City of Los Angeles Enacts Tenant Buyout Notification Ordinance

On December 15, 2016, Mayor Eric Garcetti signed a Tenant Buyout Notification Ordinance. The purpose of the ordinance is to regulate and monitor voluntary vacancies of rental units subject to the City of Los Angeles Rent Stabilization Ordinance (RSO) pursuant to Buyout Agreements.

By way of background, the RSO contains both rent controls and eviction controls. The rent control provisions limit the amount of rent that a landlord may charge. The eviction control provisions limit the grounds for eviction. Under the RSO, a landlord is required to have good cause, as defined by the RSO, to terminate the tenancy. The net result is that as long as a tenant timely pays rent and complies with the terms and conditions of his or her tenancy, the tenant is entitled to continue renting the premises for as long as the tenant desires, subject to certain limited exceptions. When an exception applies, such as to allow the landlord, a family member or property manager to reside in the rental unit or to allow the landlord to demolish or permanently remove the rental unit from the market, the landlord is generally required to pay relocation assistance to the tenant. Currently, relocation assistance amounts range from $7,900 to $19,400 per rental unit depending on various factors such as the length of the tenancy (more or less than 3 years), whether any of the tenants are disabled, elderly or children, and household income. Tenants are not entitled to relocation assistance if they are evicted for a breach of a lease or rental agreement.

When tenants voluntarily vacate a rental unit, the landlord is entitled to increase the rent to market rates. This is known as vacancy decontrol. This creates an incentive for landlords to offer “cash for keys” to residents paying artificially low rents under the RSO.

The potential problem is that some tenants may not know their rights under the RSO. So, if the landlord offers a tenant a few thousand dollars to vacate, the tenant may believe that the tenant is getting a good deal when, in fact, the cost of moving and paying higher rent somewhere else may quickly deplete any money received by the tenant.  In such cases, the tenant may have been better off declining the landlord’s buyout offer.

The new ordinance seeks to address this issue by providing the following rules and regulations:

1.  RSO Disclosure Notice. Before making a Buyout Offer (defined below), the landlord is required to provide the tenant(s) with an RSO Disclosure Notice of tenant rights on a form authorized by the rent stabilization board, which must be dated and signed by the landlord and the tenant(s).

2. .Written Buyout Agreement. Every Buyout Agreement (defined below) is required to be written in the primary language of the tenant and state in a minimum of 12-point bold type above the tenant signature line as follows:

“You, (tenant name), may cancel this Buyout Agreement any time up to 30 days after all parties have signed this Agreement without any obligation or penalty.”

Additionally, every Buyout Agreement must be signed and dated by the landlord and tenant, and a copy of the fully executed Buyout Agreement must be given to the tenant.

3.   Cancellation of Buyout Agreement. A tenant has the right to cancel a Buyout Agreement for any reason for up to 30 days after execution by the landlord and the tenant without any financial obligation or penalty. Additionally, whenever an RSO Disclosure Notice and/or Buyout Agreement does not conform to the requirements of this the new law or applicable regulations, the tenant has the right to cancel the Buyout Agreement through the applicable statute of limitations period.

4.  Filing Executed RSO Disclosure Notice and Buyout Agreement. Within 60 days of execution of a Buyout Agreement, the landlord is required to file copies of the Buyout Agreement and RSO Disclosure Notice signed by the tenant and the landlord, with the rent stabilization board.

5.  Affirmative Defense. A violation of this the ordinance may be asserted as an affirmative defense in an unlawful detainer action.

6.   Private Right of Action. Additionally, a tenant may bring a private right of action against a landlord who violates a provision of the ordinance and recover damages and a penalty of $500.

The ordinance defines a “Buyout Offer” as an offer, written or oral, by a landlord to a tenant to pay money or other consideration to vacate an RSO unit. A “Buyout Agreement” is defined as a written agreement where a landlord pays a tenant money or offers other consideration to voluntarily vacate an RSO rental unit.

Further information regarding the Tenant Buyout Notification Ordinance is available from the Los Angeles Housing and Community Investment Department (HCIDLA), website http://hcidla.lacity.org/, or by contacting Ruzicka, Wallace & Coughlin, LLP at (949) 748-3600; website: www.rwclegal.com.

The law firm of Ruzicka, Wallace & Coughlin, LLP represents landlords, property management companies, institutional and private lenders, employers and insurance companies throughout the State of California in real estate, business and employment litigation. The information provided herein is for general interest only and should not be relied upon or construed as legal advice.