How to Negotiate a Buyout from a Landlord
By Devin Holt
Not long ago, the San Francisco Chronicle ran a story about a family who were offered $50,000 to move out of their rent-controlled apartment. It sounds like a lot of money, but the family couldn’t decide if they should take it. They had been in the unit for 25 years and didn’t think they would be able to find another place in the city.
The story struck me as the perfect example of how complicated – and occasionally bizarre – San Francisco’s rental market is. It also made me wonder what I would do in that situation.
So I called tenant advocates, landlord associations, lawyers, and people who negotiated their own buyouts to ask what to do if the landlord wants to pay you to move. This is the best advice I heard.
Assess the Situation
As with all legal matters, the first step is to understand what’s happening. If a buyout letter comes in the mail, it’s probably because your unit is covered by the city’s rent-control ordinance (which covers most housing built before 1979), and the landlord can’t raise the rent more than the percentage allowed by the law. The unit is more valuable to them empty, because then they can raise the rent to market rates.
The offer might come with the threat of a no-fault eviction – like an owner move-in or Ellis Act eviction – or it could just be a promise to pay you to leave. If it comes with the threat of eviction, don’t panic. The process is regulated, and there are options.
Get a Lawyer
Tommi Avicolli Mecca from the Housing Rights Committee said the first step for anyone considering a buyout or fighting an eviction is to get legal help.
“I just worry about someone doing it on their own,” he said. “You should never sign legal papers without a lawyer.”
Ken Greenstein, a lawyer who specializes in tenant issues and sometimes takes buyout cases, said that even if you’re the one offering to leave with a buyout, it’s worth consulting with a lawyer to make sure you get the right amount of money.
“Attorneys are good in these situations because they know how to negotiate, will probably know the landlord’s attorney, and can get you a better deal,” he said.
For tenants who want to fight a no-fault eviction and can’t afford a lawyer, Greenstein recommends the San Francisco Tenants Union, the Housing Rights Committee, Causa Justa :: Just Cause, and the city’s Rent Board as organizations that can help.
There isn’t a set formula for how much a voluntary buyout is, but most people I talked to said they range from $20,000 to $60,000, depending on the location, and how long the tenant has been in the building. Greenstein said those numbers sounded low, given how fast rents are increasing in the city.
Negotiating an Amount
For no-fault evictions, the Rent Board sets the payments. These are around $5,200 per tenant and are higher if there are small children, disabled tenants, or elderly people living in the unit. Dave Crow, another lawyer who specializes in tenant issues, said that once the eviction has been filed, it’s hard to get more than the mandated payments. But he said that most landlords will offer money before filing the eviction to avoid a legal fight.
In those cases the negotiation process is similar to a voluntary buyout, but the stakes are a little higher because you have to consider whether or not the landlord will go through with the eviction (Crow referred to this as a “game of chicken”).
There isn’t a set formula for how much a voluntary buyout is, but most people I talked to said they range from $20,000 to $60,000, depending on the location and how long the tenant has been in the building. Greenstein said those numbers sounded low, given how fast rents are increasing in the city.
“A big unit somewhere like 16th and Valencia with a tenant from the 1980s or 1990s could easily go for over a hundred grand,” he said.
It’s also worth noting that mandated payments for some types of no-fault evictions may change soon. David Campos is working on legislation that would increase payments for Ellis Act evictions. His plan would require the tenant be paid the difference between their current rent and the going rate on a similar unit for two years.
Using his formula, the buyout amount from my three-bedroom apartment in the Outer Sunset would be about $38,000. And that’s out here in fog city.
Dealing With Roommates
Crow said any buyout offer will assume the unit is delivered free of tenants. Because of this, he said it’s a good idea for the master tenant (usually the person whose first name is on the lease) to negotiate with all the roommates in good faith. Otherwise, they might not move out, and the master tenant could lose the payment.
“It’s prudent to include everybody in the deal so everybody is on board and moves out on time,” he said.
Greenstein pointed out that anyone who pays the landlord directly has tenants’ rights. So there may be situations in which you’re entitled to negotiate directly with the landlord even if you’re not on the lease.
“Generally, everybody who is residing in a unit has a right to some money,” he said.
Buyouts are considered taxable income [and] will be taxed at your marginal tax rate, which is your highest tax rate.
There are also tax implications to consider. Ronn Seely, a senior tax consultant at B.O.L. Global (who has been doing my taxes for years), said that buyouts are considered taxable income.
“It will be taxed at your marginal tax rate, which is your highest tax rate,” he said.
Seely told me that for most people this will mean a payment of 25% to the federal government and 8% or 9% to California. He also said the taxes will be due during the same quarter when the payment is received.
The Landlord’s Take
While I had Seely on the phone, I asked what he thought about buyouts because he’s also a landlord. He said he has never paid a tenant to leave but that he could understand why the practice has gotten more popular in recent years. Rent control doesn’t allow him to raise the rent enough to keep up with inflation, so his rental income actually goes down every year. This gives landlords an incentive to encourage long-term tenants to leave.
“I have a lady in my apartment who is paying $800 a month, and I could probably get $2,200 a month for it,” he said. “I could offer her $30,000 to move, and I would make it back in two years.”
And while buyouts often have a negative connotation among tenant activists, Charley Goss from the San Francisco Apartment Association (which is, essentially, a landlord group) said they aren’t always a bad thing. Goss told me that in cases in which a tenant is willing to move, a buyout can be mutually beneficial.
“A lot of tenants are able to use their buyout for a down payment on a home,” he said.
That’s probably true, although I doubt many of those homes are in San Francisco.