There are indeed firms pitching the expert advice of real estate brokers to help renters negotiate a buyout. The argument is that as real estate professionals, they are best positioned to negotiate such a deal (wherein a tenant relinquishes his or her coveted rent regulated apartment for money so that the landlord can hike the rent), better positioned even than a real estate lawyer.
“I disagree with that strongly,” says Steve Wagner, a real estate lawyer and partner at the firm Wagner Berkow, with decades of experiences representing co-op and condo owners and boards, as well as tenants. “There are a patchwork of laws, regulations, and codes that come into play when you’re negotiating a buyout, and the case law is fluid as well. You need someone who is on top of these things.”
“These are lawyer issues,” he continues. “These are not broker issues.”
If you hire someone who’s not familiar with tax law, for example, “your likelihood of getting audited goes up dramatically,” Wagner says. A lawyer will also scrutinize the fine print of the agreement to be sure that you’re not still on the hook for the lease of the apartment you’re leaving, or if you’re agreeing to be relocated, that there’s not something hidden in the terms that will force you to leave that place before you’re good and ready.
A knowledgeable lawyer can also put the buyout money in escrow, to keep your landlord from holding onto some or all of it once you’ve moved out.
“Lawyers are best suited to set up escrows,” Wagner says. “We put our licenses on the line every time we set up an escrow. We’re held to very high standards.”
Nor do you want to hire just any lawyer if you’re considering a buyout. When interviewing attorneys, Wagner recommends asking if they have experience representing tenants, if they have experience negotiating with developers and landlords, and how familiar they are with tax issues. What many tenants don’t realize when they’re dreaming of buyout dollar signs is that buyouts are subject to taxes. Plus, it’s easy to forget the money it costs you to move and the continuing housing costs wherever you end up.
In addition to helping clients structure the transaction to minimize the tax hit, Wagner says his firm helps tenants plan financially, “to ensure that we are not putting someone in a situation they’re not going to be able to afford.”
And at least for Wagner’s firm, they are typically paid on a contingency fee basis, meaning you don’t pay lawyer fees unless and until you receive the money in a buyout.
Another highly technical piece of the puzzle that Wagner says not everyone is equipped to figure out is whether the apartment is stabilized in the first place (a landlord may argue it’s not when it is) and what the rent should be. Also, hidden in the property records for your building and neighboring ones could be the making of a big air rights deal that would mean your apartment is worth exponentially more to the building owner than you thought. Yes, a lawyer costs money, but the research a good one does could mean a significantly larger buyout amount in the end.
“I have seen this where people leave enormous amounts of money on the table,” Wagner says. “They see the number they want to put in their pocket, not realizing that the landlord is going to negotiate no matter what. They’re waiting to hear a number from you, and on your own you may give a number that’s even less than what they were willing to offer.”
And finally, a buyout agreement is fundamentally a legal document. Given that, it’s a good idea to have a legal professional scrutinize it, to reduce your risk of ending up in court when some piece of it turns out to be not as it seemed. And if the situation does go south, the real estate professionals aren’t going to be there to advocate for you.
“Say there is an issue,” Wagner says. “The broker isn’t going to represent you in court and continue to negotiate.”
New York City real estate attorney Steven Wagner is a founding partner of Wagner | Berkow with more than 30 years of experience representing numerous co-ops, condos, and individual owners and shareholders. To submit a question for this column, click here. To ask about a legal consultation, send an email or call 646-791-2083.
This article was originally printed on Brick Underground.