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Structuring a Tenant Buyout – MICHELLE’S MONDAY MANDAMUS!


February 19, 2018:  This Q&A post originally appeared on the LandlordsNY blog, where Michelle Maratto Itkowitz is the "Legal Expert".

Hi, Michelle here. I am the LandlordsNY “Legal Expert”. I answer landlord and tenant questions. My goal is to post in the blog all of the questions I get from LandlordsNY members (keeping the member anonymous) and my answers thereto, when I think that such questions and answers would be of interest to other people. Let me know if this is helpful. These questions are excellent, keep them coming.

Question:  “If I am able to negotiate a buyout with my rent regulated tenant, what legal documents will my lawyer and the tenant’s lawyer need to prepare?”

Answer:

First, because you are talking about negotiating a buyout, at the end of this answer, I will be providing you with the NYC regulations on avoiding tenant harassment when negotiating a buyout. READ THE REGULATIONS CAREFULLY. Obey them to the letter.

Second, let me remind you that a tenant cannot be bought out of a valuable rent regulated tenancy if tenant is not represented by competent counsel. Without counsel, the settlement agreement and the warrant of eviction are not worth the paper they are printed on. Grasso v. Matarazzo, 180 Misc.2d 686 (App. Term 2d 1999).

Now to your answer. When a tenant is being “bought out”, a stipulation of settlement is not the proper vehicle to paper that deal. A buyout agreement is very different from a regular Housing Court stipulation of settlement.

When a tenant, represented by counsel (of course), agrees to vacate an apartment in exchange for money, the deal should be memorialized OUTSIDE of a stipulation of settlement in a holdover, in a private and confidential “Surrender Agreement”. Note that the Surrender Agreement will share many characteristics with the non-buyout stipulation of settlement. It should, for example, provide for the deal between the parties on attorney’s fees. It should also, however, do MANY additional things. Here are 10 major characteristics of the Surrender Agreement:

The Surrender Agreement:

1. Should clearly recite the consideration. The tenant is swapping his surrender of the apartment and the tenancy for money.

2. Should have a confidentiality clause. This protects the tenant as well as the landlord. It is no one’s business how much money the tenant got. (Except Mr. Tax Man!)

3. Should have an up-front “Signing Payment”, so the tenant can move.

4. Will have an escrow agent section, because landlord’s lawyer is holding the balance of the buyout money.

5. Will have a representation that tenant knows he has the option of remaining in the apartment and that tenant has been well advised of his options, including by financial advisers. This includes that the tenant understands that the transaction has tax implications.

6. Will make “sole possession” a MATERIAL representation. Tenant cannot leave people in the apartment and cannot fail to tell landlord about anyone out there who might claim a right to the apartment. 

7. Must have 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.

8. Will provide for a holdover, attendant to the Surrender Agreement (what I have always called a “friendly holdover”). The friendly holdover is just a bare bones pleading. The holdover isn’t being litigated. It is merely a vehicle to get a judgment of possession and a warrant of eviction.

9. Will provide that tenant gets a good letter of recommendation in a pre-agreed upon form, attached as an exhibit to the Surrender Agreement.

10. Outlines a “Surrender Ceremony” – the steps on the final day where the vacatur and inspection occurs. At the Surrender Ceremony, 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.

Ok – now here is the law on no harassment of tenants when attempting to negotiate a buyout. The New York City Housing Maintenance Code (NYC Admin Code 27-2004(a)(48)) prevents owners from harassing tenants regarding buyouts. I think all owners and managers should read it, so I include the relevant parts herein:

Except where otherwise provided, the term “harassment” shall mean any act or omission by or on behalf of an owner that (i) causes or is intended to cause any person lawfully entitled to occupancy of a dwelling unit to vacate such dwelling unit or to surrender or waive any rights in relation to such occupancy, and

(ii) includes one or more of the following acts or omissions, provided that there shall be a rebuttable presumption that such acts or omissions were intended to cause such person to vacate such dwelling unit or to surrender or waive any rights in relation to such occupancy:

a. using force against, or making express or implied threats that force will be used against, any person lawfully entitled to occupancy of such dwelling unit;

b. repeated interruptions or discontinuances of essential services, or an interruption or discontinuance of an essential service for an extended duration or of such significance as to substantially impair the habitability of such dwelling unit;

b-1. an interruption or discontinuance of an essential service that (i) affects such dwelling unit and (ii) occurs in a building where repeated interruptions or discontinuances of essential services have occurred;

