Oakland landlords can't seem to get a break.
Already subject to a draconian, county-wide eviction moratorium, rental housing providers in Oakland are now limited in how much rent can be raised, yet tenant buyout agreements remain a viable option when negotiated legally, ethically, and approached with proper counsel.
Landlords throughout Alameda County have been asked to shoulder an inordinate amount of the social and economic costs of the pandemic. Except for the most egregious circumstances when public health and safety are at risk or rental units are permanently removed from the market by way of the Ellis Act, rental housing providers are unable to evict.
In a double whammy, Oakland landlords must now absorb the costs of rising inflation, the likes of which have not been seen since watching “Dallas” and “The Jeffersons” on television. We thought it was a foregone conclusion, but it's now official: After hours of impassioned public comments from both tenants and landlords, City Council members voted to limit permissible annual rent increases to 60% of the rise in consumer prices, or 3%, whichever amount is less.
It should come as no surprise that the chief architect of the ordinance is Councilwoman Carrol Fife, who made her political debut as the brainchild of the Moms 4 Housing movement. This was spawned when a group of unhoused or insecurely housed mothers took over a vacant, investor-owned home in West Oakland and illegally occupied it for two months. The Alameda County Sheriff's Office would eventually evict the unwanted occupants, but not before garnering national attention and inspiring other activists in Oakland and across the nation to lobby for laws that give tenants and certain other organizations dedicated to affordable housing first dibs on multi-family properties up for sale.
Read our earlier thoughts on Oakland's cap on rent increases before it came to fruition →
The value of a vacancy is huge, and with few other theories to effectuate a vacancy, tenant buyouts remain a viable option
Typically, rents can be raised when the tenant voluntarily vacates the rental unit in exchange for compensation, a rent waiver, return of the security deposit, or any mixture of incentives.
In an earlier webinar, Daniel Bornstein giave a 360-degree view of tenant buyout agreements in an earlier webinar. Although it was aired during the height of the pandemic and some rules have since changed, our core strategy in how we approach these types of negotiations is timeless.
The nuances in Oakland
Under the Tenant Move Out Agreement Ordinance (TMOO, O.M.C . 8.22.700 et seq.), landlords must file a Property Owner Certification with the city's Rent Adjustment Program prior to even entering into a discussion or negotiation. That's right - before the rental property owner even opens their mouth, they must signal their intention to broach a conversation about a buy-out.
Let's say that there is a meeting of the minds and a deal is reached. The executed agreement must also be filed with the Rent Adjustment Program within 45 days of the contract being inked, but the tenant who signed on the dotted line can have buyer remorse.
Even after the tenant agrees to voluntarily vacate, he or she has 25 days to change their mind and rescind the agreement, although this cooling-off period can be negotiated down to 15 days.
Oakland's guidelines ensure that tenants are fully apprised of their rights and the possibility of more lucrative options under no-fault evictions. Disclosures abound
Barring removal of the Alameda County and Oakland's eviction moratorium, this is somewhat of a moot point. There are several theories for no-fault evictions and even if they cannot be used by the landlord today, the tenant must be made aware of them.
We are talking about relocation payments in the event of an owner or relative move-in and the ability to return to their rental unit in some instances. The tenant must be put on notice that even if they agree to voluntarily leave the premises when cash is dangled, the payment can be disgorged because market rents may be higher than when they first moved into their rent-controlled apartment. In other words, if they received a big chunk of money, that windfall may not go far when searching for another rental unit priced at market rate.
Payments received through a buyout agreement may be taxable, and the landlord must notify the tenant of this taxability and the advisability of consulting with tax professionals. The outgoing tenant also must be made aware that the buyout agreement and requisite documents are public record information. Finally, the tenant must be referred to sources where additional information on these agreements could be obtained.
Tenant buyouts are tricky, procedural requirements must be followed to the letter, and the deal must be negotiated in an ethical, proper manner
Bornstein Law is the Bay Area's foremost practitioner in these types of agreements and can help property owners achieve their goals as quickly and inexpensively as possible while avoiding procedural missteps. Whenever possible, our firm prefers to coach clients during negotiations without making direct contact with tenants because if we get interjected into the discussion, tenants tend to get spooked or seek out their own attorneys who often will make unreasonable demands like a payout that is out of whack with reality.
Yet we do understand that there are rental relationships that have become so toxic that the landlord and their tenant cannot engage in a civil, productive conversation. In those instances, Bornstein Law is happy to enter into the negotiation; however, this dialogue would be charged on an hourly fee. If we are only hired to draft up the paperwork, it is on a flat fee and can be prepared rather quickly.
At any rate, tell us about your real estate goals. For informed advice, certainly reach out.