Navigating Cash for Keys Agreements in California

What Exactly Is a Cash for Keys Agreement?

Cash for keys agreements are agreements between a tenant and a landlord under which the landlord agrees to pay a former tenant some amount of money in exchange for the tenant vacating the rental unit. Cash for keys agreements commonly arise in circumstances where the lease has expired and the tenant has remained in possession, or in which the landlord has accepted a rental payment and the tenant has not vacated the rental unit by the end of the rental term.
Tenants agree to the terms of a cash for keys agreement, either to avoid being evicted by legal proceedings or because they simply do not have other housing available. Cash for keys agreements are typically set forth in a document that also releases the landlord from any claims that the tenant may have against the landlord for damages to the property in excess of the security deposit and even for the return of the security deposit , if the property was excessively damaged.
Landlords prefer cash for keys agreements to formal unlawful detainer actions. Cash for keys agreements are essentially settlements to unlawful detainer actions. By cancelling the lease voluntarily, and tendering payment to the tenant for her move out, the landlord is voluntarily terminating the tenancy prior to the tenancy expiring on its own terms.
Cash for keys agreements derive their name from the fact that the landlord frequently offers the tenant cash in exchange for his keys to the rental unit.
In California, unlawful detainer actions to evict non-paying tenants are relatively quick. Payments from the landlord to the tenant pursuant to a cash for keys agreement generally save the landlord any additional trouble of filing an unlawful detainer action to terminate the tenancy, and the resulting attorney fees and court costs.

Applicable Law in California

In California, cash for keys are primarily governed by state law, although some localities may have ordinances that affect the enforcement of cash for keys agreements. Under California law, cash for keys agreements are treated as voluntary settlements between landlords and tenants for possession and payment of any unpaid amounts owed to the landlord. However, it is generally inadvisable to grant a tenant permission to remain on the property for an extended period of time as part of the settlement or payment of amounts owed to the landlord. Depending upon the language of the agreement, the landlord may relinquish his or her rights to possession of the property and money owed as part of a cash for keys agreement.
What that means for landlords and tenants is that to be binding, a cash for keys agreement must be in writing and signed by both the landlord and the tenant. Further, the landlord should only provide the money once the tenant has vacated the property and signed the agreement. A landlord can provide a cashier’s check for the amount owed to incentivize the tenant to leave the property sooner; however, if the tenant and landlord negotiate aspects of the cash for keys arrangement (such as more time to vacate), it is wise to incorporate those changes into the cash for keys agreement, as opposed to memorializing them orally (i.e. via phone) or in informal written communications (like a text or email).

Advantages of Cash for Keys Agreements

Cash for keys agreements are beneficial to both landlords and tenants. Being able to peacefully transition from a landlord/tenant relationship can have a profound effect on both parties. If you are a landlord whose tenant has not made the rental payments, then the cash for keys agreement may allow you to vacate the tenant rapidly and without litigation. The eviction process can be long and unpredictable. If you resolve your issues with cash for keys, then this process can be avoided. Ideally, when money exchanges hands, there should be a signed agreement to avoid misunderstandings and disputes later. Parties involved will likely be more satisfied with a peaceful transition rather than an eviction by a sheriff. If you are a tenant whose landlord has not kept up the property sufficiently, you may be able to obtain some financial compensation that can help you move out early in exchange for your release of claims against the landlord. If you can avoid a long eviction process, you may be able to peacefully vacate the property, find a new home, and start over. In some cases, if you are a tenant that is no longer able to pay for rent, you may be able to get some financial assistance to relocate and thus avoid a lengthy eviction process. This is especially true if you have become behind in rent due to unforeseen financial or employment losses. In addition to quickly resolving the matter, cash for keys agreements allow the landlord to receive vacant possession with a little more certainty than an eviction process. The voluntary nature of the parties’ agreement allows the landlord to enter into a written agreement with the tenant to list the terms of the agreement. This process will hopefully lead to a smoother move-out and transition. Landlords and tenants benefit from the avoidance of the costs and time associated with litigation.

