“You got to know when to hold ’em, know when to fold ’em. Know when to walk away and know when to run.” —The Gambler, Kenny Rogers.
Before I begin, I need to tell you that some landlords, regardless of their real intent, simply won’t pay a tenant more than the statutory relocation payments. The landlord thinks he’s being generous. Or, and I can’t tell you how many times I’ve heard this one, the landlord claims he just doesn’t have the dough. The $2.4 million he paid for two units just tapped him out. This is probably a topic for another post, but holy hosanna, you came up with the $2.4 million and didn’t consider the tenants? It’s unbelievable and it demonstrates callous disregard for the impact on the tenants individually and the community at large. Many of these buyers consider themselves to be politically liberal or progressive. Yeah, right.
You’re not going to get your down payment.
I occasionally meet with tenants who tell me that they want and even expect the landlord to pay them $300,000.00 to move. An ancient part of me wants to try the drugs they’ve been taking. But I do know what they’re going through. The fact is that the landlord considers a buyout to be a settlement before litigation, not after a tenant has been wrongfully evicted and all evidence collected during litigation points to a smoking gun. At this stage you are not going to get but a small fraction of a potential judgment. If the damages are going to be that great, it’s a good idea to move out and sue later or fight an eventual eviction.
The two most common scenarios for buyouts are OMI (owner-move-in) threats and Ellis eviction threats. With OMI evictions you have to prove that the landlord does not intend to live in the unit for three years. Proving intent is difficult, especially in the absence of an overt, wrongful act. For all intents and purposes, Ellis evictions have nodefenses. The point is you’re not going to get rich with a buyout.
Subdivision Code §1396.2
There is one more element to consider before you can begin to negotiate. If you believe the landlord wants to eventually convert the building to condominiums (in San Francisco with six or fewer units) take a look at San Francisco Subdivision Code §1396.2. The code essentially provides that when the landlord evicts two or more tenants using the Ellis Act or uses a no fault eviction to oust a senior 60 years of age or older or a disabled person (Americans with Disabilities Act standard), he will be prohibited, forever, from converting the building to condominiums.
Some landlords, especially with larger buildings (four to six units), claim they don’t care if the building can never be converted. They point to the length of time that it takes just go through the lottery and the (although diminished) availability of fractional loans to finance TICs. But everyone knows that a given unit is worth more as a condominium. It can be sold separately as a single family dwelling. Loans are easier to come by and buyers feel more secure owning their own “house.”The real question is how much value is added. 10%? 20%? I haven’t found an exact answer. I still think that if you are elderly or disabled or the landlord is threatening to evict more than two units, Section 1396.2 should put some more chips in your stack. I love using it when bargaining with owners of two-unit buildings not subject to the lottery.
Negotiate before the notice is served.
Bear in mind that if you want to negotiate a buyout with your landlord it is important to do it before he serves (and files with the Rent Board) an Ellis or an OMI notice. The Rent Ordinance only allows a landlord to rescind a notice if the tenant does not move out.
You know your absolute bottom line. The real question becomes, how much can you add to that? And finally, is worth it to you to take a buyout when the deal is done? Here is a scenario to consider:
Unless you are familiar with your tenant rights to statutory relocation payments in San Francisco you’ll have no idea of the value of your tenancy rights. You must live in a rent-controlled unit to receive these payments.
Are you young enough?
Pursuant to Rent Ordinance §37.9C, as of this writing tenants, regardless of age, are entitled to $4,941.00 apiece up to three tenants or $14,742.00 per unit, if they have been in the unit for a year or more. In San Francisco we recognize that children are tenants and we pay them if they are evicted in a no-fault eviction. Ellis eviction relocation payments are $4,945.46. Landlords used to argue that children were not entitled to relocation payments under the Ellis Act, but I doubt that would fly now.
Are you disabled enough?
Without getting into a complex analysis of disability law, a person who has a physical or mental impairment that substantially limits one or more major life activities, will usually be entitled to an additional relocation payment of $3,295.00. For Ellis Act, $3296.96. Additionally disabled persons are entitled to a one-year notice to vacate for an Ellis eviction.
If you receive SSI or SSA disability or are disabled within the meaning of the SSI disability standards you will be completely protected from an OMI eviction if you have lived in the unit for more than ten years. If you are catastrophically ill and have been living in your unit for five years you are also protected.
The Ellis Act is California’s upraised middle finger to tenants. It doesn’t give a rat’s ass how old or disabled you are. If you’re served, you’re out, but woo-hoo, you some extra dough and a year to get out!
Are you old enough?
Rent Ordinance §37.9C provides that tenants 60 or older are entitled to an additional payment of $3,295.00. The Rent Ordinance provides a payment of $3,296.96 if you are 62 or older. Usually 60-year tenants are completely protected from OMI evictions. But, as I mentioned earlier, the Ellis Act is a different story.
Understand your absolute bottom line.
Your landlord has approached you and told you that they are considering moving in or Ellising the building. They don’t want to make the first offer. They never want to make the first offer. Some landlords mistakenly believe that it can be construed as harassment. Generally Rent Ordinance constraints on landlords’ offers to buy tenants out have been invalidated or disregarded by the courts. Or more likely, landlords don’t want to tip you off about how much money they have to spend. So before you make an offer you must understand your bottom line.
