Cash For Keys
By Mercedes Shaffer / Published in AOA MAGAZINE
I was recently on a road trip with my family up the California coast enjoying a much-needed change of scenery since all my vacation plans have been cancelled for the past year due to COVID-19. We travelled from town-to-town and booked all of our hotels ahead of time so that we could be assured that we had a place to stay each night.
On a rainy Sunday morning in Santa Barbara, my teens wanted to sleep in, so we got a late start to the day. Eventually we got out the door and had a nice leisurely brunch at a nearby restaurant. By the time we got back to the hotel it was 1:30 and we were supposed to be checked-out by noon. When we got to our room our card key no longer worked, so we had to ask the hotel staff to let us back in the room so that we could gather up our belongings and pack our bags. The manager was nice and didn’t charge us a late check-out fee, and we continued on our journey up Pacific Coast Highway.
Hotels have defined check-in and check-out times, and if you stay beyond what you have paid for, oftentimes the locks are automatically changed and/or your credit card is automatically charged for the extra day. This ‘pay before you play’ arrangement seemed perfectly reasonable to me, it was stated on the paperwork I signed before making the reservation, and applies to almost every business (grocery stores, clothing stores, gas stations etc.). All of these could be considered essential business.
What I don’t understand are the few areas the government says it doesn’t apply. If you own a rental home or multiunit building, and a tenant is late paying rent or stops paying altogether, unlike at a hotel, you cannot just change the locks or automatically deduct payments from their credit card. There is a lengthy process that a landlord has to adherer to, at their expense, before they can evict a tenant who isn’t paying. In addition, for the past year there have been a series of government mandated eviction moratoriums that give tenants the right to NOT pay rent if they’ve been financially affected by COVID-19.
How is it that private property owners are required to allow tenants to live on their property for free if the tenant can’t afford it? Is it the responsibility of the property owner to provide shelter for those in need? What would happen if the government required this from grocery stores, clothing stores and gas stations?
What is “Cash For Keys”?
Cash for keys is one solution that landlords can use if they have a tenant who is in violation of the contract (damaging property, not paying rent, causing a nuisance, illegally subletting..etc.) and want to avoid the lengthy formal eviction process. Essentially, the landlord pays the tenant a large enough sum of money to motivate them to move out, and the landlord cuts their losses. It’s a hard pill to swallow, the thought of paying someone who owes you money and perhaps has even damaged your property, but sometimes it’s more cost effective and less stressful than navigating the legal system.
Under normal circumstances, the eviction process takes about six to eight weeks, and due to COVID-19, many of the courts are backed up and the process will be much longer. That’s potentially two or more months of no rental income for the landlord, making this a stressful, time consuming, and expensive process. Although after the eviction you could take the tenant to small claims court, there’s no guarantee you’ll be able to collect the money you are owed. Instead, many landlords choose to go the route of “cash for keys”.
The Advantages of Offering Cash for Keys
Offering cash for keys can be an effective method of motivating tenants to leave and could save you time and money in the end. Cash for keys can:
Provide the tenant with the cash needed to move out and/or to put a deposit down on a new place.
Motivate the tenant to move out sooner and with greater ease so that you don’t have to go through the eviction process.
Allow you to find a new tenant and reestablish your rental income sooner rather than later.
Give the tenant a last chance to get out of a difficult situation and not have their credit score negatively affected.
While this is a common practice, I would recommend consulting with an eviction attorney beforehand to assure that you are legally protected. It may seem unfair that a tenant can be in violation of their contract and the quickest most cost-effective way to get them to leave is to pay them, but California is a tenant friendly state.
Illegal Options to Avoid
While you may want your tenant to move out as soon as possible if they aren’t paying their rent, are damaging your property, or are in some other way in violation of their lease agreement, there are some things you cannot do to get them to leave. You must follow federal and state laws when dealing with tenants.
While it IS legal for a hotel to lock you out of your room if you haven’t paid for a night, locking your tenant out of the property or shutting off utilities is considered a “self-help eviction” and is illegal. You also cannot harass the tenant in any way, such as showing up without giving proper notice or acting in any way unprofessional towards them. If you choose any of these illegal methods, you will likely be taken to court by the tenant and fined by the court. The tenant will then likely be allowed to live in the unit until you go through the proper eviction process.
Until we return some sanity and logic to the legal system and better protect the small business foundation of our nation’s economy, this may be a good option.
If you are successful in motivating a tenant to leave, I would love to hear your story.
P.S. Once they leave, remember to change the locks!
Mercedes Shaffer is an agent with Pacific Sotheby's International Realty and specializes in investment real estate and 1031 Exchanges. For help with buying or selling investment property, Mercedes can be reached by phone at 714.330.9999, by email at InvestingInTheOC@gmail.com or visit her website at www.InvestingInTheOC.com. DRE 02114448.