Why Would My Landlord Buyout My Rent Controlled or Rent Stabilized Apartment?
Living in a rent controlled or rent stabilized apartment definitely has its advantages. Clearly, the most obvious advantage is the cost savings. While other New York City tenants are forced to tolerate significant rent increases, you are able to avoid that fate and continue paying affordable rent for your apartment.
The cost savings are great. That said, they may not be so great for your landlord. Landlords of rent controlled or rent stabilized apartments may view your apartment as an asset that is not being fully utilized. In other words, your landlord may be looking at other apartment buildings on the same street or in the same neighborhood and think “Why aren’t I getting as much from my tenants as these other buildings?”
However, because the landlord has a rent controlled or rent stabilized building, he or she has limited options. One of the most powerful options in the landlord’s quiver, however, is an apartment buyout.
Why Landlords Love Buyouts
We have previously written about the basics of apartment buyouts and how tenants in rent controlled or rent stabilized apartments can navigate the buyout process. Depending on your priorities and financial circumstances, a buyout may or may not be in your best interests. Whether you rely on a third-party expert like Lease Buyout Advisors or take on the process on your own, you will want to do your own diligence to ensure that you are making the right decision.
However, whether you are interested in a buyout or not, it is useful to understand why landlords would want to target your apartment for a buyout. Placing yourself into the shoes of your landlord can go a long way to helping you in negotiations—should you think a buyout is an attractive option.
The most obvious reason that a landlord would want to buyout your rent controlled or rent stabilized apartment is that the landlord can raise rent to market value for new tenants, thus increasing their income.
Presenting a simple example makes it obvious as to why a landlord would want to buy you out to raise rent for subsequent tenants.
Let’s say that you are living in a rent stabilized apartment in Yorkville or on the Upper East Side. You have lived there since 2008 and have seen the neighborhood change due to the completion of the Second Avenue Subway. Living in a rent stabilized apartment, your landlord cannot increase your rent to take advantage of rising property values in the neighborhood. Assuming that you and your family intend to stay in your apartment for the foreseeable future, your landlord may think that it is in his or her best interest to take a temporary financial hit by paying you a certain sum to leave the apartment building. From there, the landlord can deregulate your rent stabilized apartment, raise the monthly rent to market levels, and find a new tenant.
This is the baseline example of why a landlord would seek a buyout for your rent controlled or rent stabilized apartment. Buying out your apartment, in the eyes of the landlord, is an investment in the revenue generating capability of their building, as the surrounding neighborhood is becoming more and more developed.
Besides the ability to raise rent for subsequent tenants, a landlord would want to buy out your rent controlled or rent subsidized apartment because the landlord wants to tear down the building and develop a new property.
It is easy to imagine this scenario. According to New York City regulations, the rent control program applies to residential buildings constructed before February 1947. Therefore, rent controlled buildings are quite old, and a landlord may want to construct either a new building in its place, whether it is a swanky high-rise apartment building or a commercial property.
Whatever the case may be, if a landlord intends to demolish the building, a stabilized tenant would be entitled to a stipend. This stipend is the difference between the monthly rent that you are currently paying and the cost of obtaining a new apartment. That said, tenants often negotiate this buyout price with landlords. Depending on your apartment, the buyout offer could even reach six or seven figures.
This high buyout price, however, is again worth it in the eyes of the landlord, especially if he or she intends to commit some serious cash to a new building. Therefore, while you may be discouraged that your landlord intends to demolish your building, you may be able to receive a hefty buyout offer should you strategically negotiate with your landlord.
Finally, a landlord may be interested in buying out your rent controlled or rent stabilized apartment in order to convert your building from a residential rental building into cooperative or condominium status. This type of conversion, like the other reasons, is primarily in order to obtain more income. As part of the conversion, landlords may invest more capital into renovations and improvements to the aesthetics of the building.
That said, a conversion is easier said than done. Landlords and developers can choose either an “eviction plan” (where they evict rental tenants in a conversion due to more than half of existing tenants agreeing to purchase their units) or a “non-eviction plan,” where, among other things, your landlord may offer a buyout or other incentives so that you leave the building voluntarily. As always, you are not obligated to accept the buyout offer.
Whether the conversion is characterized as an eviction plan or a non-eviction plan, the landlord primarily wants to generate more income from his or her building. It is an investment into the future and the landlord is willing to incur short-term costs (like extending buyout offers) in order to obtain long-term gains.
Therefore, when you hear rumors or news that your landlord wishes to convert your building into a cooperative or condominium, be on the lookout for a potential buyout offer. From there, you can choose to accept it, reject it, or negotiate terms with your landlord.
Follow The Incentives
Charlie Munger, the partner to legendary value investor Warren Buffett, famously said: “Show me the incentive and I will show you the outcome.” This quote is applicable to nearly all areas of life, including apartment buyouts.
Ultimately, landlords seek tenant buyouts in order to generate more income. But by better understanding why landlords would want to buy out your rent controlled or rent stabilized apartment, you can be better prepared to negotiate should your landlord attempt to buy out your apartment. By placing yourself in the shoes of your landlord, you can obtain a higher buyout price should you decide to move.
At Lease Buyout Advisors, we have over fifteen years of experience interacting with landlords who are seeking apartment buyouts. Our mission is to help tenants obtain the maximum buyout possible while avoiding landlords’ unfair lease buyouts. We do this by using our proprietary software and negotiating terms with landlords throughout the city.
We would love to leverage our experience to help you throughout every part of this process. To learn more about how we can help you,