Tenant Buyout Agreements
A tenant buyout agreement is a form of agreement in which the tenant agrees to vacate the property owner’s real estate in exchange for some form of financial consideration, payment, or forgiveness (the “buyout offer”). The tenant leaves the rental unit voluntarily in exchange for a certain compensation (which is stated within the buyout agreement). If you are a landlord and you would like to find out more about this type of agreement, you should talk to a skilled and experienced tenant buyout attorney.
What Owners Must Do If They Offer a Buyout Agreement
In order to complete the tenant buyout it is necessary to communicate in writing with the renter who owes an outstanding amount of rent and must pay in full or vacate the unit (the “disclosure notice”). This disclosure notice should include the landlord’s contact information, including but not limited to, their contact phone number. Delivery of the disclosure notice should be done via certified mail with a return receipt so that the landlord has proof of delivery.
Once they have received the disclosure notice, the landlord should call or visit the tenant to make the tenant buyout offer, making it clear that this is a positive solution for the renter. Negotiations should include the move-out date and the buyout amount to the tenant. The landlord may also require the tenant to clean the residence. They may specify that the renter cannot take any real property that does not belong to them, such as appliances, furniture, or landscaping.
If the tenant agrees to the terms, a written contract must be signed by both parties. Payment should be made by check so that there is an official record of the transaction. If the tenant is compensated in cash, both parties should sign the agreement as paid in full.
If the renter refuses to sign the agreement, the landlord can move forward with an eviction.
As mentioned above, a lender may offer cash for keys to the renters of a foreclosed home in order to avoid legal proceedings. After notifying the occupants that they need to vacate the property, the bank will make a cash offer to encourage the tenant to move quickly and leave the real estate in good condition. The lender does this to prevent theft and vandalization of the property by an angry evictee and will conduct an inspection before the tenant is given their buyout money.
Buyout vs. Eviction
A tenant buyout agreement, otherwise known as a “cash for keys” agreement, is vastly different than an unlawful detainer action, otherwise known as an eviction. A property owner’s choice to enter into a cash-for-keys agreement rather than opt for an outright eviction to terminate the tenancy may arise from several different scenarios:
- The tenant failed to pay rent as agreed.
A landlord can evict a tenant for violating the lease or rental agreement by not paying their rent as agreed upon in the lease. As soon as the rent is late, the landlord can give the tenant notice to pay the rent or quit the property. The notice must state that the tenant has three days to pay their rent or move out of the rental unit. If the tenant does not pay their rent or move, the landlord can file an eviction lawsuit with the court.
- Lease violations or damage to the property.
When a tenant does not comply with the terms of their lease, the landlord can institute the same procedures as when the rent is not paid. Such violations may include owning a pet when not allowed, having more people living with them than are named in the lease, smoking, drug dealing, etc. This can also include any violation of a city’s rent ordinances in violation of Minnesota law or the lease agreement itself.
- Landlord’s financial reasons.
If the landlord wants to raise the rent-to-market rate, they might present the tenant with a buyout offer. Once a tenant accepts such a buyout and moves out, the landlord is free to increase the rent as high as the next renter is willing to pay and the new tenant’s move-in date is quickly approaching. The landlord might also propose a payoff if they want to sell the property.
- The rental property goes into foreclosure.
A tenant may pay their rent on time every month and obey all of the stipulations in their lease and still be presented with buyout negotiations– this time by the landlord’s mortgage holder. If a landlord falls behind on their mortgage payments, their lender could start court proceedings to repossess the property. This will usually give them permission to evict anyone who lives there, including any tenants. If the bank or lender owns the rental and wants the tenants to vacate in less than 90 days, they may offer a buyout agreement. The bank pays the tenants a predetermined amount of money to move out quickly.
Benefits of a tenant buyout agreement
Every landlord dreads the necessity to evict a tenant. The cost of eviction in terms of their time, aggravation and court costs can easily cancel any profits on the rental unit for many months. Although it is not mandatory to have legal representation for an eviction, an attorney will be necessary if the tenant does not comply with the court order.
It might take a long while to get the tenant to vacate. Every day they remain in the rental is another day without income. Once they have finally moved out, the landlord will need to advertise the vacancy and prepare the unit for a new resident. If the tenant damaged the property, this would cause more monthly rent to be lost, another mortgage payment to be made and more repair costs.
Once the property manager determines that the non-paying tenant is never going to become current in their rent or that they have done too much damage to the unit, how is the owner going to get them out without going to court? A buyout offer is often the best motivator and should incentivize the tenant to pack up their things and leave. After all, if they have had a problem paying their rent, a cash settlement would probably be very attractive to them. It could even pay for their moving expenses and a security deposit at another property.
Unfortunately, a tenant who has been ordered to move out will often respond by destroying the unit. A landlord who is reluctant to buy out a delinquent resident may find that repairs for such damage will cost more than the amount the tenant would have accepted in exchange for a buyout. The landlord might prevent such destruction by making the offer of a cash buyout before the tenant can react violently.
A landlord should also consider a buyout agreement as through negotiation a property will often receive a waiver by the renter in regard to any potential tenant rights issues or tenant protections that may have been violated throughout the tenancy. Protection from a tenant challenging these issues after the fact is highly valuable and a persuasive reason to focus on obtaining such a waiver clause in buyout negotiations.
Although they are losing their home, there are benefits to the tenant in addition to receiving a cash settlement. Since the agreement is voluntary, they will not have an eviction judgment on their record. If they were to challenge an eviction in court and lose, they might have to pay the landlord’s court and attorney’s fees in addition to the cost of their own attorney. The tenant will also receive a negative entry on their credit report which could result in their being turned down for future housing. (A formal eviction will appear on their public record for seven years.)
Conclusion
In sum, tenant buyout agreements are mutually beneficial for both the landlord and tenant. Both parties avoid the court system and move on with their lives with minimal adversarial action. However, it is always recommended to retain an experienced landlord-tenant attorney when negotiating a buyout agreement, and the attorneys Toepfer at Law, PLLC are ready and able to provide such services.
