By Eric Weld, MassLandlords, Inc.
Cash for keys may soon be on the rise. It’s an idea that might appeal to many landlords who want to incentivize tenants to leave their rentals and avoid a drawn out eviction process.
Cash for keys is a relocation assistance agreement. In concept, it's a simple, straightforward process, legal in all 50 states. It’s exactly what it sounds like: an agreement, entered into voluntarily by a landlord and tenant, in which cash or other value is provided to the tenant as an incentive for them to hand over the keys and move out of the rental.
(Landlords may even want to think of or refer to this arrangement as "relocation assistance." "Cash for keys," while it's a handy and well-known phrase among landlords and property managers, implies monetary exchange, which might not necessarily be the case.)
Some landlords are already engaged in cash-for-keys contracts. It’s perfectly legal to do so even while state and federal eviction moratoriums are in place, as long as it is done in a non-threatening, voluntary and non-coercive manner on the part of the landlord. To be safe, consultation with an attorney, or the MassLandlords Helpline, is recommended before initiating or entertaining any relocation assistance proposals.
A renter may also suggest cash for keys independently, without any prompting from the landlord, which can result in a move-out agreement.
Cash-for-Keys Mortgage Foreclosures vs. Rental Evictions
Cash for keys gained popularity during the housing crisis in 2008. Real estate owners, who represented banks, offered cash to underwater and nonpaying homeowners by the millions in heavy hit communities, in Florida, Southern California and other regions. Offering the strapped homeowners cash to vacate their homes saved banks from going through the costly and time-consuming process of foreclosure.
Over the years, landlords have also begun using cash for keys as a way to entice nonpaying renters, for example, to leave their residences instead of filing eviction notices, spending months in housing courts, sitting on empty rentals and paying court and other costs. Some landlords have also used cash for keys to encourage paying tenants to leave a unit that they want to renovate or sell, or vacate for other reasons.
For the purposes of this article, we refer to cash for keys between landlords and tenants.
Now or Later
It’s important to note: cash for keys, while it may be the answer for some landlords, is not a panacea for those with problem tenants, for example, nor an arrangement to be entered into lightly.
Landlords embarking on cash-for-keys agreements now, while eviction moratoriums are in place and courts are not hearing most housing cases, will have no recourse in the event tenants don’t comply with the agreement. Make certain both parties are entering the contract in good faith, are well-informed of their rights, and of the contract’s stipulations.
In some cases, it might be in the interest of landlords to hire a mediator to work with both parties – landlord and tenant – to negotiate an amenable agreement that all will adhere to throughout the process. If you opt not to hire a mediator, make certain that tenants know their rights in a cash-for-keys agreement, to avoid them from backing out of a deal later when they’ve received advice from others.
Potentially looming at the other end of the state and federal eviction moratoriums now in place is a significant number of evictions. This situation could be avoided if the state government were to take legislative action, such as that proposed by MassLandlords, to guarantee housing for the long term. But short of further legislation, the eviction backlog could become substantial.
Conditions may also be affected by pending bills, such as HD.4878, a bill in the state legislature, sponsored by Reps. Kevin Honan and Mike Connolly, that could effectively lead to rent cancellation for a large percentage of landlords.
Evictions are almost always expensive. The total bill for an eviction in Massachusetts can tally more than $5,000, considering lost rent, attorney, court and constable fees, repairs and cleaning costs. In the next couple years, that amount will likely increase as courts become backlogged and may delay summary hearings for months (i.e., more lost rent).
The math is simple in a lot of situations:
A) Wait months or more than a year for your eviction case to be litigated while a nonpaying tenant occupies your rental (and possibly degrades its condition), then forfeit thousands of dollars in court costs, lost rent and attorney fees?
Or B) Offer your tenant a few thousand dollars to move out peacefully and quickly? The savings between cash for keys and an eviction can range from the low thousands to five figures in some outlying cases, even considering attorney consulting fees.
Meanwhile, you could have your rental reoccupied with a paying tenant within a month or two. Not to mention all the headaches you could avoid.
