In 2016, the Berkeley city council enacted the tenant buyout ordinance (TBO) regulating the disclosure, negotiation, and processing of buyout/settlement agreements between landlords and tenants. As with any government regulation, the TBO has created some problems (in this case for landlords) with lots of paperwork where none existed before. Much of this paperwork is filed with the rent board for the public to see.
One of the benefits of this regulation is the large amount of data gathered by the Rent Board. This gives landlords a better sense of what their checkbooks are in for before pursuing buyouts. Who are doing the buyouts and for what amounts is now public knowledge. This article discusses the data that is available and comes to some conclusions. You will learn the “going rate” for a buyout in just a moment. But before we get to that, let’s discuss the TBO and the buyout process. What is a Buyout Agreement? A buyout is an agreement where the landlord pays the tenant money or other consideration to vacate a rental unit. An unlawful detainer settlement agreement is not a buyout agreement. What is a Buyout Offer? A buyout offer is either a written or oral offer by a landlord to pay a tenant money or other considerations to vacate a rental housing unit. An offer to settle a pending unlawful detainer action is not a buyout offer. Disclosures Required PRIOR to Making a Buyout Offer The landlord must give each tenant in the unit written disclosure, before making a buyout offer, that:
Tenant has the right not to enter into an agreement or negotiations
Tenant may consult with counsel before signing an agreement
Tenant may rescind Buyout Agreement for up to 30 days after signing
Tenant may consult with the Rent Board
The Rent Board provides a mandatory disclosure form with all the required information. This form must be signed by the landlord and tenant(s) and filed at the Rent Board before buyout negotiations can commence. The landlord must keep a copy of all disclosure forms for five years, along with a record of the date the landlord provided the disclosure to each tenant. Requirements for Buyout Agreements Each Buyout Agreement shall:
Be in writing
Notify tenant that tenant may rescind the agreement within 30 days
Notify tenant of right not to enter into an agreement and right to consult with attorney or the Rent Board
Be filed with the Rent Board between 31 and 60 days after the agreement is signed by all parties.
Include the above language in 14-point type font in close proximity to where the tenant is supposed to sign
Rescission of Tenant Buyout Agreements Tenants have a right of rescission up to and including 30 days after execution by all parties to the agreement. The tenant must hand deliver, email or mail notice of rescission to the landlord. You might not want to pay your tenant until after these 30 days have expired. A buyout agreement can be rescinded at ANY TIME if the agreement does not satisfy all the requirements of the TBO. There have been no reported cases of a tenant rescinding their agreement. We suppose tenants want their money and have all honored their buyout agreements. If only they would honor their rental agreements the same way. Our Findings
So, now back to the information you are itching to know: How much is it going to cost me? After conducting extensive research of the Rent Board’s records on buyout agreements, we have come to find that while the average buyout cost rests at about $23,000/per unit (FIGURE 1), you may have better luck (or not) depending on where your property is located. For example, FIGURE 2 below shows the average amount paid for a buyout by zip codes. Within the graph you will see that the average cost of a buyout ranges from approximately $22,000 (94702, West Berkeley) to $35,000 (94705, Berkeley Hills). So, in this case, you should not “head for the hills” when it comes to negotiating a buyout in Berkeley. It could cost you about 60% more than buying out a tenant in West Berkeley. In comparison to San Francisco, the cost of a buyout in Berkeley is relatively low. The average cost of a buyout in SF is approximately $38,000/per unit, with the costliest zip code being in the Mission at $50,012/per unit. Consequently, it is about 60% cheaper to execute a buyout in Berkeley than in San Francisco. The Berkeley Rent Board also gathers information regarding the length of tenancies involved with buyouts. The average length is approximately 12 years. This carries a substantial amount of weight when it comes to estimating the cost of a buyout. In fact, there are countless other factors in the cost of a buyout, including the nature of the landlord-tenant relationship, whether the tenant is disabled or elderly, the urgency of a landlord for the tenant to move out, etc. Keep in mind, it is possible that these amounts will increase soon. The demand for housing is rising faster than developers are building. This could give tenants even more leverage than they already have. Hopefully, this article and the data represented in the charts below help landlords understand the TBO. We are optimistic you can and will refuse outrageous demands for six figure buyouts. Not all buyout amounts are disclosed. The charts below are based on buyout agreements between April 2016 – September 2017. All data were obtained from the Berkeley Rent Board.
Copyright © 2017 by Fried & Williams LLP. All Rights Reserved. The information in this article is general in nature and should not be considered legal advice. For any specific matter, please consult with an attorney.