What is cash for keys?
Cash for keys is a voluntary deal. The tenant agrees to leave by a specific date, and the landlord pays money, forgives back rent or both. No judge orders anyone out. The tenant decides to sign, and the payment is the reason to do it.
Landlords use it in four common situations: a tenant who has stopped paying, a unit needed vacant for a renovation or sale, a tenancy where a no-fault termination would already require relocation money, and after a foreclosure when a new owner wants possession. Lenders and banks that take back property often call the same thing a relocation agreement.
The offer works because an eviction is costly for both sides. The landlord goes without rent and pays legal fees while the case runs. The tenant risks a judgment and an eviction record. A buyout swaps that uncertainty for a date and a check.
How to structure a cash for keys agreement
Put the agreement in writing and spell out what each side does and when. Vague language like “move out soon” is how you end up with a second dispute. Use the tenant’s primary language if your city requires it, and give the tenant time to review it.
- Move-out date: a firm calendar date and time, plus what happens if the tenant stays past it (the payment is forfeited and the landlord may file for possession).
- Condition: broom clean, all personal property removed, no new damage beyond normal wear. Do a walk-through with photos before payment.
- Payment and timing: the amount, how it is paid and when. Many landlords pay a small portion at signing and the rest at key handover, or hold the money with an escrow or title company.
- Rent and arrears: whether unpaid rent is forgiven and whether rent is due for the remaining days.
- Security deposit: say whether the deposit is returned under the normal statutory process, applied to damage or folded into the payment. Keep it separate from the buyout so the accounting is clean.
- Release: a mutual release of claims, dismissal of any pending eviction case and an agreement on what each side reports.
- Keys and access: number of keys, fobs and garage remotes to be returned, and a forwarding address for the deposit.
- Local compliance: any required disclosure form, filing deadline or cancellation period for your city.
What drives the cash for keys amount?
There is no standard price, so build your own number from your own costs. Start with what the eviction route would cost: rent you won’t collect while the case runs, attorney and court fees, and the risk of damage or a case that drags on. Then add what an empty unit is worth to you, whether that’s a renovation, a higher rent or a better sale price.
The tenant is running the same math. A tenant paying far below market, or protected by rent control, gives up more by leaving and will expect a bigger check. A tenant who is already behind and facing a filing may take a smaller payment if the arrears are forgiven. Moving costs, a new deposit elsewhere and the time it takes to find housing all shape what the tenant will accept.
Where the law already requires relocation money for a no-fault termination, that amount is your floor. Offering less than the tenant would get anyway rarely works.
Worked example: cash for keys vs eviction on one unit
Take one unit in a 10-unit building renting for $1,600 a month. The tenant is two months behind, or $3,200. The owner’s eviction attorney quotes $3,000 and expects about three more months before the owner gets possession. That route costs about $4,800 in lost rent plus $3,000 in fees, or $7,800, and the $3,200 of back rent is unlikely to be collected.
The owner offers instead to forgive the $3,200 and pay $2,500 at key handover if the tenant leaves within 30 days. That route costs one month of lost rent, $1,600, plus the $2,500 payment, or $4,100. The buyout saves about $3,700 and hands back the unit two months sooner.
The value side is bigger. If the unit is re-leased at a market rent of $1,950, gross rent rises $350 a month, or $4,200 a year. With expenses unchanged, that adds $4,200 to NOI, and at a 6% cap rate a buyer would pay about $70,000 more for the building. Rent control can limit that bump, so check local rules first.
| Route | Lost rent | Fees or payment | Total cost |
|---|---|---|---|
| Eviction (3 more months) | $4,800 | $3,000 legal | $7,800 |
| Cash for keys (30 days) | $1,600 | $2,500 to tenant | $4,100 |
| Difference | $3,200 | $500 | $3,700 saved |
State and city rules that affect cash for keys
Most states don’t regulate buyouts directly. Some require relocation money on certain terminations, though, and a few big cities regulate the buyout itself. Know the rules before you make an offer.
California’s Tenant Protection Act (AB 1482, Civil Code 1946.2) generally requires just cause to end a tenancy once a tenant has lived in the unit 12 months. For a no-fault just cause, such as an owner move-in, withdrawal from the rental market or a substantial remodel, the owner must pay relocation assistance equal to one month’s rent within 15 calendar days of the notice, or waive the final month’s rent in writing. Missing this step voids the notice.
