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New Owner wants to buy out rent stabilized tenant

NYC Rent Regulation: Rent Control/Rent Stabilized, DHCR Practice/Procedures

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New Owner wants to buy out rent stabilized tenant

Postby brooklynstabilized » Thu Dec 17, 2020 12:41 am

Hi Guys,

So I'm the last rent stabilized tenant in a rent stabilized building that's been sold. 2 tenants were already bought out. The first was bought out for $60,000 and the second was bought out for $180,000. My Mom and myself have been here for over 40 years. They said the most they can give us was $200,000. We don't think it's worth giving up a 2 bedroom $700 dollar a month RS apartment in Greenpoint, Brooklyn for.

The new owners want to redo all of the apartments and kind of combine them to get them out of RS. My question is do you think $600,000 is too much to ask for? My Mom said she's not leaving for less than that. I really don't think it's that crazy a figure if you look at what I'm paying, the locations, and how much we'll get after taxes. Plus being the last tenant in the building helps. Also, the owner is a BILLIONAIRE named Jeff Sutton. What are your thoughts?
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Re: New Owner wants to buy out rent stabilized tenant

Postby TenantNet » Thu Dec 17, 2020 3:28 am

40 years, so that's around 1980 or so, yes? That means real RS, not RC. But you say you and two other tenants. If so, how are they RS when RS is in buildings with 6 or more units? Were some combined along the way, or have others already been deregulated?

What does the owner want to do that he's willing to spend $440,000 in buy-out fees? Is the building located on or near a development site? If so, then getting a professional assessment might be appropriate. Remember the story about the RS unit on Central Park West where the tenant was paid $15,000,000. That's on the extreme end, but $200,000 is also pretty high as buyouts go. I would look at a half-mile radius to see what is happening in your neighborhood. I'm pretty sure Williamsburg, Greenpoint, and even Bushwick and other areas are hot spots these days. And LIC and Sunnyside to the north are also hot.

Put your address into a Google search to see if it's been sold or there are potential plans. If so, then you might have leverage as you do not have to move; that's your choice. Living there for 40 years, that's your home and not something you should give up lightly. Aside from the four walls, consider all your friends, the places you shop and so on.

I occasionally see formulas to figure out what a place might be worth for a buyout. There are objective criteria, but much of it is also subjective. Having said that, $600K is probably too much. From the LL's perspective, even if they deregulate all units, and then renovate them, what will they be able to get in market rents? How long will it take for them to recoup their costs? Not that you agree with their mindset, but you should at least understand how they are thinking and look at it in terms of sheer numbers. See what other market units are going for.

If they are renting 1BR for $3,000, that unit then has an income of $36,000 per year. How many untis in the building? I often see 20 units in tenements (in Manhattan). So if 20, then the building would have a gross of $720,000 per year. But then look at expenses: labor, utilities, taxes, maintenance, mortgage and so on.

For you, you will have to figure out things like cost of moving, where are you going to go and the rental prices in any new location? While reasonable RS units can be found, they are scarce, and not like 20-30 years ago. Most of those have been deregulated. If moving out-of-town, then look at those expenses.

In many cases, it pays to have a lawyer, especially one who has done buyouts before. David Rosenholc comes to mind. See https://www.nytimes.com/2015/12/25/nyre ... r-way.html

Is the LL really limited to $200K, or are they just pleading poverty? Again, find out all you can about the situation.

And understand a good lawyer will cost you money, up to one-third of any buyout. Then, of course, you may be liable for taxes. Consult a tax attorney.

Yes, combining units is one of the few ways left to deregulate units. Do they need your apartment to do that?

We don't know Jeff Sutton. Does he own a lot of buildings?
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Re: New Owner wants to buy out rent stabilized tenant

Postby BubbaJoe123 » Thu Dec 17, 2020 10:57 am

There's a concept in negotiation theory called BATNA: Best Alternative To Negotiated Agreement. In other words, what's someone's situation if they CAN'T reach an agreement. The more you know about the landlord's BATNA, the better you can assess what they'd be willing to pay. Here are some factors to think about:
1. Is the rest of the building empty? If so, they're generating no revenue, so every month is costing them mortgage interest+property taxes+maintenance.
2. Can their project be (mostly) done without you, or is getting your apartment necessary to the entire plan?

