Los Angeles City Council, in their quest for fun and adventure, recently adopted an amendment to the city’s Rent Stabilization Ordinance (“RSO”) regulating “Cash for Keys” or “Tenant Buyout” agreements (L.A. RSO 151.31; Ordinance #184673; effective 1/25/2017). Generally, these agreements are negotiated between Landlord and Tenant. The Landlord agrees to pay the Tenant a certain mutually agreed sum of money in exchange for the Tenant’s voluntary departure from the apartment. These agreements are predominantly negotiated in situations where a Tenant’s rent-controlled monthly rent is significantly lower than prevailing rents in the surrounding area. By securing the Tenant’s voluntary departure, the Landlord can re-rent the apartment at prevailing market rates, improving the property’s cash flow and value. Tenants can do whatever they please with the money, including securing superior quality housing or purchasing a Bengal tiger.
Prior to the Council’s amendment to the RSO, there was little legal insight from legislative or judicial officers about the methodology and enforceability of these agreements. They were generally subject to whatever terms Landlord and Tenant agreed to, and of course, subject to the respective parties’ performance of their obligations in good faith. Do I sound smart yet? With the RSO amendment, there is now some guidance, but with strict provisions seemingly designed to protect the Tenant.
Here is what you need to know about compliance:
(1) Landlord must obtain a Tenant signature on a Housing Department Disclosure Notice (provided by the Housing Department) prior to making an offer. You must use the Housing Department’s document. The document informs Tenants that they have, among others, the following rights: a right not to accept the offer, the right to consult an attorney, a 30-day right to rescind, and a right to rescind at any time if the Landlord doesn’t comply with the ordinance’s requirements. The document also provides them with the current relocation assistance figures, a tactic designed to push buyout figures to settle between $7,900 and $19,700 – I’ll wait here for you to stop choking. Note, the buyout terms can be any amount as long as both parties agree. You are not bound by the relocation assistance figures pre-printed on the document. Finally, this disclosure document must be signed by the Tenant.
(2) The terms of your private agreement must be in writing in the primary language of the tenant. You must also include the following in 12-point bold type above the tenant signature, “You, (tenant name), may cancel this Buyout Agreement any time up to 30 day days after all parties have signed this Agreement without any obligation or penalty.” This document must be signed and dated by Landlord and Tenant. A copy must be given to the Tenant.
(3) Landlord must file the signed Housing Department Disclosure Notice and the written agreement within 60 days of its execution with the Housing Department.
Anyone who has negotiated a Tenant Buyout prior to January 25, 2017, knows how difficult it is to agree on terms and provisions. You usually have to order your cocktails with discount liquor after cutting the check. The RSO’s mandate to obtain a signature from the Tenant on the Disclosure Notice prior to making an offer makes the initiation of these discussions monumentally more difficult. It’s written in English only, and has a red banner, big headers, and bold text. I got nauseous when I first saw it, hold my hair back.
The RSO and the specific provisions requiring notice to Tenants do not provide any guidance on the proper terms and general content of the private agreement that must be drafted and signed by all parties, save for the fact that it must be written and in the primary language of the Tenant. The assistance of an attorney in negotiating and drafting these written agreements is critical, as each landlord-tenant relationship is unique. There are countless rights and responsibilities each party has during and after a tenancy, especially one that was terminated via a voluntary Buyout Agreement. Before approaching tenants with a buyout proposal, it is wise to consult with an attorney. Preferably a bald one.
