Rent Stabilization Buyout Offer and Legal Fees

[tenant88x]

Hi,
My RS rent is about 800 and the apt above me, with the exact same layout, was recently converted to market rent after the RS tenant was bought out and is now renting to a new tenant at 2,800, after being renovated.

I expect to get a low six figure offer for the buyout, which I am not sure if I will take at this point.

My question is
1. Do I need a lawyer to represent me in the buyout process?
2. If I don't get one, what could go wrong? Examples or stories you could share would be appreciated.
3. How is the payment for a RS lease buyout usually made? Can I ask for cash?
4. If I do get a lawyer, what are the usual legal fees?

Thank you

[TenantNet]

I think six-figure offers are rare.

You don't have to have an attorney, but in my opinion you would probably do better with one. On the other hand, an attorney will likely take one-third of what you get.

More than that, consider that whatever you get is taxable. I don't think you'll see cash. I think it's Federal Law that transactions of $10,000 or more get reported (by the bank) to the govt.

We've had a few thread on this on the forum. Try searching.

One other thing to consider. You would be helping a landlord take a RS unit off the rolls, depriving future tenants of affordable rents.

[tenant88x]

Thanks for your very quick reply and your advice.

I am basing my expectations of a low six figure buyout offer based on what the tenant above me received. However, he was a lawyer, so maybe that gave him some leverage.

There have been seven other units in the building converted to market rate in the past few years as many illegal sub-letters were evicted. All these units were renovated and taken out of RS, so I think the chance of anyone occupying my unit in RS after me is basically zero.

That's the hard reality we are facing these days.

[Cranky Tenant]

It depends on where you live. My landlord's latest offer was in the low six figure range. Of course that isn't going to get you as far as it would have ten years ago, unless you're either leaving the City, moving in with someone or willing to pay several times more than your current rent.

[TenantNet]

Cranky raises a very good point. Let's say the LL offers $100,000. A lawyer might take 1/3 of that. So that's $66,667 or so. Then take another $15,000 for taxes. (I'm not a tax expert, so I'm just guessing at 15% here). If that's the case you're down to $51,000 more or less. If the tax rate is higher, that's less than half.

So lets' say you get $50K net. If you stay in the city, it's very difficult to find another RS unit. And if you do, these days they might easily go for more than $2,000/month. That's about 2 years of rent. Not so much.

Now, compare your position if you stay in your current unit at the current rent. With your $800 rent, 2 years of rent is $19,200.

I would look at it for a 5 and 10 year stretch, depending on your long-term plans.

Finally, take a loot at this buyout calculator.
http://www.shalomtenants.org/listings/STAcalculator.php

It will give you an indication of the factors to consider, although it appears not to factor in the fee you would pay to an attorney.

[AnnaNYC]

I'm going through this now, though my offer is only $50k. It's pretty easy to find a lawyer who will agree to represent you on an hourly basis instead of a contingency basis as long as you have fees up front- and this is almost certainly the way to go, since unlike in tort-based cases, compensation/success is not uncertain. In fact, this seems to be standard practice (no lawyer quoted me a contingent estimate- all proposed hourly or task-based fees). Estimated fees for representing me throughout the entire process are $750, with a cap at $1500.

I do think it's been helpful- not so much for the legal perspective, but the financial one. My first offer was only $20k, but he was able to argue convincingly that this was far below market, far below what they'd given to other tenants, etc.

[Interestingly, the landlord in my situation has not thought to involve an attorney, and it's a very, very bad move. I'm well aware that he's making these buy out offers first, because with renovations, my apartment will be marketed as a three bedroom for $4200, and at that rate, he can recoup my buyout quickly, but also because a few people in the building have received verdicts for large five or low six figure amounts because a) rhere was a building wide rent abatement that previous management purposefully ignored, resulting in our paying double rent- many tenants for over a decade and b) previous landlords converted centralized heating to individual boiler units without permission and we've been paying a hundreds per month for pretty inefficient boilers.

He'd like us out fast so no one else figures out and sues. Of course, the buyout contracts don't preclude future liability claims... a very basic mistake. I'm not sure what I'm going to do here. The buy out, the lengthy family court battle, and/or both. But yeah, involve lawyers. On either side.]

[TenantNet]

What I've seen from the well-known tenant law firms is usually a percentage.

A retainer from a well-known tenant firm says, "In the event that client accepts any payments of money in settlement of the matter that is the subject of this retainer, including any "buy-out" in exchange for possession, or any waiver of rent or debts, the law firm shall be entitled to the greater of (a) the full amount of the hourly fees and expenses incurred under this agreement or (b) 25% of any settlement amount, minus the out-of-pocket amount paid by client for legal fees to the date of settlement."

I have seen percentages up to 1/3. If you found an attorney that will do it for hourly fees, then that's good. If there's no need for hard negotiation and if you concern is getting the details done right, then a lower amount would likely be more appropriate.

From what you are describing, I would think $50,000 is a gift ... to the landlord, not to you. And BTW, individual boilers are illegal.

[Cranky Tenant]

$50,000 is a joke. My rent is similar to the OP's yet deregulated apartments in the building where I live are going for $3000 to $5000 a month. If I were to accept a buy-out and wanted to remain in the same neighborhood, or move to a similar neighborhood, I would probably need something in the mid six figures to keep my monthly expenses at the same amount I'm paying now. It may sound outrageous but that's the current state of the housing market. Why would any rent regulated tenant choose to give up their apartment, lose all the protections RS offers and pay higher rent, just so the landlord can make more money?

[tenant88x]

Thanks for the informed discussion, it's quite helpful.

I wouldn't accept an offer that doesn't allow me to live decently in NYC for awhile. I am aware of the financial implications of the legal fees and capital gains taxes.

That's why I am looking into how to reduce the legal fees, if possible. It seems to me this is a huge make or break issue for buyouts as we can't do anything about the capital gains taxes that are paid on the buyout.

There is only a small chance that I accept the buyout offer, due to the large break in rent I am receiving.

[TenantNet]

Not an expert on the IRS, but I believe there is a thing called Section 1031 of the IRS code that allows you to reinvest the proceeds of a sale of property into a new property within a given period of time, and thereby save or delay any tax liability.

I do not know if this would apply to buy-outs, but you might wish to check with a tax professional to see if it might.