Numbers are in on SF tenant buyout agreements. Some may experience sticker shock.
What is the value of a vacancy?
For a landlord of a Pacific Heights apartment, the price tag was $410,000 to entice two tenants to move out, according to a recent San Francisco Chronicle article.
This makes for a sensational headline, but buyouts this large are not the norm. When we are asked how much money it typically takes to transition a tenant out of a rental unit, we have no definitive answer - all we can say is it is all across the board.
If you check records with the San Franciso Rent Board, the average is $43K but that number tells us nothing. Bornstein Law has effectuated buyout agreements as low as a rent waiver and as high as $200K.
The variables
We have said the biggest factor in how quickly and inexpensively we can resolve a dispute is which attorney the tenant retains and how hard they fight. The same can be said when negotiating tenant buyout agreements.
The tenant's attorney, naturally, is looking to get the most amount of money for their client, and/or the most amount of time without payment of rent in the form of a rent waiver.
The owner or the owner's attorney, of course, is looking to pay out as little as possible, taking into account the relocation fees with minimum upside, so therein lies the rub.
In an earlier post, we submitted that in a perfect world, attorneys do not get involved in the actual discussion. It is the tenant's prerogative, however, to seek out legal assistance, and the disclosure forms we have to provide make that crystal clear.
Better for the owner and the tenant to have a "fireside chat" with tenants, with the coaching of Bornstein Law.
Know your numbers and think of a buyout agreement as a business decision.
Our firm wants clients to think smartly and strategically about their real estate investments and not make decisions removed from the emotional fray.
It may be painful to pay a tenant money to move out, especially if the tenant has not paid rent or is otherwise problematic. Yet it may be a smart business decision.
As an easy mathematical figure, an extra $1K in rent that can be commanded may add an extra $1K to the value of the property.
Parting thought: Don't be alarmed.
A $400K payday for an outgoing tenant is extremely rare and should not spook landlords who are considering buying out the tenant because there are no other legal or convenient means to evict.
We have arbitraged many vacancies and candidly, sometimes we cannot reach a deal. What the tenant or their legal counsel asks for is simply outrageous. But better in our view to open a door gently and have it shut than to not have opened it all.
For additional resources on tenant buyout agreements, visit our web page dedicated to this subject.