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Buyout Agreements - an Excerpt from Michelle Itkowitz's Lawline CLE on Landlord and Tenant Litigation in New York

On September 27, 2017, Michelle Maratto Itkowitz taught Session 3 of a seven-part continuing legal education program for Lawline on Landlord and Tenant Litigation in New York. Session 3 was "The End Game – Bringing the Case to a Satisfying Conclusion"

In Session 3, we explore the things that come toward the end of a landlord and tenant matter. We explore the many routine and specialized clauses of a stipulation of settlement, a buyout agreement, the intricate details that surround an eviction, how to make a motion for attorney’s fees, and the appellate process, including stays pending appeal.  .

HERE IS A CLIP - Why a Buyout Agreement needs it's own out-of-court agreement and not just a Housing Court stipulation of settlement.

And below is an excerpt from the 25-page, 35-footnote materials, which accompanied this program:

BUYOUT AGREEMENTS

There are two kinds of situation in which tenants vacate:

1) Some rent is waived, maybe the tenant gets a little money from landlord to move; this situation usually is not a rent regulated tenancy; or

2) Tenant gets a large amount of money for giving up a rent regulated tenancy[1].

When situation 2 is afoot, when tenant is being “bought out”, a stipulation of settlement (examined above) is not the proper vehicle to paper that deal, in this author’s opinion. A buyout agreement is very different from a regular stipulation of settlement.

When a tenant agrees to vacate an apartment in exchange for money, the deal should be memorialized OUTSIDE of a stipulation of settlement in a holdover proceeding between the parties, in my opinion, in a private and confidential “Surrender Agreement”. Note that the Surrender Agreement will share many characteristics with the non-buyout stipulation of settlement above. It should, indeed, have Whereas Clauses and provide for the deal between the parties on attorney’s fees. It should also, however, do MANY additional things. Here are the major characteristics of the Buyout Agreement:

A. Recite Consideration

The tenant is swapping his surrender of the apartment and the tenancy for money.

B. Confidentiality

Pull a good confidentiality clause from Westlaw’s Practical Law or another source.

C. Signing Payment

There is usually an up-front “Signing Payment”, so the tenant can move. The tenant’s lawyer wants this to be a bigger number, while the landlord’s lawyer wants this to be a smaller number.

D. Escrow Agent

There is an escrow agent section, because, eventually, landlord’s lawyer is holding the money, and you do NOT want to be a party to a dispute. 

E. Tenant Has Been Well Informed

The tenant represents that he knows he has the option of remaining in the apartment, he has been well advised, including by financial advisors, and he is making this deal anything. This includes that the tenant understands the transaction has tax implications.

None of this works or can work if tenant does not have an attorney. Tenants cannot be bought out of a valuable rent regulated tenancy if tenant is not represented by competent counsel. Or else the settlement agreement and the warrant of eviction are not worth the paper they are printed on.[2] 

F. Sole Possession

In a Buyout Agreement, sole possession is a MATERIAL representation. I mentioned this above, in the Stipulation of Settlement section. But it is worth re-mentioning in this Buyout Section.

If Tenant is vacating pursuant to the stipulation, it is very important that Tenant represent in the stipulation that: (i) Tenant is the only person or entity occupying the premises; (ii) no sub-tenant, licensee, assignee, or any other individual or entity of any description who may claim any right to remain in the premises presently occupies the premises; and (iii) Tenant will not allow any such person or entity to occupy the premises between the date of the stipulation and vacatur.  

G. Robust Default Clause

The agreement has a robust default clause, which allows for the recovery of the Signing Payment, a pre-established use and occupancy payment upon default, legal fees, etc.

H. The “Friendly Holdover”

The holdover, which is attendant to a Surrender Agreement (what I have always called a “friendly holdover”) is just a bare bones pleading that, technically, would probably be defective. There is often no possibility for it to be any other way, because may, indeed, not even be grounds for a holdover, other than the Surrender Agreement. It doesn’t matter. The holdover isn’t being litigated. It’s merely a vehicle to get a judgment of possession and a warrant of eviction. You don’t even need a court appearance, you can walk it through the clerk.

The stipulation settling the holdover is also a bare bones document. The stipulation of settlement does not encompass all of the terms of the Settlement Agreement, it just provides for the judgment of possession and warrant of eviction, execution of which is to be stayed pending tenant’s default under the not-attached Surrender Agreement. Because it is a two-attorney stipulation, the judge will usually accept it without question.

I. Good Letters of Recommendation

Tenants usually get good letters of recommendation in a pre-agreed upon form, attached as an exhibit to the agreement. 

J. Surrender Ceremony

A “Surrender Ceremony” is outlined – the final day where the vacatur and inspection occurs, there is a meeting where documents, keys, and money are exchanged. There is a pre-agreed upon Surrender Affidavit attached as an exhibit to the Surrender Agreement.

Footnotes

[1] There are many tenant buyouts going on these days. It is beyond the scope of this program or these materials for me to comment upon the politics of this phenomenon. Michelle Itkowitz represents both tenants and landlords in buyout agreements.

[2] Grasso v. Matarazzo, 180 Misc.2d 686 (App. Term 2d 1999) [In Grasso, the tenant signed an out-of-court agreement to surrender possession of rent-controlled premises he had resided in for approximately 35 years for $2,500. Tenant alleged that he was mentally disabled and sought to be restored to possession. Significantly, in Grasso, the tenant testified that he signed the agreement to surrender possession of the premises because he was threatened by landlord’s son. It was also undisputed that after vacating the six-room apartment, tenant had nowhere to live. It was furthermore uncontroverted that after tenant vacated the premises, the landlord promptly changed the locks, then filed an application for decontrol of the premises, and rented out said premises to new tenants. The Appellate Term, agreeing with the lower court, concluded that the landlord’s position that the agreement was voluntary lacked credibility.]

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