Tenant Buyouts ("Cash for Keys")
Tenant buyout lawyer, Ari Rief, explains what these agreements are and what tenants should know.
What You Should Know About "Cash-For-Keys" Tenant Buyouts
In California, a "tenant buyout" or "cash for keys" agreement occurs when a landlord offers a tenant a sum of money to vacate the rental unit. These agreements are frequently used as an alternative to formal evictions, offering financial advantages to landlords, especially in rent-controlled areas where market rents far exceed controlled rents. Landlords are often willing to pay thousands, or tens of thousands, of dollars to remove rent-controlled tenants, knowing they can quickly recoup that investment through market-rate rents from new tenants.
In rent-controlled cities with "just cause" eviction protections, like San Francisco or Los Angeles, tenants are particularly protected from arbitrary evictions. Even where the landlord has a legal ground to evict (such as the owner is moving in), so long as the tenant is not "at-fault," the landlord must comply with strict legal requirements, most notably the requirement to pay "relocation assistance" money and the right of a tenant to move back to the unit under certain conditions. A tenant buyout, however, allows landlords to bypass these restrictions, such as those under the Ellis Act (which removes rental units from the rental market) or owner move-in evictions, which limit rent increases for re-rented units post-eviction.
It's not only the big rent-controlled cities where tenant buyouts are pursued. California has the Tenant Protection Act—statewide tenant protections requiring "just cause" for evictions for qualifying properties. Tenant buyouts often arise when a landlord is selling the building. That's because, most often, a building sells for higher when lower rent-paying tenants move out and the new owner can charge market rates without blinking.
So, in general, if a landlord can get rid of a tenant with a cash-for-keys buyout and recoup the money (through a higher sales price for the building) or by charging higher rents from a new tenant, they will view it as a sound business decision.
Tenant Buyouts Can Also Benefit Tenants if Tenants Are Properly Informed
Are buyouts never good for tenants? Many tenant rights advocates and attorneys make the broad argument that these buyouts unfairly disadvantage tenants and always advise against them. For uninformed tenants, that's generally sound advice.
However, I have a different and broader perspective. While these agreements certainly can and often do favor landlords, they can also greatly benefit tenants if properly assessed and aggressively negotiated. Depending on the circumstances, cash-for-keys buyout agreements can be mutually advantageous. While these agreements may lead to legal disputes or allegations of unfair practices, especially in areas that enjoy strong tenant protection laws, they are not inherently harmful or illegal. And after all, we're in America. Tenants should be free to make their choices. The key is to make sure that choice is well-informed. When the terms are fair, and tenants fully understand their rights, a cash-for-keys buyout agreement can make sense for tenants, too. But, as a tenant, how do you know if you're informed? Here are some points to keep in mind...
-
A Landlord's Repeated Efforts to Persuade a Tenant into a Cash-for-Keys Buyout Agreement Could be Grounds to Sue for Harassment
Landlords often use high-pressure tactics or intimidation to push tenants into accepting buyout offers, which can lead to claims of harassment or retaliation. That alone could be grounds for a lawsuit.
For instance, if the landlord frequently called or texted you to convince you to accept a buyout, each incident could constitute harassment under California Civil Code section 1940.2. This law carries penalties of up to $2,000 per incident. (Additionally, many local rent ordinances include anti-harassment protections for the same or similar conduct, which increases the potential penalties.)
-
A Lot of Landlords Commit Fraud During the Buyout Process
In addition to harassment, landlords often make false statements to induce tenants into accepting cash-for-keys buyout offers. These landlords will make their tenants believe they have no other choice but to accept a buyout. For example, landlords who are selling the property will often falsely lead tenants to believe that the sale of property means tenants must vacate (which is not true). Or a landlord may falsely claim he (or a buyer) intends to do an owner move-in (which is a legal basis to evict if the owner actually moves in and follows legal procedure), but then no owner moves in. This gamesmanship effectively strongarms a tenant into agreeing to a buyout but likewise provides a basis to sue the landlord for fraud (among other claims) -- and typically for a lot more money than the buyout offer.
-
Beware of Common Procedural Mistakes by Landlords
In certain jurisdictions, landlords must comply with specific procedural rules when offering tenant buyouts. For example, in Los Angeles, landlords must provide tenants with a disclosure of their rights before presenting a buyout offer. A landlord's failure to follow the rules gives tenants certain rights and should not be ignored during buyout negotiations where tenants need as much leverage as they can get.