***

d. commencing repeated baseless or frivolous court proceedings against any person lawfully entitled to occupancy of such dwelling unit;

d-1. commencing a baseless or frivolous court proceeding against a person lawfully entitled to occupancy of such dwelling unit if repeated baseless or frivolous court proceedings have been commenced against other persons lawfully entitled to occupancy in the building containing such dwelling unit;

e. removing the possessions of any person lawfully entitled to occupancy of such dwelling unit;

f. removing the door at the entrance to an occupied dwelling unit; removing, plugging or otherwise rendering the lock on such entrance door inoperable; or changing the lock on such entrance door without supplying a key to the new lock to the persons lawfully entitled to occupancy of such dwelling unit; or

f-1. contacting any person lawfully entitled to occupancy of such dwelling unit, or any relative of such person, to offer money or other valuable consideration to induce such person to vacate such dwelling unit or to surrender or waive any rights in relation to such occupancy, for 180 days after the owner has been notified, in writing, that such person does not wish to receive any such offers, except that the owner may contact such person regarding such an offer if given express permission by a court of competent jurisdiction or if notified in writing by such person of an interest in receiving such an offer;

f-2. contacting any person lawfully entitled to occupancy of such dwelling unit to offer money or other valuable consideration to induce such person to vacate such dwelling unit or to surrender or waive any rights in relation to such occupancy, unless such owner discloses to such person in writing (i) at the time of the initial contact, and (ii) in the event that contacts continue more than 180 days after the prior written disclosure, at the time of the first contact occurring more than 180 days after the prior written disclosure:
(1) the purpose of such contact,
(2) that such person may reject any such offer and may continue to occupy such dwelling unit,
(3) that such person may seek the guidance of an attorney regarding any such offer and may, for information on accessing legal services, refer to The ABCs of Housing guide on the department's website,
(4) that such contact is made by or on behalf of such owner, and
(5) that such person may, in writing, refuse any such contact and such refusal would bar such contact for 180 days, except that the owner may contact such person regarding such an offer if given express permission by a court of competent jurisdiction or if notified in writing by such person of an interest in receiving such an offer;

f-3. offering money or other valuable consideration to a person lawfully entitled to occupancy of such dwelling unit to induce such person to vacate such dwelling unit or to surrender or waive any rights in relation to such occupancy while engaging in any of the following types of conduct:
(1) threatening, intimidating or using obscene language;
(2) initiating communication with such frequency, at such unusual hours or in such a manner as can reasonably be expected to abuse or harass such person;
(3) initiating communication at the place of employment of such person without the prior written consent of such person; or
(4) knowingly falsifying or misrepresenting any information provided to such person;

f-4. repeatedly contacting or visiting any person lawfully entitled to occupancy of such unit (i) on Saturdays, Sundays or legal holidays, (ii) at times other than the hours between 9 a.m. and 5 p.m. or (iii) in such a manner as can reasonably be expected to abuse or harass such person, provided that if such person has notified such owner in writing that such person consents to being contacted or visited at specified hours or in a specified manner, such owner may also contact or visit such person during such specified hours and in such specified manner, and provided further that an owner may contact or visit such person for reasons specifically authorized or mandated by law or rule; or

g. other repeated acts or omissions of such significance as to substantially interfere with or disturb the comfort, repose, peace or quiet of any person lawfully entitled to occupancy of such dwelling unit and that cause or are intended to cause such person to vacate such dwelling unit or to surrender or waive any rights in relation to such occupancy, including improperly requiring such person to seek, receive or refrain from submitting to medical treatment in violation of subdivision b of section 26-1201 [Improperly conditioning residential occupancy on medical treatment.]




  
Thank you for this question. Finally, I am obligated to say that this answer is for general informational purposes only, does not constitute legal advice, and does not create an attorney and client relationship between us or between you and LandlordsNY. 

Let me know if you need anything else.

Michelle Maratto Itkowitz
Itkowitz PLLC
26 Broadway, 21st Floor
New York, New York 10004
(646) 822-1805


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