The tradeoff between state rental assistance program and tenant buyout agreements
With a pot of funds available for landlords to recoup back rent, declining market-rate rents, and an uptick in vacancies, the calculus of tenant buyout agreements has changed.
If you asked us not too long ago, we were enthusiastic about tenant buyout agreements. We have maintained throughout the pandemic that a vacant unit is more preferable to having the unit occupied by a tenant who is not paying rent.
However painful it might be to waive rent and/or pay money out of pocket to the tenant in exchange for a voluntary vacancy, we argued that at least the landlord can resume getting rental income when the spigot was dry.
Watch Daniel Bornstein make his ardent case for tenant buyout agreements in this video:
Has the value of a vacancy gone down since then?
Enter SB 91, a bill that uses $2.6 billion in federal funds to pay landlords up to 80% of rent owed by qualifying tenants with a COVID-19 hardship. It may be more intriguing to recover such a huge portion of rent owed by taking advantage of this program than to seek a vacancy. Or not.
Getting 80 cents on the dollar of back rent debt can be a hard bargain to refuse, especially when we know that market-rate rents have declined throughout the Bay Area and there is a glut of vacancies.
Don’t get us wrong - we are still proponents of tenant buyout agreements and our office continues to effectuate these contracts at a brisk pace. The fundamental benefits have not changed. But rental property owners must weigh the benefits of the statewide rental assistance being dangled against the value of a vacant unit.
How much rent is owed? Is the desired vacancy because of unpaid rent or a grievance about nuisances/behavior? How long would it take to re-rent a unit? Does the current tenant qualify for rental assistance and are they communicative with the landlord? How much rent can be commanded by a new tenant?
These are weighty questions best approached with informed advice from attorneys specializing in landlord-tenant law.