Cash for Keys: What California Landlords Need to Know

• What is cash for keys?
• How does cash for keys work?
• What are the pros and cons of cash for keys?
• What steps should landlords take when offering cash for keys?
• What should landlords avoid when offering cash for keys?

Here is your California cash-for-keys crash course!

What Does Cash for Keys Mean?

How Does Cash for Keys Work?

• The tenant is behind on rent and refuses to leave. 
• The tenant is otherwise violating the terms of their lease and refuses to leave.
• The landlord has decided to pull the unit out of service once the lease expires so they can reside there themselves, but the tenant refuses to leave.
• The landlord plans to renovate the unit and list it at higher market rates once the lease expires, but the tenant refuses to leave.
• The building is changing ownership and the new owner plans to demolish, renovate, or occupy the unit themselves, but the tenant refuses to leave.

Is Cash for Keys Legal in California?

• How much money can be offered,
• Whether there is a “cooling-off period” during which the tenant can change their mind,
• How much time the tenant has to vacate the property, and
• Whether certain disclosures are necessary. 

Cash for Keys Pros and Cons

The Benefits of Cash for Keys

• Giving them comparatively quick possession of the unit.
• Avoiding the eviction process, which can cost thousands of dollars and take several months.
• Providing an opportunity to add value to the property and re-list the unit with a higher market rent.

• Giving them money to help with moving costs and upfront costs of their new place.
• Helping them avoid having an eviction on their rental history record, which would negatively impact their future housing prospects. 

The Potential Downside of Cash for Keys

• The upfront expense of the buy-out can potentially be thousands of dollars (although it is likely still less expensive than an eviction).
• There is no guarantee that the tenant will accept the terms or adhere to the agreed-upon terms.
• The property may be left in poor condition. 

• For tenants in good standing who were hoping to be offered a lease renewal, the prospect of moving may be unwelcome, regardless of the method used to move them out.  
• Tenants could lose their status in rent-controlled units, requiring them to pay higher market rates for their new place. 
• Wide-spread cash-for-keys offers from landlords who want to improve the units and rent at higher rates can drive up rental rates for the area, leading to less affordable housing.

Cash for Keys Do’s and Don’ts for Landlords

Do:

1. Review your local laws. With cash-for-keys laws varying widely between different cities in CA, you must research the laws in your local market. Failing to do so would expose you to lawsuits from the tenant. 
2. Explain cash for keys as an alternative to eviction. When discussing your offer with your tenants, explain that eviction is within your legal rights (assuming, of course, that this is true). Make sure they know that an eviction could cost them money and would stay on their rental history, which would limit their future housing options. Then present the cash-for-keys offer as an option that would save you both from the hassle and expense of the eviction process.  
3. Negotiate fairly. Offer a reasonable amount, based on going rates in your market. In some markets, a flat $500 fee is a fair starting point. In others, you’ll need to offer up to two months’ rent. You can also open up negotiations to terms outside the fee. For example, you could offer to accept the unit as-is, saving them from having to deep-clean, patch holes, etc. Or you could offer a move-out date a month from now to give them time to find a new place.  
4. Get the written agreement signed by the tenant(s). The terms of your deal must be documented and agreed to by signature. This will prevent they-said/you-said discrepancies. 
5. Be there for the move-out. It’s a good idea to witness the move-out in person to confirm that the unit is vacated, collect the keys, and immediately re-key the unit. 
6. Uphold your end of the deal. As soon as you have possession of the unit, send the agreed-upon buy-out fee to the now-former tenant. 
7. Process the deposit as usual. Unless the deposit was negotiated as part of the cash-for-keys deal (if allowable in your market), the deposit should be processed as usual. This typically means deducting amounts for damage beyond normal wear and tear and returning the rest to the former tenant with an itemized list of deductions. 

Don’t:

1. Harass the tenant. Don’t make threats or coerce the tenant into accepting a cash-for-keys offer. If they decline the offer, simply begin the eviction process in accordance with your city’s laws. 
2. Restrict access or allow the unit to become unlivable. You cannot lock the tenant out or otherwise bar access to the unit during cash-for-keys negotiations or the eviction process. Nor can you turn off utilities or refuse to make necessary repairs.
3. Go into negotiations blind. Have a plan before presenting your offer to the tenant. Decide beforehand what amount and terms you’re willing to accept if they counter your initial offer.  
4. Violate fair housing laws. Take extra care not to negotiate cash-for-keys deals differently with tenants in classes protected by fair housing laws. For example, let’s say you want to offer residents in two units cash for keys so you can renovate and re-rent those units. And let’s say the tenant in one of the units is a protected minority (by race, gender, nationality, religion, etc.). Presenting a different offer to the minority tenant could easily be interpreted as a violation of fair housing laws. Offering a lower buy-out fee could imply that you are not willing to pay them as much; offering a higher buy-out fee could imply that you are more anxious to get this particular tenant out. Keep careful documentation of your offers, and if you offer different terms, perhaps because of changing market conditions or the size of the unit, document your reason for doing so.     
5. Hand over actual, physical cash. Cash for keys is a catchy term, but with so many traceable ways to send funds, it is safer to choose a method with a built-in digital paper trail. You could send the payment through a platform like Zelle, PayPal, or Venmo, which will give you both a record of the funds being transferred.   

Rental Investments Without the Hassle of Tenant Management

• Scouting, analyzing, and acquiring properties,
• Preparing units for occupancy,
• Marketing units for rent,
• Touring prospective residents through the unit,
• Screening tenants to find qualified, reliable renters,
• Taking care of move-ins and move-outs,
• Maintaining the property, 
• Handling requests for repair,
• Resolving tenant issues, 
• Negotiating lease renewals,
• Etc., etc., etc. …