My landlord wants to buy out my lease, but some things he’s saying seem shady, such as telling me my apartment isn’t stabilized and that I’m going to 'make out better' than he will. How do I know what’s true and what isn’t?
Just as there are a number of reasons landlords want to buy out your lease—you’re paying below-market rent or your building is being converted are prime examples—and there are just as many fibs they may tell to entice you to take what is often a low-ball offer, says Steve Wagner, a NYC real estate lawyer and partner at the firm Wagner Berkow.
Here are three of the most common lies he’s heard landlords tell over the course of negotiating hundreds of buyouts over the past 30 years.
Lie No. 1: “You’re taking all the profit”
“The landlord wouldn’t be doing a deal if there wasn’t plenty of profit to start with,” Wagner says, adding that landlords trying to buyout your lease will typically start very low and try to settle for 24 to 36 times your rent.
“That is hugely low considering the difference between the rent the landlord can get and what he or she is getting from you—and that additional rent goes directly to the bottom line and increases their net operating income," he says.
That net operating income is available either as additional money that goes directly to the landlord or to pay for loans, the proceeds of which may be used for building improvements or to put into the landlord’s pockets tax free, Wagner explains.
Instead of a multiple of your rent, which he says is “the typically the worst way to calculate for the tenant,” a lawyer should assess the increase in value of your apartment, and the building in general, resulting from the increase in rent.
That can be figured out by looking at factors for an existing building, such as computing the capitalization rate, or how much more money may be borrowed using the increased income. In a new building, that can be assessed by computing costs per square foot to acquire the property, to develop or redevelop, financing costs, sales and marketing costs, and then profits resulting from sales. Rough figures on a per-square-foot basis can be used and typically are for these calculations, Wagner says.
These calculations “are all valid ways of figuring out how much an increase in rent would be worth to the landlord, and how much it improves the value of the building,” he explains.
Lie No. 2: 'Your apartment isn’t rent stabilized'
“It’s usually pretty clear if something is stabilized or rent controlled, or not, but it’s certainly something that requires an attorney to evaluate,” says Wagner. “You could be leaving a lot of money on the table if the landlord tells you you’re not rent regulated when in fact you are.”
Even if your landlord isn’t lying, “they may not themselves know,” he says. He recalls a case in which a client won significantly more than $1 million because their landlord mistakenly believed their apartment wasn’t rent-regulated. In that case, the landlord wanted to renovate the entire building using financing he had already secured and thought he could evict the tenant, says Wagner, who filed a motion proving that the tenant was actually rent-stabilized, despite what was stated in the initial buyout offer.
"The landlord first offered $50,000, but eventually settled for much more than $1 million,” Wagner says.
Lie No. 3: 'You’re welcome to stay'
While some landlords will say this and mean it, it isn’t too much of a lie since “you’re always welcome to stay if your apartment is rent regulated, and you are otherwise in good standing," Wagner says. “But depending on the circumstances, landlords really do want you to move. They want to be able to make more profits.”
Plus, if they have investors, getting a new tenant who will likely pay well more than you are means they can tell them they’ve increased the building’s net operating income, he adds.
New York City real estate attorney Steven Wagner is a founding partner of Wagner, Berkow, & Brandt, with more than 30 years of experience representing co-ops, condos, as well as individual owners and shareholders. To submit a question for this column, click here. To arrange a free 15-minute telephone consultation, send Steve an email or call 646-780-7272.