Mar 18

“Cash For Keys” — Consider Paying A Defaulting Tenant To Move Out

Owning a rental property can be both a rewarding and frustrating experience. With good tenants, the landlord often enjoys the emotional satisfaction of helping provide the tenants with a nice home to live in and a place to raise their family. And the rents which the tenants pay help reduce the landlord’s mortgage on the rental home. But, what about if the tenant isn’t paying their rent on time? Or worse, what if they have stopped paying their rent altogether? Dealing with a non-paying tenant can be extremely frustrating. And expensive. When a tenant stops paying, a landlord will often begin to hear excuses for the tenants’ non-payment. And, often, those explanations are based in fact. For example, during recent years, when our economy has been in a state of upheaval, and people have lost their jobs and haven’t been able to find new work, the explanation that the tenants have no money to pay their rent is very likely true. But, sometimes, there can be other reasons, such as where the tenants have been spending their money to support a substance addiction, or to feed a gambling problem. Or where they have been fired or have quit a job without having another job to transition into.

Knowing when to stop trying to accommodate the tenants’ excuses and to start up an eviction process is something that is different for each landlord and can often depend upon the landlord’s own debt service obligations for their rental property.

Treat A Rental Property Like A Business

We recommend to our clients to view a rental property like they would any other business. If a merchant were to allow customers to take goods from their store without having to pay for them, that merchant wouldn’t be able to remain in business for very long. The same is true for the landlord where the tenants aren’t paying their rent. The landlord should ask herself the question, “How long can I afford to not have the tenant pay rent and still be able to pay the mortgage on the property?”

Eviction

When the landlord eventually concludes that the tenants can no longer remain in the property, the landlord does have some options. One is to begin an unlawful detainer proceeding by serving the tenants with a three-day notice to pay rent. A three-day notice is a legal prerequisite for filing an unlawful detainer action to regain possession of the property from the tenants.

Often, the tenants won’t understand that the landlord is serious about their need to pay rent unless and until a three-day notice is actually served upon them. However, while an unlawful detainer action is often a necessary step for a landlord to regain possession of their rental property from the tenants, it can also be an expensive proposition, particularly if the tenants are savvy and know how to prolong the process and make it more costly for the landlord.

“Cash for Keys”

Another option available to a landlord is to offer the tenants some “cash for keys.” That is to say, the landlord offers to pay the tenants to move out of their house. This may seem like an extraordinary step — having to pay a defaulting tenant to give up possession of the landlord’s rental property — but, with the cost of a lengthy eviction often reaching thousands of dollars, it can also often result in an actual savings of money for the landlord. And, when a tenant has defaulted in their payment of rent for a month or two, there is usually too little money or other assets against which a landlord could hope to enforce a future judgment for those unpaid rents. So, the landlord is better off quickly regaining possession of their rental unit so that they can get it cleaned and promptly re-rented.

The “Key Components”

There are several “key” components to such a “cash for keys” arrangement, however. First, the amount of money that the landlord offers the tenants for the keys to the house should be reasonable. Depending upon the amount of the monthly rent, perhaps an amount equal to a week’s or two weeks’ rent. But, this is all negotiable between the landlord and the tenants and, while the landlord should be reasonable, he should not feel a need to be generous or benevolent. After all, if the landlord offers to pay too much cash, she doesn’t really save much more than if she had actually gone through the eviction process.

Second, the landlord should rarely give the tenants the “cash for keys” money until the tenant has actually entirely moved out. Third, the tenants should be given enough time to pack up their belongings and move from the house. Often, this may require one to two weeks’ time. The tenants, however, will usually want a longer period of time. They are getting free rent and know that, when they move elsewhere, they will have to pay the first month’s rent and a security deposit, which they may not have. But, there needs to be a sense of urgency impressed upon the tenants that they need to get out quickly so that the landlord can get the property back and re-rent it so that it begins to produce income for the landlord again. Almost invariably, the landlord benefits from as short a period of time as possible.

Finally, and perhaps most importantly, there needs to be a legally enforceable right for the landlord to have the tenants immediately evicted if the tenants have not moved out by the agreed-upon date. If the landlord has agreed to pay the tenants money to regain possession, and the tenants don’t actually leave by the move-out date, the landlord will have lost precious time if he has to start the eviction process now from scratch. It is far better to have the tenants’ written agreement that, in exchange for the promised “cash for keys”, the tenants are giving up the right to a trial and are giving up possession of the property so that a writ of possession can be obtained and served upon the tenants should they not actually move out.

Preserving this important right for the landlord is usually something that should be entrusted to a lawyer to handle because it does require that specific language be used in the “cash for keys” agreement. An experienced eviction attorney can quickly draft the agreement for the landlord’s use with the tenants and, in doing so, the landlord will usually save quite a bit of cost by avoiding a lengthy unlawful detainer process and trial.

In summary, a landlord should treat the rental property like a business by using good business judgment in your dealings with your tenants. Then, think outside the box and be creative in working out a resolution of the unpaid rent and the need to regain possession of the property. But, most importantly, make sure that the agreement has an enforcement mechanism that will permit the landlord to actually regain possession of the rental house.

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