As a renter, the prospect of being tied down to an apartment lease, especially if the contract is extended, can be a daunting, but calculated risk. A renter should go into a lease knowing the terms and abide by them throughout the duration of the contract. If a renter wanted to get out of the lease early, they would have to pay a termination fee, lose their security deposit, or risk being taken to small claims court. On the flip side, landlords who want to end an existing apartment lease early or want a renter to move out before the lease is over can make an offer to buy out the existing lease.
While this may seem unbalanced, landlords are also bound to abide by the terms of a lease agreement. Just as landlords have rights, New York also has laws that protect the renter’s rights in the event that their landlord wants to end their lease agreement early. However, not everyone may be familiar with the inner workings of the law. Before you make any decisions, it is important to retain the services of a competent NYC real estate attorney. Working with a skilled real estate attorney can be beneficial in ensuring that your rights are protected in a buyout. Our experienced Manhattan residential real estate attorneys at Avenue Law Firm may be able to help you in ensuring that the terms of your buyout are favorable to you. Call us today to schedule a free consultation at (212) 729-4090.
Understanding an Apartment Lease Buyout
While apartment lease buyouts are not uncommon in New York, they can still take an inexperienced renter by surprise. Apartment lease buyouts occur when a landlord offers to pay a renter a lump sum in exchange for the renter moving out and are usually done by landlords in the hopes of getting a higher-paying tenant.
Apartment lease buyouts happen more frequently in rent-controlled or rent-stabilized apartments, usually for the following reasons:
- Rent increase caps
- Laws allowing tenants to renew their leases
New York laws prohibit landlords from increasing rent above a certain cap annually as long as the same tenant remains in the apartment. Tenants are also allowed by NYC rent regulations to renew their apartment leases in perpetuity, meaning that they cannot be evicted due to their leases expiring. As long as the tenant follows the terms of the lease and pays their rent on time, they can be allowed to renew their lease until they choose to move out.
While this may not always be the case, apartment lease buyouts usually occur more in areas of the city that are seeing more development. Development in terms of more job opportunities or commercial spaces can often mean that rent prices increase but NY laws protecting tenants in rent-controlled or rent-stabilized apartments make it difficult for landlords to evict tenants or impose a higher rent. There are also scenarios wherein the City or a developer offers to buy a landlord’s property. If there are remaining tenants, a landlord cannot sell their property.
A lease can only be broken if the tenant has not been following the terms or through mutual agreement. Through an apartment lease buyout, a landlord and tenant can work together to find terms that are mutually acceptable and end the lease agreement without issues.
The NYC Rent Guidelines Board oversees lease agreements and ensures that statutes and guidelines are followed both by landlords and tenants. While tenants face eviction if they do not follow the agreements, landlords themselves are subject to high fines and penalties if they abuse the agreements. Both parties are expected to adhere to New York City landlord-tenant laws which govern lease agreements.
Should You Accept or Negotiate?
If you have been offered a lease buyout by your landlord, it’s important to remember that you are not obligated to accept. You are well within your right to reject an offer, even if the buyout offer is high.
A landlord also cannot coerce or harass you to accept a lease buyout offer. It’s illegal for a landlord to threaten you or otherwise cancel essential services to your apartment because you don’t want to accept the offer.
However, a buyout can also allow you to move into a new apartment or relocate somewhere else. You also do not have to accept a buyout outright and can even negotiate better terms if you think that the current terms are not favorable to you.
How Much a Buyout Is Worth
Before you accept your buyout or negotiate, it is important to know what price is reasonable for you to ask. New York buyouts have to be approved by city officials to ensure that landlords are not lowballing tenants but a landlord can also take the buyout off the negotiating table if they think that your asking price is too high.
It may be difficult for an individual tenant to determine how much a lease buyout is actually worth. A good measurement would be to compare how much rent a tenant is currently paying with how much rent is currently worth in the vicinity. It may also be good to consider future developments and construction and how much these would affect rent. The market rate is not a fixed amount and is more reliant on how much tenants are willing to pay given an apartment’s amenities and its proximity to other necessary facilities.
For a rent-stabilized apartment, apartment lease buyouts in general could range from $20,000 to $60,000.
Determining your landlord’s intentions or what is pushing them to offer the lease buyout can be a negotiating chip. When offering a buyout agreement, landlords must disclose in writing the following information:
- The purpose of the agreement
- A clause stating that the tenant may deny the offer and continue living in their apartment as is
- A clause stating that the tenant is allowed to seek legal counsel and provide additional information regarding the agreement
- A clause stating that the tenant is allowed to refuse contact from the landlord for 180 days.