A Tough Pill to Swallow
For some landlords, paying cash to a nonpaying tenant who owes thousands of dollars in back rent and may have damaged your property is anathema. Like rubbing salt in a wound.
But providing housing is a business, first and foremost. And while it may be emotionally difficult to hand over a pile of cash to a tenant who has given you headaches since the day they moved in, it may be the wisest business decision.
Some landlords also question the ethics of a cash-for-keys agreement. They argue that the practice could have the long-term effect of increasing squatting and rent delinquency by encouraging bad players to force landlords to hand them cash just in order to get them out of their property and avoid legal fees and headaches.
That scenario is possible in a few situations. But in the wake of coronavirus, the overwhelming percentage of delinquent renters will be the result of the pandemic response and economic downturn. There has always existed a fraction of squatters and intentional nonpayers gaming the system. It’s impossible to say how much that fraction could increase because word spread that cash for keys is a way to extort some cash from landlords.
In the wake of the coronavirus pandemic and response, once eviction moratoriums have been lifted, many landlords will be positioned to serve eviction notices as soon as they can to their delinquent tenants. In many cases – especially for tenants who have not suffered a loss of income but instead have taken advantage of the eviction moratorium to get free housing – eviction might be the logical course.
But for many other tenants – such as those who stopped paying rent because they lost jobs and income during coronavirus and response – landlords might consider alternatives to eviction, especially for good tenants who have regained employment and resumed rent payment.
Alternatives might include working with tenants to come to a compromise that will extend the tenancy for the long term while forfeiting some back rent. You could renegotiate back rent payments, for example, or restructure payments with some owed funds added in. Partial rent forgiveness might also be a prudent solution if it saves the arduous process of eviction.
But if you decide as a landlord that the relationship with your tenant is untenable, then cash for keys may be the better alternative.
How to Offer Cash for Keys
The process can be simple, but it depends on a few specifics. At its simplest, cash for keys is a transaction directly between landlord and tenant. No courts, constables or intermediaries needed.
(When court-enforced evictions are possible, however, cash-for-keys agreements may be entered into the court record. This action would give you a back-up plan in case your tenant doesn’t comply with the agreement.)
As stated above, hiring an attorney or mediator, or consulting the MassLandlords Helpline, might be a prudent step, at least to avoid any misunderstandings or surprises, and to provide additional assistance in case the court becomes involved.
As much as possible, try to keep emotion out of your cash-for-keys communications. It’s a business transaction, and in most cases will be a win-win solution (i.e., the least bad outcome) for landlord and tenant. Focus on the benefits.
Step 1: Draft a plan
Jot some parameters on paper, or use the MassLandlords Agreement to End Tenancy form to outline a proposal. Include a proposed amount to offer your tenant to incentivize a quick move-out. Decide on an amount to offer beforehand (see below).
This step offers an opportunity to be creative and flexible within the agreement. For example, you could offer, as part of the payment, to cover moving costs for your renter. Or maybe your cash-for-keys offer doesn’t involve actual payment at all, rather you could offer to forgive all the back rent owed in exchange for a voluntary move-out.
You might consider two or three offers that correspond with faster move-out schedules. If you want your tenant to move out sooner than later, you’ll likely need to offer a higher amount of cash.
This is an abstract that could be shared with an attorney for those who work with one, as recommended.
Step 2: Initiate a conversation with your tenant, either in person or via phone
Present your case and proposal evenly and clearly, as you would with a business proposition. There is no need to mention eviction during this conversation, especially if your intent is just to empty the rental for renovation or sale.
Outline the cash-for-keys concept, emphasizing the benefits to your tenant (i.e., cash in hand, no eviction record to hamper future efforts to find rental housing, etc.).
Your tenant might try to negotiate or counter-offer. Keep negotiation to a minimum. If an extortionist tenant suspects that you are vulnerable or willing to pay more to get rid of them they may take you to the cleaners. Choose a fair amount to open with and try to stick close to that figure.
