Are NYC lease buyout advisors a good idea?

June 9, 2019 9:43 AM

I'm considering asking my New York City landlord to buy out my rent-stabilized lease. One is generally advised to retain a lawyer for this, but in the last year or so a few specialist buyout agents have sprung up. Because they're so new, I can't tell if they are a good idea or a scam.

I don't want to link to the buyout advisor firms, but there appear to be two that are easy to find in google. They estimate the buyout value based on market conditions, and handle negotiations with the landlord - presumably the same things a lawyer would do. They operate on about 20% contingency rather than hourly fees like tenant lawyers, which is attractive when I'm short on cash already. Because this is a new business model, I'm having trouble finding reliable information about whether it would be a mistake to go with one of these firms instead of a lawyer. I'd appreciate any information that would help me decide which way to go.

posted by anonymous to Law & Government (6 answers total)

My friends in Manhattan real estate tell me that there is a more-or-less standard formula that will dictate the landlord's maximum offer, above which it just doesn't make sense for the landlord to offer. The landlord, of course, will want you to accept an offer that is as far below that maximum as possible.

The "formula amount" will depend on a lot of things, but primarily comes down to how much money the landlord can expect to make in future years by turning over the rent-regulated lease. In some buildings of which I am aware, for example, the landlord is gut-renovating every apartment as it becomes vacant, which is a large enough expenditure to get the apartment out of rent regulation, and then charging approximately double what the regulated tenant was paying. Other landlords of other buildings in other neighborhoods may have entirely different considerations and plans. It is unlikely you will be aware of all these things, and therefore you would be advised to avail yourself of someone who is familiar with the usual formulae, who can reach a reasonable understanding as to the various plans and considerations your landlord might have and who can advise you as to the range of buyout amounts you might expect. Whether this is worth 20% to you is another question. If you are able to secure a buyout of $10,000 buyout, for example, that would mean paying $2,000 of that to the buyout advisor. It may also be the case that these buyout advisors make their livings on volume, so they may not be as interested in getting you the maximum reasonable buyout so much as they are in getting you a buyout that you will accept as quickly as possible.

In addition, if your landlord hasn't approached you with a buyout offer or hasn't approached others in your building with buyout offers, it may put you at a less than ideal bargaining position to approach your landlord with the proposal that the landlord buy out your lease. Moreover, in my experience, landlords frequently make buyout offers to those tenants they sense are likely to accept a lower-than-maximum offer, either because they are in financial need or are not sophisticated enough in these matters to know the real value of their regulated leases. A friend's landlord, for example, has bought out several leases in her building but has never even hinted at buying out her lease because it's pretty clear that she is aware of NYC rental law and the value of her regulated lease.

A good start might be seeing if you can get a free or low-cost consultation where you could get a ballpark estimate as to the range of buyout amounts you might reasonably expect. My experience is that you can expect something in the low tens of thousands if you live in a desirable neighborhood and the landlord is clearly seeking to turn over regulated apartments into unregulated apartments and significantly increase the rent rates (this will usually be obvious if the landlord has been making a practice of gut-renovating regulated apartments when they become vacant).
posted by slkinsey at 10:22 AM on June 9, 2019

Note that there are currently changes in the law under active consideration that will considerably reduce a landlord's ability to increase rent and thus eventually destabilize a unit upon vacancy. A landlord might be willing to pay extra to get under the wire, so to speak.

I would be very skeptical of any advisor in this area who was not your fiduciary. An attorney will be. Those guys? Sounds like not. Because it's a binary (buyout = they get paid, not = not), their incentive is really to get the deal done more than to wring the highest value out of the deal. I'm not sure what stops them from getting cozy with the landlords. I don't know that this actually happens, but I'm suspicious of it.

Please also do the math!!! $10K, e.g., can sound like a lot of money (would be for me) but unless you are literally moving out to somewhere very cheap that is not NYC, it will be gone in a flash. I would never take a buyout unless it constituted a down payment somewhere else.
posted by praemunire at 10:59 AM on June 9, 2019 [4 favorites]

Is there any way for you, personally, to pass on your rent-stabilized lease to someone else, and perhaps make a side deal while doing so with that person? Perhaps that person could be introduced as a roommate, or a subletter?

I ask because I repeatedly hear stories of folks with rent-stabilized leases selling out to the landlord, rather than passing on an ever-rarer privilege to someone else with an eye to the greater good.

I'm not trying to make you feel bad, and I don't know what's legally possible vis-a-vis another lease-holder replacing you under the same or similar stabilization terms. But I do think that should be part of the conversation. What so many lament about NYC these days is how gentrified its become, how commercial, how big business, and part of the reason for that is its ever-increasing unaffordability which, always, always, always starts with the rent being too damned high. I also realize, from my own experience, that getting a chunk of cash is a rare opportunity. So perhaps your question could be reposed as how you might do that while "passing it on" at the same time? I don't know. Food for thought.
posted by Violet Blue at 10:42 PM on June 9, 2019

Violet Blue, you can't just "pass on" a rent-stabilized lease to anyone you want, and you certainly can't sell it to someone. Generally speaking the only people who have succession rights are family members (including non-traditional family relationships such as unmarried couples and other "family-like" relationships) who have been living in the apartment with the tenant for two years or more prior to the tenant's departure, or since the beginning of the tenancy, or since the commencement of the relationship with the tenant. Moreover, the OP's entire ask has to do with getting compensation for vacating the apartment.
posted by slkinsey at 7:29 AM on June 10, 2019

You can "pass on" (I meant "hand over," not inherit) an apartment if you are able to bring in a roommate, and then get that roommate put on the lease. I know people who have done it. I very much expect you can also make a private deal with the roommate, especially if you know you already want out, because in the long-term that roommate will save a lot of money.
posted by Violet Blue at 11:55 AM on June 11, 2019

You can bring in a roommate and get that roommate put on the lease if the landlord consents to that. It's not something you can just unilaterally do. The landlord is not obligated to add anyone’s name to a lease, whether stabilized or not.

Landlords may be willing to add additional tenants to a non-stabilized lease in certain situation, because this gives them additional pockets to go after if something goes awry. But most landlords won't consent to this for a rent-stabilized lease because it would be financially disadvantageous for them to do so. They want to turn over the lease. That's the best way for them to make more money off the apartment. If you personally know multiple people who have brought in a roommate and had that roommate added to a rent-stabilized lease, that would be extremely surprising. It would be the rarest of the rare: NYC landlords doing something against their own financial self-interest.
posted by slkinsey at 5:25 PM on June 11, 2019