In terms of what it makes sense for you to accept, some factors to think about:
1. Where would you move to, and how much would that cost, not just now, but over time?
2. A buyout would be taxable - if paid as a lump sum, you'd be paying $250k or more in taxes on a $600k buyout.

All this said, with this kind of money involved, I'd echo TenantNet: you should talk to an attorney who's experienced in buyouts.
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Re: New Owner wants to buy out rent stabilized tenant

Postby BubbaJoe123 » Thu Dec 17, 2020 11:02 am

One thing to add: Sutton has historically focused on retail and commercial properties. Are you sure the plan is to keep the existing building and combine apartments, or tear it down and build something larger and/or mixed-use? If the latter, then you might have a lot more leverage.
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Re: New Owner wants to buy out rent stabilized tenant

Postby TenantNet » Thu Dec 17, 2020 12:09 pm

That's kind of what I was getting to ... see what is happening or might be happening in the immediate vicinity. The LL has no obligations to tell you the truth of his intentions. Look at the zoning to see it allows retail, commercial or just residential. Look for a commercial overlay (when you have shops on the ground floor with residential above). That will usually be on wide streets (avenues).

Or is the land adjacent to a development site? That could open up a whole can of worms. The zoning lots could be merged allowing a larger building, it could involve the use of air rights, it might be the city has plans for adjacent or nearby lots, so you might see some eminent domain at work. Do they need a zoning change? That could be a text amendment, a map change, a special permit or maybe just approval of the NYC Board of Standards and Appeals if the zoning lot is anything other than a regular rectangle.

As Bubba said, how necessary is their obtaining your apartment integral to their plans? While you won't see $15M unless they want to construct a 40-story tower on CPW, still in the outer boroughs you see a lot of 8-story buildings. If you can tie up the LL's agenda, then you have leverage. I don't think you will see $600K (tell Mama that is unrealistic), you probably have time to investigate all this.
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Re: New Owner wants to buy out rent stabilized tenant

Postby brooklynstabilized » Thu Dec 17, 2020 10:17 pm

Hi Guys,

Thanks for getting back to me. I appreciate all of your input. The building has been sold already. Jeff Sutton's son is really the one that is getting involved in residential, but he has his fathers backing. Their plan is to combine all units. There is only one more tenant who will be leaving. She accepted $180,000 from them. They said their plan is to combine apartments then split some of them up. They need us to leave in order to combine our apartment and the one next to us to try to get out of rent stabilization supposedly.

Their rep told us he thinks $200,000 is as high as they can go. This was before the other tenant accepted a buy out. Yeah $600,000 may sound high, but if they really want it they'll come close to that asking price. Money isn't the motivating factor for us. I was born here, have friends here, and everything is close. We have no intention of leaving. We just let them know that it would take a big amount of money for it to be worth it for us to just get up and leave. We're taking into account having to move, pay taxes on that buy out, get another job, etc. I think we're in a win win situation because we were never looking to leave. They came to us with a buy out offer, and we countered with what it would take to get us to leave. We're fine with staying here. We'll see how it goes though. They obviously want us out, but how bad do they want us out is the question only they can answer.
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Re: New Owner wants to buy out rent stabilized tenant

Postby TenantNet » Fri Dec 18, 2020 5:18 am

That's what they tell you the plan is. It might be true, but then again, there might be something else going on. I can't tell you the times I heard Plan A from a LL, and later I discover there's a Plan B going on. That's why you need to look not only at the building, but possible things going on in the vicinity.