Assuming your tenant agrees to a cash-for-keys settlement, spell out the agreement with your tenant, or share the MassLandlords Agreement to End Tenancy, a brief and convenient form that provides fields for the essential information and signatures.
Include the amount (or services) you will pay renters to move out. Include the date and time they agree to be vacated from the apartment – meaning all possessions are removed from the unit and any common areas, keys have been delivered to the landlord or agent, and the unit has been left “broom clean.”
Both you and your tenant must sign two copies in duplicate so you each have a signed record of the contract.
Step 2a: Escrow the money
Whether or not you hire an attorney or mediator to assist with your cash-for-keys process, we recommend that you set aside the agreed cash amount for payment upon contract completion. To keep it simple, landlords could place the cash amount in a separate account and pay it out to complete the contract. You could also have your attorney or mediator escrow the cash and oversee the payment at your direction.
This is a step that removes emotion from the payment process, which can be a difficult step for some landlords. It also assures that tenants, who have voluntarily moved out as part of the cash-for-keys agreement, won’t have to wait for payment or chase the landlord to receive the cash owed them.
Step 3: Complete the contract
The cash-for-keys contract is completed when the rental is vacated at or before the agreed upon time and date, satisfactorily cleaned, and keys are in your hand.
Do not hand over any payment or order release of escrowed funds until those conditions are met. If your tenant has not met those conditions by the designated time (i.e., they are still moving out or cleaning beyond the time you both agreed), you have the option of considering the contract void.
Once you have the keys, the unit is in your possession, you have inspected the apartment to your satisfaction and paid your tenant the amount you agreed to, the contract is completed.
How Much to Pay?
First, as a comparative exercise, calculate how much you project an eviction would cost you. You will need to build in more months than usual of lost rent because of the backlog of cases after the eviction moratorium is lifted. For example, if your eviction is delayed six months or more due to the backlog of cases, your costs will increase substantially.
Also think about how much an eviction would cost in normal times, with little or no court backlog. One rule of thumb is to halve that amount as a cash-for-keys offer.
Consider rents and move-in costs for similar apartments in your community. Would $2,700 cover first and last month’s rents plus security deposit? If so, that may be your starting figure, and could present a strong incentive for your renter to leave.
In early conversations, ascertain your renters’ needs. Could they be out in a week, or will they need longer? Would a higher cash offer incentivize an earlier departure?
You could consider a tiered offer with one amount for a 60-day move-out, another offer for a 30-day move-out, or a higher amount to move out in a couple weeks or less. Keep the conversation going over several days or weeks to allow both parties time to consider and address underlying concerns.
On move-out day, once you’ve been handed the keys to the apartment and inspected it, have your tenant sign a final clause saying they have received the cash payment. If the payment was escrowed and distributed by the bank, be sure to get a record of that payment.
Before handing over or releasing the cash payment, be very sure to conduct that final inspection.
As a last step, it is recommended that you immediately change the locks, as usual with an apartment transition. Having the keys handed to you from the tenant doesn’t mean they didn’t at some point have copies made.
Cash for keys isn’t for everyone in every situation. It needs to be approached thoughtfully and thoroughly with all bases covered from a legal standpoint.
If you find yourself lamenting the pile of cash you just handed over to an undeserving tenant in exchange for keys to your property, consider revisiting your calculated eviction costs.
Focus on the potential thousands of dollars you just saved, and your freedom to now locate a better tenant.
Community Mediation Alternative
Instead of eviction, or in parallel with a court filing, remember you can also try non-court community mediation. The Massachusetts Office of Public Collaboration uses state funding to train and supervise volunteer mediators.
In the first six months of 2021, MOPC oversaw 441 mediations:
- 80% of cases settled without going to court;
- 95% were happy with the process; and
- 100% of participants thought the mediators were fair.
There are no income eligibility requirements. LLCs, Incs, and other entities do not have to hire an attorney.
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Members can download our template to conduct a cash-for-keys move-out agreement.