A landlord can do anything they can to convince you to sign the agreement as long as they abide by the law. As a tenant, it is important for you to know your rights. According to the NYC Protection Act, a landlord cannot subject a tenant to the following acts to force them to accept a buyout agreement:
- Providing a tenant with misleading information
- Sending communications or calling a tenant at their workplace
- Directing threatening, coercive, or harassing language at the tenant
- Preventing the tenant from entering the building (ie. changing locks)
- Filing frivolous lawsuits against the tenant
- Using force or intimidation to get the tenant to accept the agreement
Tenants who have been subjected to such acts may sue their landlord for harassment. Tenants can notify their landlord that they do not wish to be contacted, for up to 180 days, and the landlord must abide by the request or face legal consequences. In addition, tenants can also file a complaint with the City. Landlords proven to have engaged in such behavior may be subjected to various fines. A tenant can receive an amount ranging from $1,000 to $10,000 for a first offense and anywhere from $2,000 to $10,000 for any subsequent offenses.
If your landlord is harassing you into accepting an apartment lease buyout agreement, getting the help of a skilled NYC residential real estate attorney can ensure that the terms are fair and that your rights are protected. Our Manhattan real estate attorneys at Avenue Law Firm are well-versed in the relevant laws involved, including the NYC Buyout and Tenant Protection Laws. We can also assist you in filing a complaint with the City and represent your rights in court if necessary.
Tax Implications of an Apartment Lease Buyout
Having favorable terms on your apartment lease buyout may seem like a windfall but getting a high tax liability on your buyout can decimate any financial benefits you can get. Being aware of the tax implications of accepting an apartment lease buyout can be just as important as getting good terms on your agreement.
Even though apartment lease buyouts are offered as a lump sum, you may not actually be entitled to the whole amount. You need to be aware of the tax rates that would apply to the payout you get and structure your agreement in a way that reduces your tax liability.
When a buyout is accepted as is, the funds are taxed as regular income and are subject to federal, state, and city tax rates. Finding a skilled Manhattan real estate attorney who can help negotiate and structure your agreement in a way that allows you to benefit from tax rates is beneficial.
Effective Negotiation Tips
When negotiating your apartment lease buyout, you must be aware of the current and future implications of accepting the agreement. The following factors can be useful to keep in mind during the negotiation:
- Why your landlord is offering the agreement – If your landlord is up against lawsuits, city violations, or is looking to sell the property for a high price, which depends on you moving out, you have more leverage in the negotiation. While it may feel unconscionable to take advantage of such a situation, remember that your acceptance of the agreement will also bring benefits to your landlord.
- What is your landlord’s financial situation – Requesting too high an amount on your buyout agreement may not be financially possible for your landlord to meet. There can be alternatives to a lump sum that you can include in your agreement as compensation, such as a partnership agreement on the property.
- How much you currently pay in rent – If you are in a rent-controlled or rent-stabilized apartment, there is a high chance that you are currently paying below market rate based on NYC rent control laws. Once you move out, your landlord can be free to write a more expensive lease with a new tenant.
- Where the property is located – If the property is located at a more marketable location, the demand for housing may increase the rent potential new tenants are willing to pay which your landlord stands to take advantage of. Your landlord may agree to a higher buyout if they expect to gain much by increasing the rent for new tenants.
- How much it costs to move out and into a new place – Moving out can be expensive and finding a new apartment may also take some time if the buyout offer comes unexpectedly. Factoring these costs into the buyout agreement can lessen your hassle in the future.
Although it would be ideal to assume that your landlord would not be applying underhanded tactics in the negotiation, it is not usually the reality. To protect your rights and to have someone looking out for your best interests in the negotiation proceedings, seeking the help of a knowledgeable Manhattan real estate attorney is crucial.
How a Skilled NYC Residential Real Estate Attorney Can Help
Getting a handle on all the moving parts of your agreement can become overwhelming. Determining the current market rate for your specific location may also be difficult. An experienced attorney can help you negotiate favorable terms of your agreement while also taking into account the tax consequences.
An attorney can also use legal resources to find out whether there are lawsuits or actions influencing your landlord to offer a buyout agreement. If you reject your landlord’s offer and they resort to harassment to force you to move out of your apartment, an attorney can also file a complaint and a lawsuit, if needed. An attorney can also ensure that your landlord adheres to a request of 180 days of no contact.
At Avenue Law Firm, our team of Manhattan residential real estate attorneys provides quality legal counsel in matters of rent negotiation to apartment lease buyout agreements. We may be able to help you get favorable terms and understand your rights whether you choose to accept or reject a buyout offer.