Six tips when negotiating an ethical, legal, and enforceable tenant buyout agreement
A tenant surrender of possession of agreement is a meeting of the minds that results in a tenant voluntarily moving out for compensation, a rent waiver, return of the security deposit, or any combination of carrots and sticks to motivate the tenant to leave the premises at their own volition.
More than “cash for keys,” a tenant buyout agreement will shield the landlord from liability because the tenant agrees not to sue the landlord for any claims arising from the tenancy. Here are some pointers in effectuating a vacancy through a tenant buyout agreement.
Have a leveraged discussion
Are there required disclosures in your locale before you can even broach the discussion of a tenant buyout agreement? If so, asking a tenant to complete some paperwork and sign a disclosure is not an inspiring call to action. What we look for is the leverage that will motivate the tenant to come to the negotiating table.
If the tenant owes substantial COVID-related rent debt, we can remind them that a judgment will have long-lasting consequences but we are open to forgiving a portion or all of the arrears, provided that he or she vacates. This message can be particularly persuasive to upwardly mobile renters who may not be eligible for rental assistance and want to preserve their credit.
When the tenant engages in behavior that can be considered a nuisance, we can stress that an eviction can be avoided through a buyout agreement. Let’s say there is a blowout party resulting in loud noise, graffiti on the building, and the police being called to the raucous get-together. You can begin the conversation with your disappointment in the unacceptable conduct, but you will not pursue an eviction if the tenant agrees to leave. Keep in mind, an unlawful detainer action could take months to see itself throught.
Indicate your interest in selling the property
Leading into the discussion by telling the tenant you are considering selling the building will surely get their attention, as they want to know what their future holds or who their new landlord might be. You might say something like,
“Monica, you’ve been a wonderful tenant, I just wanted to give you the head’s up that I’m considering selling the building to move closer to my son in LA. I don’t know what the future holds, but I’m curious if we can sit down sometime next week and discuss some options that can be a win-win.”
Before making an offer, ask the tenant an open-ended question of what it would take for them to voluntarily move out.
One of the first rules of negotiation is to find out what the other side wants. We often like to pose an open-ended question like, “what would you need to transition out of the property and get settled into a new living arrangement?” because the tenant may be willing to take less than what the landlord is willing to spend.
After crunching some numbers and evaluating the value of a vacancy, perhaps the landlord is prepared to part with $10,000 in order to effectuate a buyout agreement but before blurting out that figure, the tenant could be asked point-blank what he or she would need to move out.
It could be $5,000. It could be a waiver of 2 months' rent and a return of the security deposit. Whatever the demand of the outgoing tenant, it is often lower than what the landlord is willing and able to pay.
Meet in-person to have a heart to heart conversation
Using proper social distancing, we always prefer a face-to-face meeting with the tenant. If the tenant insists on negotiation through email, landlords can engage in electronic communication, but they need to be careful about what is written, as it may be used against them later on if something goes awry. We always recommend sending our office a draft before hitting the send button.
Don’t get an attorney involved in negotiations if possible.
This tip may sound counterintuitive, but our hard-won experience has taught us that when we enter the discussion, the tenant becomes spooked. He or she will do a Google search on us and discover we represent rental property owners and call up an attorney of their own.
Act two: We will be contacted by the tenant’s attorney with the offer of an astronomical dollar. The call will go something like, “Mr. Bornstein, we represent John and are happy to entertain a tenant buyout agreement. John loves his studio apartment overlooking People’s Park but he’d be willing to vacate for $80,000 and 3-months rent waiver.”
If the landlord is able to have a constructive dialogue with the tenant, it is much more preferable than getting attorneys involved because when the tenant’s attorney comes to the table, the amount demanded tends to get ratcheted up.
Of course, there are some acrimonious landlord-tenant relationships that make it difficult if not impossible to have a productive conversation between the parties. Some landlords or their renters are bulls in a china shop. In these toxic relationships, Bornstein Law can broach the topic of a tenant buyout agreement and enter into negotiations at an hourly rate.
We don't want to give away the store - for a more complete discussion on tenant buyout agreements and actionable strategies, watch our webinar aired during the height of the pandemic. Although some procedural rules have changed since its first presentation, the strategic mindset of negotiating a buyout is timeless.
Items we need to draft a Tenant Surrender of Possession Agreement. Once we have this information, our turnaround time is 48 hours.