Remember tenants are entitled to $4,941.00 apiece up to three tenants or $14,742.00 per unit, if they have been in the unit for a year or more. If a tenant is disabled or over 60 years old she is entitled to an additional $3,295. If the tenants are a family with minor children they’re entitled to an extra $3,295.00.
Here’s an example: the tenancy consists of an extended family of 5; dad, mom, grandma and two children under18. Dad is disabled and grandma is over 60. All the adults have lived in the unit for 10 years. How much relocation should they be paid? Three tenants (not five)=$14,742.00; plus disability payment for dad=$3,295.00; plus elderly payment for grandma=$3,295.00; plus family with minor children=$3,295.00; for a total of $24,627.
Include the security deposit and unpaid interest.
You should also include the amount of your security deposit in your bottom line. I think it is easier to begin negotiations with one number rather than leaving the security deposit to be paid “according to law.” You don’t want to have wrangle around about your security 21 days after you move. If our family has a $1,000.00 security deposit and no interest owed, their absolute bottom line is $25,627.00.
If the landlord offers our hypothetical family $20,000.00 to move they should politely tell him to gently insert his offer into a location devoid of sunshine. And so should you if your landlord offers you less than your absolute bottom line.
Two tenants (partners) have lived in two-bedroom apartment in a six unit building in North Beach for ten years. Their rent is $900.00 per month. They do not have any disabilities and they are both under 60. The landlord asks them to consider a buyout based upon his assertion that he will Ellis evict the building which has only one more occupied unit.
Gather information: Our tenants should speak to the other tenants in the building. Find out what the landlord said to them. Ask them about their plans. Find out if the other tenants are protected on some level by age or disability. They should also find out as much as possible about the landlord, what he’s done in the past, what other properties does he own, etc.
Form alliances with other tenants: It is always a good idea to speak to and, sometimes, to join forces with other tenants in the building. this is especially true with Ellis threats because more than one eviction can screw up the landlord’s future condominium conversion. With Ellis evictions landlords often want to make deals with all of the existing tenants at the same time. They don’t want to spend money to move one tenant and fail to make a deal with the others because, ostensibly, they would still have to invoke the Ellis act.
Do the math: These tenants are entitled to approximately $10,000.00 plus security deposit and interest. They would get a 120 day notice to move per the Ellis provisions. If the market rate of a similar unit is $2,000.00 per month, they will save $4,400.00 just by moving pursuant to a notice. Their real bottom line is closer to $15,000.00.
Assess the landlord’s intentions: Is he a developer who will definitely Ellis? Or is he fishing? What’s it worth to him?
Assess the value of the unit: How much did the landlord pay for the building? How much will it take to renovate the building for resale? Most importantly try to figure out what your unit will be worth. In our example, if the landlord paid $1 million for the building and the units are all about the same size with the same layouts, the landlord paid about $170,000.00 per unit. If the building is in okay shape, maybe the landlord will have to spend $70,000 per unit to renovate. Because the building is in North Beach, the average sales price of a given unit could be more. If there are no garages the unit could still sell for maybe $500,000.00. (These days the market is lousy. the same unit may have sold for $800,000 two or three years ago. This is another topic, but the so-called free market ain’t so free when it’s being manipulated by purveyors of funny money.) In our example the landlord may be expecting about $260,000.00 in gross profit.
Start high, but not too high: Here’s where the game of chicken begins. If our hypothetical tenants think the landlord is serious about evicting and it looks like the other tenants will move voluntarily, they may not have much room to negotiate. They should consider the implications of a smaller settlement, but still try to negotiate something higher. They don’t want to leave any money on the table.
Our tenants think the landlord is expecting to make about a quarter million bucks per unit. In this scenario and this market I think the tenants would be very lucky to receive $50,000.00, so I might start the negotiation at about $60,000.00. Landlords and landlords lawyers will tell you that they just want to get to the bottom line, but if you give them your real bottom line immediately, they’ll always lowball you. Unfortunately in this scenario, the landlord’s top offer may still be low, as little as $20,000.00.
Don’t whine: Tenants often believe that they prevail in negotiation if they point out how hard a move is going to be for them and show, earnestly, what they will be losing. Think about it. Does the guy on the other end of the conversation really give a rats ass? If he did he wouldn’t be in the business in the first place. I make it my job to point out the benefits of the deal to the landlord. That’s why it’s important to do the research.
More time = less money: This may be obvious but the more time you demand to stay in your unit, the less money you will receive in a buyout.
If the deal doesn’t make sense, don’t take it.
Remember you are selling your future rights to sue. If there is a chance that the landlord just wants you out because your rent is too low (and there is always that chance) and you could demonstrate considerable damages in a future lawsuit, be very careful about taking the money and moving. In the example above, I don’t think I’d recommend that the tenants take $20,000.00.