Oregon (ORS 90.427) requires a landlord who ends a tenancy for demolition, conversion, certain repairs, an owner move-in or a sale to a buyer who will live there to pay one month’s rent when the notice is delivered. Landlords with an interest in four or fewer units are exempt.
Los Angeles and San Francisco regulate the buyout itself. In Los Angeles, owners of rent-stabilized units must give the city’s disclosure notice before an offer, and the tenant may cancel within 30 days of signing; the agreement is filed with the housing department within 60 days. San Francisco requires a disclosure form and a filing with the Rent Board before negotiating, gives tenants 45 days to rescind and can restrict condo conversion after some buyouts.
| Place | Rule | What it means for a buyout |
|---|---|---|
| California (AB 1482) | One month’s rent relocation on no-fault just cause, paid within 15 days | Statutory floor for many tenants of 12+ months |
| Oregon (ORS 90.427) | One month’s rent on qualifying 90-day terminations | Exempt if you own four or fewer units |
| Los Angeles (RSO units) | Disclosure notice, 30-day cancellation, file within 60 days | Plan for a 30-day wait before relying on the deal |
| San Francisco | Pre-buyout filing, 45-day rescission, filing after signing | Longest wait; condo conversion limits |
How cash for keys is taxed
For the landlord, a payment to end a lease is generally not a simple operating expense. Treasury Regulation 1.263(a)-4(d)(7) lists amounts a lessor pays a lessee to terminate a lease among costs that must be capitalized, subject to the regulation’s 12-month rule for short-lived benefits. How you recover the cost depends on why you paid it, such as a renovation or a sale, so have your CPA decide where it goes on the return.
For the tenant, Section 1241 of the tax code treats money a tenant receives for canceling a lease as an amount received in exchange for the lease. In plain terms, it’s treated like proceeds from selling the lease rather than wages. Forgiven back rent is a separate item, and the tenant should ask a tax preparer how to report it.
Cash for keys vs eviction
Cash for keys is usually quicker and more predictable, while eviction is the only path that ends with a court order if the tenant won’t agree. The two aren’t mutually exclusive. Plenty of owners serve notice or file and then settle with a buyout, and eviction cases often settle with an agreed move-out date.
Always use lawful means. Changing locks, removing doors or shutting off utilities to force a tenant out is illegal self-help in most states, and California Civil Code 789.3 adds daily penalties. A signed buyout is the legal version of “just leave.”
| Factor | Cash for keys | Eviction |
|---|---|---|
| Speed | Days to weeks, on the agreed date | Depends on court calendar and defenses |
| Cost | Payment plus a short vacancy | Lost rent, legal fees, possible damage |
| Certainty | Tenant can back out before moving | Ends with a court order if you win |
| Tenant record | No judgment | Possible judgment and eviction record |
| Back rent | Often forgiven | Judgment you may not collect |
Selling with tenants vs delivering the building vacant
There’s no need to empty a building to sell it. A 5+ unit apartment building is valued mainly on its income, so most buyers expect tenants in place and price the deal on the rent roll, NOI and cap rate. Leases generally stay in force after a sale, and the buyer takes over the security deposits.
Buyouts make sense before a sale when one or two problem units are dragging down the rent roll: a tenant who doesn’t pay, a unit far below market or a damaged unit the buyer will discount heavily. Fixing those can raise the price by more than the buyouts cost, as the example shows.
Buyouts can backfire when they take too long or trigger local limits. A sale contract that requires vacant delivery hands the tenant leverage. Some cities restrict re-renting, condo conversion or rent levels after certain buyouts. Often it’s simpler to sell with tenants in place, let the buyer handle turnover and price that in.
How cash for keys works in a 5+ unit apartment building
In a larger building, treat buyouts as a short project, not a string of one-off favors. Rank units by the gap between current and market rent, by arrears and by condition. Offer buyouts only where the math clearly works, and use the same written agreement for every unit so the terms stay consistent.
Keep the rent roll, estoppels and lease files up to date as units turn. A buyer’s due diligence will check every unit’s status against the rent roll, and a half-finished buyout with a tenant still in place has to be disclosed. If a sale is coming, tell your buyer which agreements are signed, which are pending and when you expect each unit to be vacant.
Selling your apartment building to Skyline
Skyline Capital Investments buys apartment buildings with five or more units nationwide, with tenants in place, nonpaying units included. You don’t need to finish buyouts before you call us. We look at the rent roll as it is and can close on a 1031 exchange timeline or offer seller financing terms if that helps.
Send the address and unit count through the form on this page or call (469) 660-2977. We typically respond within 48 hours.
