Should tenants negotiate a buyout collectively, or are they better off negotiating separately?
A developer wants to demolish our building and is offering tenants a buyout. Should we make a deal collectively or is it better to negotiate separately?
“In most buyouts, tenants negotiate their own deals, ideally with the help of an attorney, but there can be advantages to working collectively,” says New York City real estate attorney Steven Wagner, a partner at Adam Leitman Bailey, P.C. who represents co-op and condo boards and owners.
Each buyout situation is unique and you typically always benefit from working with an attorney who has experience with buyout negotiations.
In deciding whether you work collectively or independently, consider the minimum buyout amount you will accept, the amount of time you are willing to stay put while negotiations continue, and how much it matters to you that the last tenant to hold out in the building often gets the highest buyout figure.
How to negotiate collectively to get a good buyout deal
Negotiating as a group can be a powerful tactic. When you work collectively with your neighbors, you don’t necessarily need to use the same attorney. Wagner says he has successfully used what he calls a “no buyout pledge” where each leaseholder signs an agreement not to be bought out except under certain terms.
Tenants might agree to be released from the no buyout pledge at a certain dollar amount. The pledge can also include other terms such as free rent.
“No buyout pledges can be highly effective. It allows the attorney to negotiate to deliver the building empty of tenants which is very attractive to a developer,” Wagner says. For negotiating purposes, it’s not uncommon to establish a fairly high number in the no buyout pledge.
“We usually set the dollar amount at the highest minimum amount that any one of the tenants would take,” Wagner says.
In one buyout case, a landlord in Brooklyn offered to buy out four leaseholders for between $5,000 and $15,000 each. Wagner came onboard and encouraged tenants to sign a no buyout pledge.
“We first did an analysis of what each tenant needed to make it worthwhile for them to move,” he says.
One couple wanted enough money for a down payment and would only agree to a buyout if they could net $100,000 after legal fees, moving expenses, and decorating costs. Another tenant was willing to leave the building and ready to take $5,000 until other tenants reached out and asked her to join the group and sign the no buyout pledge.
Within six months the tenants got the price they held out for—around $190,000 each. “Every case is different and this was some time ago but I would expect to get substantially more in the current environment,” Wagner says.
Negotiations can sometimes be slow while the landlord offers small increments to the original offer but does not meet the minimum agreed figure and tries to wait out the tenants.
“Usually with buyouts, time is on the tenants side,” Wagner says.