Negotiating a Cash for Keys Agreement

Negotiating a Cash for Keys agreement is often a win-win situation for both a landlord and a tenant. Both parties are incentivized to come to an agreement that is beneficial for both parties which will lead to a speedy resolution of evictions and is often without significant fees or attorney’s fees. A tenant should be much more willing to negotiate an agreement as opposed to an actual unlawful detainer eviction proceeding where they have the right to be represented by an attorney. If they choose to retain an attorney, then attorney’s fees will be incurred and there is no way for a tenant to recover their attorney’s fees from a Judge, whereas a landlord can recover their attorney’s fees if there is an attorney’s fees provision in the lease or rental agreement.
However, it is important to understand that a Cash for Keys agreement should not cost the landlord tens of thousands of dollars. Many times, either the landlord or the tenant has a number in mind that they will make work. If that is the case, then this is clearly a simple situation and it can be worked out quickly. But if neither party has a number in mind or both have a number in mind, then negotiations must be had. In most cases, either side can make the first offer. What we usually see, is that after the landlord makes the first offer, then the tenant counters back. As mentioned above, both the landlord and tenant should be willing to negotiate the agreement as both receive benefits, but it is important that it does not cost the landlord too much money. Always remember that at the end of the day, it is just business. So once the landlord has made the first offer, it is important to find out what the tenant is willing to accept and whether it is a number that is reasonable. If not, then simply counter back to the amount that the landlord is willing to pay, so long as it is a reasonable offer and show the tenant the calculation formulas. A tenant usually wants to be compensated for being forced to leave their home, so in a negotiation a landlord should consider the following:
There is no way to guarantee that the tenant will be accepting of any offer, if they do not feel as though they are receiving something in return. But at the same time, it is also important for the tenant to understand that a cash for keys agreement is basically accepting that they are being forced to vacate and are being compensated for their agreement to do so. A tenant in California practically receives free rent for at least two months if they do not move out before a landlord has served a 90-day Notice to Quit for nonpayment of rent. And if the landlord is seeking other grounds for terminating the lease and it is clear that the eviction lawsuit would be filed, then again, the landlord must also decide how much to pay. These are usually the circumstances under which a Cash for Keys agreement is agreed to; Landlord eventually files an unlawful detainer complaint because no agreement was reached, tenant answered the complaint and unilaterally made a settlement demand and the landlord agrees to something reasonable. Now, if the tenant moved out before the lawsuit is filed or after the first trial date, then there is no need to file the lawsuit and the tenant gets their security deposit back and a check.
Again, the goal of a Cash for Keys agreement is to come up with a number that works for both sides. Similar to a settlement conference, it may take some negotiating to come to a figure that is acceptable for all parties. Even if the tenant is refusing to go back to their apartment unit, sometimes a judge will ask the tenant what is fair and if the judge is not happy with the tenant receiving too much money, it is possible that the judge will not approve of the settlement agreement. From an ethical standpoint, if the tenant is being paid a sum of money to vacate, but they do not vacate, then it is morally the right thing to do to return the money to the landlord. While that is the moral act, that does not mean that there are some tenants that will not keep the money. A landlord should not have to worry about these issues because once a Cash for Keys agreement is signed, it is a binding contract and if a tenant were to seek to disaffirm the contract because they received payment but have refused to leave the premises, then it will be up to the judge to decide whether an eviction is necessary. Most judges will not allow a tenant that has taken money from the landlord to return to the premises. This would be like signing a lease, taking the security deposit and first month’s rent, and then saying "never mind." That is not fair to the landlord, especially when it comes to time and ability to collect unpaid rent, when the landlord has moved on and made decisions based upon the belief that the tenant had done the right thing. So it is usually worth it to either side to negotiate the terms to a Cash for Keys agreement especially in the early stages of a dispute.

Common Mistakes to Watch Out For

Common mistakes and pitfalls to avoid when entering the cash for keys agreement, and how best to ensure a smooth cash for keys process to achieve compliance with the terms of your agreement, including the return of the cash in a timely manner include:

