, notices have been exchanged, and communication has deteriorated. Neither side particularly relishes the prospect of turning the disagreement into prolonged litigation.

The tenant possesses something the owner values: voluntary surrender of possession. The owner possesses something the tenant may value: financial assistance, flexibility and an opportunity to put the dispute behind them.

Neither party has to concede who was right about every disagreement that came before. They can instead ask a more productive question: What would it take for us to put this behind us?

This is an important aspect of a leveraged discussion. Leverage is not necessarily something the owner has over the tenant. Both sides may possess something the other values. The purpose of the conversation is to discover whether there is enough overlap to make a voluntary agreement possible.

Sometimes the Best Lawyer Is the One Who Stays on the Sidelines

Housing providers understandably assume that an important negotiation involving significant money should be handled by their attorney. When circumstances permit, our strong preference is often the opposite: we would rather have the owner and tenant conduct the discussion directly while Bornstein Law coaches the owner from the sidelines.

There is a practical reason for this. A conversation between a housing provider and a tenant who have known one another for years can remain relatively informal. If the first communication instead comes from the landlord's attorney, the tenant may understandably become concerned and retain counsel. Suddenly there are lawyers on both sides, the discussion becomes more formal, positions may harden, and the tenant's expectations about the value of the buyout may rise.

Sometimes introducing lawyers too early changes the temperature of the room—and the economics of the negotiation along with it.

We can often be more useful behind the scenes. Before the owner speaks with the tenant, we can discuss what can and cannot be said, identify legitimate sources of leverage, evaluate what the vacancy is worth, formulate questions and anticipate how different responses might affect the next step. After the conversation, the owner can come back to us and explain what was learned. We can then help formulate the next move.

Think of it as quarterbacking the negotiation without necessarily carrying the ball.

There are, of course, situations where this approach will not work. Some landlord-tenant relationships have deteriorated to the point where every conversation becomes an argument. Personalities clash, emotions take over, or one of the participants is simply a bull in a china shop. When the parties cannot communicate productively, Bornstein Law can step in and conduct the negotiation directly.

The objective is not to keep lawyers out of the negotiation at all costs. It is to decide who is most likely to get the deal done without unnecessarily escalating the negotiation.

Know What the Vacancy Is Worth

Listening to the tenant is only half of a leveraged discussion. The owner must understand the owner's own economics as well.

Before negotiating, the housing provider should have some idea of what vacant possession is actually worth, why it is desired, how quickly it is needed, and what alternatives exist if there is no agreement. If a sale is contemplated, the owner should understand how a vacancy affects the economics and marketability of that transaction. If an ongoing dispute could lead to litigation, the cost, delay and uncertainty of that route belong in the calculation as well.

This is why the size of a buyout cannot be evaluated in isolation. A $50,000 payment may be economically irrational in one situation and an excellent business decision in another. Likewise, a tenant's demand may initially sound enormous until compared with the cost and uncertainty of the alternatives.

Knowing the value of the vacancy also tells the owner when to stop. There are situations where the tenant simply wants more than the vacancy is worth. A leveraged discussion is not successful merely because a deal gets done. Sometimes the economically intelligent result is no deal at all.

A Few Guardrails Around the Conversation

There are procedural requirements surrounding buyout negotiations, but they should be addressed before the negotiating strategy begins. Certain jurisdictions require disclosures, notices, declarations, filings or other steps before an owner may initiate a buyout discussion or make an offer. Housing providers should contact our office before approaching a tenant so that we can determine what requirements apply to the property.

There is also a firm boundary at the other end of the conversation. A buyout is voluntary. When a tenant declines to participate, an owner cannot simply continue pressing the tenant indefinitely in hopes of changing the answer. Certain jurisdictions restrict repeated buyout solicitations and impose anti-harassment protections. When the tenant says no, respect the no.

Those are important guardrails. Between them, however, there is considerable room for an intelligent and productive conversation.

Before Increasing the Offer, Improve the Conversation

Recent headlines understandably focus on the size of tenant buyouts. Large agreements make news. But the final number tells us very little about how the parties arrived there—or whether another structure might have produced the same vacancy for less.

Two tenants living in virtually identical apartments can place radically different values on leaving because their lives are different. One may need money, while another needs time. Another needs enough cash upfront to secure replacement housing. One wants to avoid an escalating dispute. Another was already planning to leave before the owner ever raised the subject. And another may have no interest in moving at all.

A leveraged buyout discussion is about discovering those differences. It means understanding why the conversation is occurring, identifying the legitimate circumstances surrounding the tenancy, asking good questions, listening carefully and determining what each side possesses that the other values.

The objective is not simply to determine the tenant's price. It is to find the terms that can turn two different sets of interests into one workable agreement.

Sometimes that requires more money. Sometimes it requires less money structured differently. Sometimes it requires time, flexibility or simply a better understanding of what the tenant was already planning to do.

You cannot learn those things by immediately putting a check on the table. Before increasing the offer, improve the conversation.