What to Do in an Apartment Lease Buyout

If you have an apartment lease and your landlord informs you that he wants you to move out immediately and he wants to buy out your lease, unless you are familiar with NYC buyout law and NYC tenant buyout law, don’t just think that you can negotiate your own lease buyout. Although you may think you know how to negotiate an apartment lease buyout, unless you have the experience of drafting a buyout agreement, are familiar with the apartment buyout taxes, and have negotiated a real estate buyout agreement prior, it is not advisable to try to do your own apartment lease buyout.

How to Negotiate an Apartment Lease Buyout

If you rent, particularly if you live in New York City, at some point, one of your landlords may come up to you and try to have you move out of your apartment or rental property despite the fact that you have a valid lease and have been paying rent dutifully each month. Unless there is a valid legal reason in order for the landlord to evict you, such as unpaid rent, causing damage to property, creating a nuisance to neighbors, or your lease has ended, your landlord cannot force you to move out.

However, the landlord may have financial incentives to try to have you move out anyway and force an early termination of the lease. The landlord may want to vacate its current apartment building to build and create new condos. Or the value of the building’s property may have increased tenfold as the City has offered the landlord a substantial offer; however, the landlord cannot sell the building to the City until all of its tenants have vacated the premises.

In these types of situations, only by mutual agreement between the landlord and tenant, can a lease be broken legally. This is commonly done through a real estate buyout agreement. An apartment lease buyout agreement is a legally mutually agreed contract allowing for cancellation of the lease between a tenant and landlord. Furthermore, there is no template or a simple book to look up what a buyout should be.

Each buyout agreement is made on a case by case basis, and only by understanding NYC buyout law and being familiar with apartment buyout taxes can a tenant stand to benefit the most in such a buyout agreement. So, unless the tenant moves out voluntarily, the landlord will be offering the tenant a buyout agreement. With a favorable agreement, the landlord and the tenant, in theory, will be able to go their separate ways with no further obligations to each other.

Understanding and Negotiating a Real Estate Buyout Agreement

Since most landlords are adamant about you agreeing to a buyout on their terms, it is important for the tenant, or more precisely, the attorney negotiating the buyout on behalf of the tenant, to have a thorough understanding of the following:

• NYC Buyout Law
• NYC Tenant Buyout Law

Landlords have been known to do everything in their power to try to coerce or unduly influence the tenant to get them to agree to their buyout. This ranges everything from constant harassment of the tenant to try to get them to sign the agreement to creating perpetual construction in the building so that the construction becomes so inconvenient and unbearable due to the noise, smell, and chaos of the building that the tenant eventually caves and decides to agree to the agreement.

Fortunately, NYC has strict tenant buyout laws, such as the Tenant Protection Act, that protect tenants from such harassment. Under NYC buyout agreement laws, the tenant is protected from:

1. Fraudulent behavior or information;
2. Any type of communication at tenant’s workplace;
3. Forceful, intimidating, threatening, or derogatory / obscene language directed at tenant;
4. Changing the locks of the building;
5. Initiating court hearings that have no relevance at all; and
6. Landlord using force or intimidation against tenant

If the landlord does initiate such behavior, the tenant’s landlord may file
suit against the landlord for harassment as well as file a claim against them with the City and be subject to various fines and costs.

Apartment Buyout Taxes

Although having a favorable buyout agreement is always good, being aware of the tax consequences of such an agreement and how best to avoid having to pay such high taxes is almost as equally as valuable as the actual payout itself.

Accordingly, before a response is given from the tenant to the landlord regarding the landlord’s buyout agreement, it is important to understand the tax rates that will be applicable to the buyout funds. Just because you agree on a lump sum amount with your landlord does not mean that the tenant will necessarily receive that exact amount. Unfortunately, it never works out that way.

As a result, the tenant’s buyout agreement needs to be carefully structured for tax purposes in order to best reduce the tax consequences. Without careful drafting of the agreement, if the buyout is taxed as ordinary income, the tenant may expect to pay anywhere from 15 to 40 percent in combined federal, state and city income. However, if the buyout agreement is planned carefully, the capital gains rate may come to 32.7 percent, which represents a federal rate of 20 percent, a 3.8 percent federal Medicare tax on unearned income, and a pooled New York State and New York City rate of 8.9 percent.

It is therefore very important to talk with an experienced and knowledgeable buyout agreement lawyer to discuss your individual scenario and what type of tax options you have available to you to offset the buyout as taxable income.

What’s a Buyout Agreement Really Worth?

Since there is no single rule or procedure in determining the value of a property and what the true value of a buyout agreement should be, it can be difficult for an inexperienced tenant to determine what a buyout agreement is really worth in responding to a buyout offer.

In general, however, a buyout agreement could range anywhere from $20,000 to $60,000.00 for a rent stabilized apartment. In order to help calculate a possible buyout, a tenant should defer to the difference between what the tenant currently pays in and the rate of the marketplace. By doing this, the tenant would then have a better understanding of how much more the landlord would make if the landlord could rent to another tenant at the marketplace rate.

As such, the real difficulty is in determining what the market rate is. Unfortunately, again, this is not an exact science, and only by experience and knowledge, will an accurate evaluation be made.

When negotiating a buyout agreement, the tenant should also consider what is driving the landlord. What is the cost to get the tenant to vacate? Can I afford to buy out my tenant’s lease? In the meantime, the tenant must consider the cost of moving out, taxes, having to pay a higher rent elsewhere, and lawyer fees.

Tips for Negotiating an Apartment Lease Buyout

In order to reach the best outcome of a buyout agreement, there are a number of tips that the tenant should consider:

1. Financial Situation of the Landlord. If the landlord does not have the financial means to be able to meet the tenant’s financial demands, the tenant may want to consider an alternative option other than a cash buyout as a means of compensation, such as a partnership agreement.
2. Property’s Location. If the property is in a more valuable location, the tenant will then have more leverage when requesting the landlord to meet the tenant’s demands since the tenant knows that the landlord, most likely, may be willing to pay a higher price to move the tenant out.
3. Cost of Moving Out. The tenant must factor in how much money it would cost to move out and go elsewhere. In general, the more money it would cost to move out, the higher the buyout should be.
4. Any Special Circumstances of the Landlord. If the landlord is facing any lawsuits, litigation, city violations, or deadlines which are dependent upon the tenant moving out, obviously that gives the tenant more leverage. If this is the case, the landlord is willing to pay a higher buyout settlement.
5. The Current Rent Paid by Tenant. If the rent paid by the tenant is below the marketplace rate, this means that the landlord may be trying to replace the tenant with a new tenant and then raise the rent rate. In such a case, the landlord may be more likely to meet your buyout demands and pay a higher settlement.

Since determining the buyout marketplace rate can be so difficult, and the landlord may engage in various harassment techniques to get the tenant to agree to their buyout, it is important to have somebody in your corner to guide you in negotiating an apartment lease buyout. Only an experienced attorney from a real estate law firm can explain the process and evaluate your property.

A qualified buyout lawyer from the Law Office of Yuriy Moshes can provide the legal advice for the best outcome for you. Their offices help tenants in the New York City area including all its boroughs (Manhattan, Brooklyn, Queens, the Bronx and Staten Island) as well as Northern New Jersey, Long Island, and Upstate New York.