As you say, this is where you are from and that counts for a lot. Even so, ultimately it comes down to the money.
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Re: New Owner wants to buy out rent stabilized tenant

Postby Landlords Boy » Mon Dec 28, 2020 1:48 pm

brooklynstabilized wrote:...We're taking into account having to move, pay taxes on that buy out, get another job, etc...
Well, if you itemize your costs and present it all in writing I can't see why the developer would object to a reasonable revision of the buyout offer - though if it was me you'd have to explain why, exactly, you'd need a new job if you moved out.
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Re: New Owner wants to buy out rent stabilized tenant

Postby TenantNet » Mon Dec 28, 2020 2:19 pm

We don't know if it's a developer. They may be more willing to absorb up-front buy out costs than a typical landlord who's doing interior reconfigurations. The huge buyouts - like the one on CPW - are VERY rare.

A tenant is not obligated to itemize and show his anticipated costs. At the outset, there will be things that are not expected or underestimated. But showing an estimation to a LL or developer can have the effect of painting you into a corner.

Remember, you don't not have to show the LL/developer anything, and you do not have to move out. Don't lose any leverage you might have.

This is a perfectly good reason why having an experienced lawyer will help. They will know these tricks and brush them off, and they won't be operating from a personal standpoint. The old adage, having a fool for a client, holds in this sort of situation as well.
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Re: New Owner wants to buy out rent stabilized tenant

Postby 10ants » Wed Jan 20, 2021 1:44 am

I thought that there was a provision that a LL can evict the last tenant or two in a demolition situation for a relatively modest price. Not sure if this was affected by the HSPTA 2019, and I think it takes a year or two, but worth looking into, as that may be their backup plan.
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Re: New Owner wants to buy out rent stabilized tenant

Postby TenantNet » Wed Jan 20, 2021 2:16 am

There might be something too that, but I would have to look it up, and there would likely be a DHCR process. However, in such cases, there are protections for seniors or long-term tenants and the LL might have to find alternative housing for the tenant in the same neighborhood at the same rent (or subsidize higher rents).
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Re: New Owner wants to buy out rent stabilized tenant

Postby TenantNet » Mon Jan 25, 2021 9:11 am

We saw this article on buyouts:
https://www.brickunderground.com/rent/negotiating-buyout-rent-stabilized-apartment-nyc

Note: While the firm Himmelstein, McConnell, etc. is not one of our advertisers, they are a well-known (albeit expensive) tenant law firm. Other firms that advertise on this site also have experience in negotiating buyouts. What is not addressed in this article is that first, lawyers will often take a percentage of any buyouts. We've heard of percentages as high as 1/3 of the buyout. That needs to be spelled out in writing in any agreement with the attorney. Always read the fine print. Second, tenant are likely to be liable for taxes to be paid on buyout amounts. Tenants should consult with a tax professional. But understand that with the attorney fee and tax consequences, tenant might retain less than 50% of any buyout earnings.

In addition, tenants should put together a multi-year budget for what they will need for future rents and living expenses. If you get a $10,000 net buyout, that money will likely last less than one year. It is important that tenants look ahead. As rent stabilized units within a reasonable range are harder to find, tenants cannot expect to end up in the same type of situation as they currently have. And with the unpredictability of the pandemic, for both housing and income, it's even more important to weigh very carefully any buyout arrangement.

My landlord is offering me a buyout to leave my rent-stabilized apartment. Can I negotiate for more?
by Himmelstein, McConnell, Gribben, Donoghue and Joseph, LLP
January 21, 2021

Question:
I'm the last rent-stabilized tenant in a Cobble Hill building, where I've lived for many years. My landlord offered to buy me out, either through a lump sum or by allowing me to live in another of his apartments rent-free for one year. My current rent is about $2,000. Am I eligible to get a larger buyout? What's a reasonable amount to ask for?

Answer
First of all, renters in this situation are under no obligation to move, unless the landlord can come up with grounds to force them out within the bounds of rent-stabilization laws (illegal sublets and non-primary residence claims are two main grounds for eviction from stabilized apartments), says Sam Himmelstein, a lawyer with the firm Himmelstein, McConnell, Gribben, Donoghue & Joseph who represents residential and commercial tenants and tenant associations.

