One of the largest areas of tenant buyouts (a/k/a, “cash-for-keys”) I handle concern owners who want to move into their units and live at their properties, or have family members who want to move into a rental house or apartment unit, but are uncertain about how long they or their family members want to stay in the rental unit. Alternatively, with this type of tenant buyouts, I get buyers looking to purchase tenant occupied properties that are either rent controlled, or have some type of eviction restrictions, and they want to move themselves or family members in. Here are a few questions I often get asked in these circumstances.

How many units at a property can a landlord owner-occupy?

The answer to this question varies by jurisdiction. Los Angeles City, being the largest tenant buyout pool, does not have a limit on how many units can be owner-occupied. However, there are certain protections that tenants at units subject to the city’s Rent Stabilization Ordinance (RSO) depending on if they are a “qualified tenant” and have occupied their unit for ten (10) or more years, in which case you as the owner may not be able to occupy their unit. As for other jurisdictions that have some form of rent control or evictions restrictions, you can always consult with an attorney about the applicable local code (which is a lot of reading) or call and/or email the applicable agency, and possibly they will provide you some insight. Local agencies will not give you legal advice, but they should readily know what limitations exist for owner-occupancy. However, it is always best that you consult with an attorney familiar with landlord-tenant laws.

If you are a current owner, or a potential buyer with the goal of owner occupying, you want to determine the limitations of owner-occupancy applicable to that building and the information about the tenants that may satisfy some restrictions, commonly age and disability.

If a landlord can owner-occupy, why would they need to go through the process of a buyout?

The advantages of going through a tenant buyout is there are far fewer “strings” attached for the property owner. Many jurisdictions have filing requirements requiring the property owner to submit paperwork to the applicable local agency containing personal information about the property or the family member who is moving in.

The owner or family member typically needs to move in within a certain time frame, and the owner may have to file annual declarations that they or their family member continue to occupy the rental unit. Additionally, there are minimum periods for how long the owner or family members must owner-occupy, and otherwise the owner risks having to grant the previous tenant a right of first refusal to come back or face civil liability alleging that the owner occupancy was in reality an illegal eviction. Moreover, even if the property owner does all the required paperwork properly (including, the application, paying filing fees, escrow instructions, putting funds into escrow, etc.) the tenant may not move out and you will need to then file an eviction. Lastly, your owner-occupancy could be denied because it was procedurally defective or because the tenant was protected under the code, and you cannot owner occupy their unit.

On the other hand, the tenant buyout approach may cost you a little more, but because the incentive to the tenant is that they will receive more money and/or more time to vacate, you will be much better off because a tenant buyout is a voluntary agreement with the tenant, rather than the result of a 60-Day Notice and possibly dealing with a tenant who refuses to comply and move. With a tenant buyout, a property owner also has the ability to rent the unit at market rate rent without having to give tenants a right of first refusal or having to owner occupy the unit for the minimum required period under the law.

If the flexibility of a buyout is not needed and you have a sense the tenant would not be interested in entering a buyout agreement, then going with the owner occupancy route via a 60-day notice may work for you and be more suitable.

Can or should I handle the owner-occupancy process by myself?

In theory, the answer is “yes.” However, each jurisdiction has a process. For example, in Los Angeles City you can submit the required declaration and pay the filing fees directly to the Los Angeles Housing Department (LAHD), but you are also required to open an escrow account with either an escrow company or an attorney, to draft escrow instructions, and also deposit the relocation funds, all within specific deadlines. You cannot yourself act as the escrow in this instance. Further, your 60-day notice must be legally compliant with the local jurisdiction’s requirements, or you risk the notice being defective and be unable to enforce the notice. It would behoove any landlord to seek appropriate legal advice before and during the process of applying for owner-occupancy.

While on the surface it may seem that any landlord should just be able to move into a property that they own, the laws and trends state otherwise. A landlord or buyer should become educated on what restrictions exist within the jurisdiction where the property is located.

It is good form at the beginning of any tenancy to make sure you get driver licenses from your tenants so that you know their birthdate. Having a good rapport with your tenants can also help as you are more likely to not only get information more readily from them, but they are more likely to understand and cooperate with an owner occupancy. It is important to always have a good relationship with your tenants because why would you not want that! And of course, if you or family members are looking to move into your property, you should always consult with an attorney to avoid potential pitfalls.

Written by Sasha Struthers, Esq., Struthers Legal, APC

If you are interested in learning more about tenant buyout agreements and wish to have a one-on-one session to go over your specific situation, you can sign up for a consultation with Sasha. Sasha Struthers is a California licensed Attorney and Real Estate Broker with a law practice that focuses on ‘Cash for Keys’/ tenant buyouts and government agency complaints such as REAP, CRD, and Orders to Comply. Sasha’s experience managing a 15-building real estate portfolio, including five apartments subject to LARSO has allowed her to help landlords strategically reposition their portfolios, maximize income, and reduce management stress. You can check out her law practice at www.struthers.legal.