The Potential of a Credible Lawsuit Against a Landlord Strengthens a Tenant's Bargaining Power and Leverage in Negotiations with the Landlord
As explained, cash-for-keys offers are not illegal. And plenty of landlords follow the law during the process of offering and negotiating. However, during my consultations with tenants who are weighing the benefits of a buyout offer, I am struck by how often I learn that their landlords also engaged in acts that would justify a lawsuit for wrongful eviction and other tenant rights claims. In other words, my consultations routinely cover more than simply how much cash is appropriate to move out. When tenant lawyers (like me) get involved in negotiations and show how a tenant has the grounds for lawsuit, landlords tend to become more motivated to complete the buyout agreement and avoid a lawsuit. Therefore, assuming there's validity in your claims, the value of your buyout can significantly increase when it becomes clear the landlord violated the law before or during the buyout attempt.
By effectively outlining the potential liability a landlord faces, you elevate a standard cash-for-keys buyout negotiation—one that factors in additional compensation for tenants not to sue.
Make Sure the Math Makes Sense
When it comes to the "dollars and cents" of a cash-for-keys buyout offer, you need to factor the fact that a percentage of the cash is coming out and make sure the cash that ends up in your pocket is ultimately enough to justify the deal. Here are some important points to consider.
-
Potential Taxes
One of the finer points often not discussed, but very critical, is whether a buyout is considered taxable income. I'm neither a tax lawyer nor CPA. While I therefore cannot specifically advise with respect to prospective tax liability or percentage of tax may be applied to a buyout, my general guidance is to err on the side of caution and assume at least some measure of taxation, particularly if your cash-for-keys settlement fails to incorporates compensation for items that are generally not taxable events. That is why it is critical, if possible and reasonable, to craft agreements that properly account for non-taxable events, so that a viable argument can be made that all, or a portion, of the settlement is not subject to taxes. Again, advising on taxes requires consultation from tax professionals. But, in general, it's wise to think about taxes from the start.
-
Attorney Fees
If an attorney like me gets involved in negotiating, consulting, and drafting up agreements, you have to account for the attorney's fees. In a contingency fee agreement, which I offer, the percentage depends on the scope of the negotiation—for example, whether negotiation bleeds into pre-litigation, drafting Complaints, and preparing for litigation.
Attorney fees, of course, will cut into the total amount of buyout cash. An important question to ask yourself, however, is whether the attorney's representation is reasonably likely to increase the current buyout offer (if one exists) by the same or greater percentage of the attorney's fees. If so, in my opinion (albeit I'm biased), then legal representation makes sense.
-
Market Rental Rates
If you agree to a cash-for-keys deal and move out, you will now of course have to find alternative housing. This is where the particular circumstances for a tenant really come into play. For tenants in rent-controlled cities looking to find an equivalent sized unit in the same neighborhood, it's important to factor in the new increased monthly rent he or she will incur.
But that may not be exactly your situation. Maybe your life circumstances mean that you don't mind moving to a different neighborhood where rents are a little cheaper. Maybe downsizing to a smaller unit is workable. Maybe you're open to taking on a roommate. Maybe you're moving in with family. Or maybe you have simply have some big expenses and need a chunk of cash right now. The point is: There's no one-size-fits-all approach here. Each case has unique circumstances that guide whether a tenant buyout makes sense.
Bottom Line: Never Sign a Buyout Agreement Without Legal Review
A buyout can be life-changing money—or a costly mistake. The difference often comes down to understanding your leverage before you negotiate.
I offer free initial consultations with no obligation. In that conversation, I'll assess your situation, identify potential legal claims against your landlord, and explain exactly what leverage you likely have. You'll leave knowing whether you have a strong case and what your rental unit is probably worth to your landlord.
If you decide to hire me, I work on contingency—no upfront costs. Having an attorney immediately changes the dynamic. Landlords know you won't be intimidated, you understand your rights, and you're prepared to litigate if they've violated the law. This shift in power typically results in significantly higher offers.
If you prefer to negotiate independently, I also offer coaching services where I review offers, draft counterproposals, and guide your strategy without formally representing you. This "limited scope" option is available on a flat or hourly fee basis.
The mistake I see repeatedly: tenants accepting the first offer without understanding their position. Whether you consult with me or another attorney, get professional guidance first. The consultation costs nothing, but signing too quickly can cost you tens of thousands of dollars.
Submit Your Case