Like a high stakes poker game, buyouts are complicated. If you want want to get the best deal possible, you must be prepared to analyze the deal using the strategies here. Just plug in your own set of facts. Obviously if you are protected in some manner by the Rent Ordinance, that will change the game considerably. Get ready to stare down the landlord.
f you have negotiated a move-out agreement with your landlord, you have to get that agreement in writing. Any landlord who balks at this is going to screw you, end of story. If I was a landlord lawyer I’d say the same thing about a tenant. Unfortunately, in my experience, I find that tenants are more trusting.
Let’s say that you have come to a general agreement that provides for the landlord paying you $30,000.00 to move. Your move-out date is July 1. Now it’s time to get into the specifics.
Get half of your money up front.
Most landlords and their attorneys understand that this is not an unreasonable request. I point out that my clients want to move as soon as they can and they usually need a good chunk of cash to accomplish that. After all it’s not unusual anymore to have to put $5,000.00 or $6,000.00 down to to secure a new apartment, not to mention moving costs. Often landlords ask for the first and last month’s rent with a security deposit equivalent to another month’s rent. I would be wary of making a deal that provided for the whole payment to come after you move. There’s just too much temptation for a landlord to find a pretext to refuse to pay you.
Make your move-out date on the first of the month rather that the last day of the month.
This is an obvious one. While I never recommend this, you have all night to tidy up if you need it. If your move-out date fall on a Friday or during a weekend and you are required to deliver the keys to the landlord’s attorney, you want to make arrangements about “surrendering” the property with that in mind.
In one of our negotiations we settled on a vacate date with a time of midnight on that date. My clients were pushing the deadline and were still cleaning the apartment when, you guessed it, the landlord pulls up and accuses them of breaching the agreement. They finished moving at 1 a.m. Needless to say, I had a discussion about the concept of “substantial performance” with the landlord’s attorney the next day and they got paid.
Don’t agree that the landlord will refund your security deposit “according to law.”
Chances are you’re not thrilled about moving and probably a little miffed at your landlord. You don’t want to have to communicate with him again, 21 days after you move (if ever), to wrangle your security deposit. I like to get a clause that provides for the landlord to do a walk-through and refund the deposit with the final payment.
Add a clause that allows you to leave the unit in “broom clean” condition.
Here’s the one we insist upon: Tenant agrees that, upon vacating, they will remove all Tenant’s personal property and other things from the premises, and otherwise leave the premises in broom clean condition. “Broom clean” shall be defined as follows: Free of all personal property, debris and garbage in all parts of the premises, common areas, sidewalks in front of the building and any storage areas in the building associated with the premises. The premises shall be swept with a broom. The definition of broom clean shall not include the scrubbing of walls ceilings, appliances, fixtures or carpet cleaning. The definition shall not include repair or maintenance of defective conditions, patching nail holes or painting.
Releases should always be mutual.
Releases come in all shapes and sizes. Essentially they are comprised of lists of actions and people that you are releasing from any further liability based upon your relinquishment of your tenants rights. Here is an example of a release clause that is fairly succinct: “Subject to the provisions of this Settlement Agreement, the Settling Parties forever release each other, their predecessors, officers, employees, members, agents, attorneys, successors, assigns, heirs and personal representatives, and partners from any and all claims, liens, demands, causes of action, obligations, damages, expenses and liabilities of any kind whatsoever, whether at this time suspected, known or unknown.”
I like releases to be mutual like the example above. That way all the parties walk away with assurances that they cannot be sued later. While a tenant may not have as many reasons to sue if she got paid, it’s still a good idea that she didn’t sign away rights unilaterally.
Landlord move-out enforcement.
Some landlords’ attorneys like top use a “Doe Complaint.” It’s a fairly cumbersome agreement in which that landlord actually files an unlawful detainer (eviction) lawsuit naming Jane Doe. The tenant agrees that the landlord can amend the complaint to add the tenant’s real name if the tenant does not timely vacate. It’s a draconian remedy, arguably unenforceable. Other landlords’ lawyers use a “Stipulation of Judgment.” You sign away all your rights to trial, etc. the landlord can use the document to go to court and get a judgment for possession against the tenant.
I am, surprisingly, not put off by most landlords move-out enforcement mechanisms. I tell my clients, If there is the slightest chance you can’t move out when you agree to do so, don’t sign the agreement. Clearly if something happens to you that is unexpected like emergency hospitalization, you have defenses for non-performance. But I am not talking about waiting for that perfect $900 per month cottage in Pacific Heights.
Insist on an attorneys fees clause to a the prevailing party enforcing the agreement.
If you don’t get your last payment you do not want to have to pay a lawyer to sue to enforce the agreement without a chance to get those fees reimbursed. Attorneys fees clauses are reciprocal by law. Make sure that you’re in the right before you sue to enforce your agreement.
Here is an example: “In the event any action or proceeding is brought to enforce the terms of this Settlement Agreement, the prevailing party shall recover his or her or its attorney fees and costs to enforce this Settlement Agreement from the other party.”
There are many other nuances to move-out agreements. These are the basics. Even if you can negotiate everything for yourself, it’s still a good idea to have a lawyer look over your final draft.
2010 by Dave Crow