And since the passage of the Housing Stability and Tenant Protection Act of 2019, landlords have less incentive to buy out rent regulated tenants and are less likely to offer huge buyouts. The main reason for this: HSTPA eliminated vacancy deregulation, which allowed landlords to deregulate rent-stabilized apartments after the tenants moved out and the rent reached a certain threshold.

“Landlords could deregulate rent-controlled and rent-stabilized apartments and then charge market rent, and the difference was tremendous in many cases,” Himmelstein says. “They were willing to pay large buyouts because they’d make that money back eventually. That was the main scenario for buyouts, and that’s gone for the most part.”

There are a few situations remaining in which landlords have incentive to buy out stabilized tenants. Some landlords may try to combine two vacant apartments, for instance, or chop up an existing one into multiple units, and charge “first rent” on them, which means they could increase the apartment’s monthly rent while keeping it stabilized.

Tenants who rent apartments in co-ops or condo buildings may also be able to negotiate sizable buyouts with their landlords.

“Those apartments would be immediately deregulated upon a vacancy because the new law doesn’t keep those in stabilization. In that scenario, the landlord could sell or rent the apartment at market value, so you still see buyouts there,” Himmelstein says.

Some landlords will also offer to buy out rent-controlled tenants, whose apartments can be converted to rent-stabilization status, which often means higher rents.

“Even though those apartments go into rent-stabilization, the formula is such that landlords can get the apartment’s rent close to market-rate,” Himmelstein says. “If they serve the tenant with the new registration and give notice that they have 90 days to challenge the new rent, and those 90 days pass, that rent is locked in forever.”

Finally, landlords who plan to demolish a rent-regulated building and develop a new property on the site are particularly willing to offer buyouts.

“Depending on the size of the project, the landlord stands to make millions and will usually pay tenants anywhere from six figures to multimillions,” Himmelstein says.

Keep in mind, though, that demolition and redevelopment plans take quite a while to come to fruition.

"He'd have to file a case at the Division of Housing and Community Renewal, which could drag on for years," Himmelstein says. This doesn't seem like your landlord’s plan, nor is it likely in a neighborhood like Cobble Hill, where zoning laws restrict the development of high-rises.

If you are a stabilized tenant whose landlord plans to demolish the building, you may be entitled to a stipend, based on the difference between the rent you're paying now and what it would cost to get a new apartment. Tenants paying significantly below market rate, therefore, stand to get much larger stipends than ones paying a higher rent. However, in many demolition cases, tenants negotiate seven-figure buyout payments that are far above the stipend amounts.

Being the last stabilized tenant in your building may also provide you some added leverage.

"The landlord doesn't have to worry that if he pays them a certain number, other tenants will find out and come also looking for buyouts," Himmelstein says of holdouts. "Being the last man standing is always something that's valuable."

A buyout isn't a question of eligibility, he adds, but rather a number of objective and subjective factors—most significantly, the temperament of your landlord.

"Are they a cheapskate or a big spender? I find that when negotiating buyouts, there's often no rhyme or reason to it other than the individual," he says. "Some never pay buyouts, some pay less than others, and some just want to get it done quickly and will pay the maximum so they can move on."

Regardless, it's crucial that you speak to a lawyer before engaging in negotiations. Himmelstein cautions that a tenant who has had a conversation with her landlord about buyouts before retaining an attorney may have limited her prospects by suggesting an amount lower than what a lawyer could get.

"After a tenant says they'll take a certain amount, the landlord will probably say 'No way' to more," he says. "People begin negotiations and think they're being noncommittal, but they're not. Landlords are professionals who negotiate these things all the time."


Sam Himmelstein, Esq. represents NYC tenants and tenant associations in disputes over evictions, rent increases, rental conversions, rent stabilization law, lease buyouts, and many other issues. He is a partner at Himmelstein, McConnell, Gribben, Donoghue & Joseph in Manhattan. To submit a question for this column, click here. To ask about a legal consultation, email Sam or call (212) 349-3000.
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