Cash for Keys and SB-91

Cash for Keys and SB-91

By: D. Keith Dunnagan, Esq.

April 20, 2021

With the real estate market in overdrive and with COVID related eviction restrictions in place, many landlords that want to sell their properties seem stuck. They wonder if there is a solution to sell that property. A couple weeks ago, Laura Ferret, addressed issues related to SB-91’s impact on residential sales and the notices that need to be given. While that looked as certain issues related to the sale, landlords are also making use of the cash for keys model that was prominent during the Great Recession.

Like all things, it is important to understand the restrictions in place so that one does not run afoul of the law. More importantly, if looking at using the cash for keys model it is important to make sure the documents are proper. Under SB-91 there is a general moratorium on evicting tenants that runs through the end of June 2021. Under that law, there are only certain “just cause” reasons that will support an eviction prior to the sunsetting of the eviction restrictions.

Because of these restrictions, if making use of the cash for keys model it is important to make sure the correct language is used in the agreement. Let’s start with some basics, sometimes, it seems easier (and cheaper) to verbally offer and agree to a cash for keys resolution. While this may be tempting it is fraught with peril. Verbal agreements to terminate tenancy are currently unenforceable. The reason they are unenforceable is because the termination by the tenant has not occurred. Under SB-91 for a tenant to terminate the tenancy and for that termination to be enforceable, the tenant must terminate the tenancy in writing. (Ca. Civ. Code 1946.2(1)(K)). If an investor makes the offer orally and pays the cash for keys, they may nonetheless, be prohibited from evicting the tenant even if the tenant continues to hold over.

Let’s take another common scenario. Investor offers cash for keys in exchange for tenant vacating on a certain day. The agreement only calls for the termination to occur at the time the tenant vacates the property and the owner pays some money related to the cash for keys. While on its face it seems that the tenant would be evicted for holding over, it is not allowed. Under the modified law, the tenant must terminate the tenancy or provide notice of intention to terminate. In this example, the tenants says they will terminate the tenancy when they vacate and have selected a date to vacate on a date certain in the future. While a cognizable argument may be made that the tenant terminated by accepting the money (consideration for a future promise to be performed) because the tenancy is not terminated until the tenant vacates there is a risk that a court may not evict because no written intention of termination was given.

Complicating all of this is that each municipality and county may have different ordinances/regulations regarding evictions and what is and is not allowed. The state law sets a baseline of what is prohibited but the local jurisdictions can be more restrictive and in some instances; (Alameda County for example nearly excludes all evictions currently) may restrict nearly all evictions.

With the ever-changing law best practices suggests that if you are looking at a cash for keys scenario, get competent legal counsel engaged. It is best to make sure that in setting up a cash for keys agreement, that one clearly define when the termination occurs. Sometimes, it is best to terminate on specific date in the future, sometimes it is best to terminate upon execution of the agreement and provide limited holdover allowance. The key is to make sure the terms are spelled out and that the termination is clearly defined. Under SB-91 a tenant giving notice of termination or making a written offer to surrender premises is a valid reason for an eviction under SB-91 if the tenant does not deliver possession at the agreed upon or noticed date.

Consequently, it is necessary to make sure that any agreement for cash for keys is compliant with current law to give it the best chance of being enforced by the Court.

The information presented in this article is not to be taken as legal advice. Every situation is different. If you are facing a legal issue of any kind, get competent legal advice in your state immediately so that you can determine your best options.

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