Don’t Get a Buyout from Your Landlord: Part 1

As an attorney, I’ve learned not to say “never.” There’s always exceptions.

Still, never accepting a buyout is a good rule of thumb.

A buyout is when your landlord offers you cash in exchange for you vacating your home. When landlord waves thousands of dollars in your face, it’s hard to think clearly. After all, that kind of thing doesn’t happen every day.

Precisely because it doesn’t frequently is why you need to take a step back and think. Before you decide, learn more about tenant buyouts. Buyouts are generally beneficial to the landlord, not the tenant.

Why landlords like buyouts

If a landlord does certain types of “no-fault” eviction, he has to give you a certain amount of time to move and money to cover relocation costs. Two major types of these “no-fault” evictions, the Ellis Act and owner move-in, have restrictions on how much rent a landlord can charge when the units are re-rented following the eviction. When the landlord has done a buyout, there are no such restrictions.

One tenant protection

Even city lawmakers thought tenants should be more educated about these financial transactions before they signed on the bottom line.

All tenant buyouts had been taking place behind closed doors until the Board of Supervisors passed the Tenant Buyout Agreements ordinance, effective back in March of 2015.   The main purpose was to “increase the fairness of buyout negotiations.” This ordinance provided more oversight of landlords and helped tenants by requiring landlords to disclose certain items.

Working within the law

Under the tenant buyout ordinance, one of the forms landlords must provide to tenants includes disclosures that the tenant has the right to:

  1. not to enter the buyout negotiations,
  2. consult with an attorney,
  3. rescind the agreement for up to 45 days after the buyout agreement is fully executed, and
  4. get information from the Rent Board for information on other nearby buyouts.

The landlord must also disclose a list of tenants’ rights organizations to help the tenant.

You can see why some landlords didn’t like providing this information to tenant.

Landlords take it to court

The San Francisco Apartment Association, an organization of landlords, challenged the ordinance in federal court. It violated the landlords’ constitutional rights, they claimed.

The U.S. District Court found it constitutional. Still, the Apartment Association, Coalition for Better Housing, San Francisco Association of Realtors, and others joined the lawsuit and appealed the decision. It was heard by the Court of Appeals for the Ninth Circuit, a court below the U.S. Supreme Court.

Two weeks ago, the Ninth Circuit agreed with the U.S. District Court that the law was constitutional.

Understanding what a buyout is

The opinion of the U.S. District Court stated:

“Whatever particular relationship a tenant may have with his/her landlord, it cannot transform a conversation between a landlord and a tenant concerning a possible buyout into something other than a discussion proposing a commercial transaction” (emphasis added).

Commercial transaction. That’s a good description of a tenant buyout. And if you’re not familiar with a commercial transaction, you should learn what your rights are before you rush to sign on the dotted line.

Advantage to the landlord

As an attorney counseling tenants, I hear lots of stories about landlords still trying to strike a deal with a tenant without following the tenant buyout ordinance. There are several reasons for this, including that it’s just plain easier for the landlord because he doesn’t have to follow the procedures. Furthermore, an “under the table” agreement means that the amount paid to the tenant can’t be viewed at the Rent Board.

Trying something shady

In my blog Don’t Be Fooled Into An Eviction, I discussed ways that a landlord will try to frighten you to move.  These methods are used for getting you to sign a tenant buyout.

You should be particularly watchful if your building is up for sale or has just recently sold. Those are prime opportunities for the landlord selling the building to show a better profit margin to a prospective buyer. A new purchaser will also want to increase his bottom line and try to move out long term, low rent tenants.

Usually it doesn’t pay off for you

Having someone offer you thousands of dollars to move initially might seem like a good thing. However, the math usually doesn’t pay off. That’s because you’d have to move to a new home and even it is under rent control, the Costa–Hawkins Rental Housing Act allows the landlord to start your rent at the market rate.

I’ll discuss more in my next blog, “Don’t Get a Buyout from Your Landlord: Part 2.

Wondering about what the laws are regarding your rent-controlled home? Have you received an eviction notice and are unsure whether it follows the requirements of the Rent Ordinance? You should consider talking to an experienced tenant attorney who can help you with your issues.

Know your rights. Protect yourself.

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Mary Catherine Wiederhold

Real Estate Attorney
1458 Sutter Street
San Francisco, CA 94109

Mary Catherine Wiederhold
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