How to buy out tenants—the right way

By Lucy Cohen Blatter | January 21, 2016 - 8:59AM

In some ways, it's a rent-regulated tenant's dream to get bought out of their lease by the landlord for lots of money. But it's also plenty beneficial to the landlords doing the buyout, since it can open up the gates to market-rate rents and sales.

But there's a right way and a wrong way to do it. Back in September, Mayor Bill De Blasio signed legislation that bars landlords from offering buyouts within six months of a tenant turning down an offer. The plan, according to De Blasio, is meant to stop landlord harrassment of tenants, and help people keep their affordable apartments longer.

Last June, the New York Daily News reported on the first landlord arrested and charged under a then-recently established city-state initiative to find owners who were unlawfully evicting rent-stabilized tenants. (Interestingly, the number of evictions across the U.S. hit their lowest amount in five years in 2014, with 3.41 million evictions, costing landlords, on average, about $1,700 per tenant.)

There are several reasons a landlord may want to buy out a tenant, of course. Maybe they're planning on moving into the apartment themselves (this is common in a brownstone, for example); perhaps the rents are way below market and they think the tenant might be willing to give up the apartment; or maybe a developer is knocking at the door who wants to turn the place into condos but needs everyone out first to demolish the place. But, of course, that empty apartment comes at a price.

Manhattan real estate attorney Steven Wagner of Wagner Berkow , who has negotiated hundreds of buyouts over the past three decades, says the first step in negotiating a buyout is finding out as much about the person who lives in the apartment as possible.

Tenants who are young and likely to stay in the apartment for a long time may warrant a higher offer than someone who's older, and especially more than someone who might spend half of the year elsewhere, says Wagner.

A tenant who's breaking the lease—say, by illegally subletting—doesn't have a strong foot to stand on. And if there's any weakness in tenancy, say, you know that they have a home in Florida that they own and stay in for much of the year, "that's when the landlord would try and negotiate a deal," he says.

But Wagner warns against low-balling tenants on an offer. "If you're too cheap, they're simply not going to take the offer and you're going to have to wait six months to give another one." Wagner points to one group of Brooklyn tenants he represented whose landlord offered between $5,000 and $15,000 for buyouts. The tenants hired him and ended up getting about $180,000 from the landlord.

When you're coming up with an offer number, be sure to account for moving costs for the tenants and new rents they'll have to pay when they leave, he says.

And you also need to figure out what it's worth to you as a landlord to have them move. "The first thing to do is take a straight economic analysis of what the value of the buyout is," says attorney Dean Roberts of Norris, McLaughlin & Marcus. "If you can buy out a lease for a tenant who's paying $750 a month for $12,000, and get $3,000 a month from a market-rate tenant after you renovate and once they've move out, you're recouping your money in just four months. That's pretty quick," he says. That exact thing happened for a landlord client of Roberts'.

But Roberts agrees that lowballing is never a good idea. "It will take longer and end up costing you twice the amount," he says.

And remember that sometimes it's a matter of ethics and human decency.

And, "It shall be unlawful for any owner or any person acting on his or her behalf, directly, or indirectly, to engage in any course of conduct (including, but not limited to, interruption or discontinuance of required services, or unwarranted or baseless court proceedings) which interferes with, or disturbs, or is intended to interfere with or disturb the privacy, comfort, peace, repose or quiet enjoyment of the tenant in his or her use or occupancy of the housing accommodations, or is intended to cause the tenant to vacate such housing accommodation or waive any right afforded under the Rent Regulatory Laws."

In other words: You can't shut off heat or harass people to leave (though some landlords inevitably do just that). "Those horror stories are true, but they're not common," says Roberts.

You don't have to approach the tenant with a lawyer, especially if you have a relationship with the tenant. "Often times it's just about starting a polite business discussion," says Roberts. But it does help to have the request in writing to make sure you're covered.

What's a buyout really worth? Use this calculator to figure it out

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