Ensuring the cash for keys agreement contains a "Security Deposit" language.
Before having your tenant vacate, ensure that the tenant returns all keys and garage openers to you, as well as all garage or parking space keys.
Obtaining the tenant’s email address for follow up purposes to confirm that he or she vacated the property and provides you with the notice to mail the security deposit refund.
Providing the tenant with a signed copy of the cash for keys agreement, preferably upon signing of the agreement.
Providing the tenant with instructions to provide a forwarding address in writing so that the landlord can correct a mistakenly addressed notice. (it is not required that the tenant give his or her forwarding address in writing in California).
Where applicable, an additional notice of non-renewal should be served upon the tenant by the next business day so that the tenant cannot claim that he or she was still a tenant, (since they still have the keys) and continues to have a right to use the property and thus , continues to accrue rent until the landlord has substantially complied with the notice requirements to the tenant.
When notifying the tenant to vacate, give a deadline extension to the original deadline in the agreement based on an informal lease extension with the tenant. This provides the tenant with valuable evidence to show a rental lease relationship with the tenant exists and protects you in the event that the tenant asserts an ownership argument such as public policy or tenancy by estoppel. This support will also help to reduce a trial on the merits because your actions suggest you treated the tenant as a month-to-month tenant instead of a former tenant.
The landlord should keep copies of all documents validating a landlord-tenant relationship such as canceled rent checks, bank account withdrawal charge payment statements and/or the actual rent check.
Avoid entitling your company owner to the property, or any of the tenants personal property. Also avoid any other statements indicating the landlord expressly permits the tenant to place their personal property on the premises. Furthermore, avoid acknowledging the landlord surrenders the premises.
Clearly state that the customer received the full cash amount contained in the agreement in consideration for the release of all claims against the lessee.

Sample Cash for Keys Agreement

A cash forkeys agreement in California generally includes the basic terms of the surrender of possession as set forth above along with the following items:

Written Agreement —the agreement must be in writing.
Disclosure —a disclosure statement under Civil Code 1954.201 is provided and signed by the tenant. The disclosure describes what the cash for keys process is and serves as additional notice to the tenant that failure to vacate is grounds for an unlawful detainer action.
Paid Off —the agreement specifies that the rent must be paid off at time of payment.
Move Out Inspection —the rental property is inspected and any repairs that need be are noted as a condition that must be remedied by tenant before he/she receives their money.
Received —signed and dated receipt of the funds is given to the tenant.
Time is of the Essence —tenants must vacate by 12 noon or must pay an additional amount to landlord immediately. An example might be $50 or $100 per hour for every hour after that.
Estoppel — tenant is estopped from claiming the return of possession from landlord or any new landlord.

Case Studies and Sourcing Real-life Examples

In many successful cash for keys scenarios, a steady approach by a landlord builds trust and goodwill with their troublesome tenant, leading to a mutually accepted agreement. However, there are an equal number of situations where cash for keys agreements have not produced desired results or have even backfired. Each of the examples below are derived from real client experiences.
Successful Cash for Keys Agreements:
Pet Modifications: Simple attempts at compromise and open dialogue can nurture a knowledge and appreciation for the other party’s situation. One landlord had a tenant with two large dogs that were causing disturbances with barking and bites on neighbors. The tenant wanted to keep the dogs but sought a compromise that the landlord agreed to. The tenant offered to pay for a fence repair at own expense and the landlord gave the tenant five days to fix the issue and another 30 days to find an alternative place to live. Partial Payments: A tenant was frequently late with rent payments and the landlord had had enough of making frequent late fee calculations. The landlord offered half a month’s rent in exchange for a back rent payment if the tenant moved out within 30 days. The tenant decided that it was worth it, the landlord agreed, the tenant saved face and the landlord did not have to bother any further with rent calculations, continual notice requirements or substantial attorney’s fees.
Less Successful Cash for Keys Agreements:
Personal Relationships: Another client, a landlord, allowed a friend to live on a property by paying a nominal rent. Because the friend had a personal relationship with the landlord , the friend often negotiated with the landlord and not through property management. The friend then got behind in rent payments and evicted the friend and his partner for non-payment. The friend was thankful that the landlord was so generous. The landlord provided 100% of the amount owed in rent and the tenant agreed to vacate in 30 days. However, a week after the check was handed over to the friend, he did not move out. A couple of calls and texts later, there was no response, and the landlord was disappointed and needing to litigate anyway. Emotional Investment: A tenant had lived on the property for over 10 years and had helped the single female landlord with repairs of the home and had very close ties to the property. The landlord felt sorry and wanted to allow the tenant to see the time and effort in moving. The landlord offered $500 to assist the tenant with moving expenses and for the tenant to find somewhere to live outside of California. The tenant agreed, but two weeks later, because of the emotions involved, the tenant decided to stay. The landlord ultimately evicted the tenant when the time came. There was never a way to go back and recreate the reward that the landlord intended to give to feel good about the process of being the landlord and the tenant "going along" with the process. The lesson learned here is that cash for keys agreements will always be unique to the situation and the parties involved. What might work for one landlord and tenant, might not work for the next. These experiences demonstrate that cash for keys agreements can be effective if handled with creativity, open communication and a willingness to compromise.