Cash for keys in California: paying a tenant to move before you sell

Cash for keys in California at a glance

What is cash for keys in California?

The term comes from foreclosures. In its consumer alert on cash for keys (revised April 2012), the California Department of Real Estate describes lenders that took homes back paying the occupants' deposits, moving costs and sometimes a bonus for a quick move date, to avoid what it called the "minimum 3 to 6 month delay" of a formal eviction. The same deal works for a landlord selling a rental: you trade money for a vacant house on a known date.

Is cash for keys legit? What the DRE says

Yes, when it's done in good faith and written down. The DRE tells occupants to insist on a written agreement, to verify the authority of whoever is offering, to have someone they trust review it, and never to hand over the keys until the money is delivered. Those are good rules for your side too.

Notice, eviction or cash for keys

A notice ends a tenancy on a date the law sets, and only for a reason the law accepts once AB 1482 applies. An eviction (an unlawful detainer case) is a lawsuit with a court date. An agreement skips both because the tenant chooses to leave. That also means the tenant can refuse, and if your reason for offering is the sale, there's often no notice you could serve instead.

When cash for keys makes sense before a Sacramento sale

Buyers who want to live in the house usually need it empty, and investors price an occupied rental on its rent. An agreement is worth pricing when an empty house would sell for clearly more, or sooner, than an occupied one.

AB 1482 just-cause tenants and cash for keys

After 12 months, a tenancy covered by AB 1482 can only end for a just cause, and selling isn't one. If the house isn't exempt, an agreement is often the only way to deliver it vacant before the lease would otherwise end.

Keys back before a long lease ends

A fixed-term lease binds the buyer to its end date. Paying the tenant to leave early can cost less than carrying the house, or selling to a smaller pool of investors, until then.

Below-market rent and cash for keys

An investor discounts for a below-market rent because they inherit it, and AB 1482's cap limits how fast it can rise. Buyers of an empty house don't care what the old rent was. Compare the two prices before you skip this.

Justin prices the house both ways, so the gap you'd be paying to close is a number before you offer anything. Our page on selling a rental with tenants in place covers the occupied route.

How to do cash for keys, step by step

1. Check the tenant's rights first, so you know what the tenant gives up by saying yes.
2. Price the house occupied and vacant, which sets your ceiling.
3. Talk to the tenant before the listing goes up, in person if you can.
4. Put the offer in writing with a deadline to accept.
5. Have an attorney draft or review the final agreement.
6. Pay when the keys come back and the house is empty, then handle the deposit.

Check the tenant's rights before you offer cash for keys

Is the tenancy past 12 months? Does the lease carry AB 1482's exemption notice? Is it inside Sacramento city limits? The answers tell you what the tenant would be giving up, and our AB 1482 guide for Sacramento walks through them. If a notice would work, the California notice to vacate may be cheaper than a payment.

Hand over the money when the keys come back

Pay on the move-out date, after a walk-through, in a form the tenant can rely on: the DRE suggests cash or a check that clears. Return or account for the security deposit separately, as Civil Code 1950.5 requires.

What goes in a cash for keys agreement

The DRE's advice is that a written agreement is what lets a party win in small claims if the other side doesn't perform. Each of these terms closes a gap that would otherwise end in an argument.

Move-out date and condition in the cash for keys agreement

A firm date, what "vacant" means (everyone out, belongings and trash removed, broom-clean), and how the keys, remotes and codes come back.

The payment amount and when the cash changes hands

The total, any part paid on signing, and the rest on surrender. State that rent stays due until the move-out date, or that a final month is waived, so nobody argues about it later.

Security deposit handling alongside the cash

Say whether the deposit comes back in full or under the normal 1950.5 accounting. Many agreements return it in full to keep things simple; whichever you choose, write it down.

Written surrender of the keys under Civil Code 1946.2

A tenant's written offer to surrender, accepted in writing by the owner, matters if they don't leave: failing to deliver possession at the agreed time is an at-fault just cause under AB 1482 (1946.2(b)(1)(K)). Have the attorney word it to fit that rule.

Mutual release and the AB 1482 waiver rule

Most agreements include mutual releases of claims. Be careful: AB 1482 says any waiver of its rights is void (1946.2(j)), and Sacramento's chapter 5.156 says the same of lease waivers, so word it as a voluntary move-out and keep statutory rights out of the release. That's the clause an attorney earns the fee on.

How much to offer for cash for keys

There's no legal amount and no reliable Sacramento average. The only published range from a California agency is the DRE's 2012 note that anecdotal reports put foreclosure offers between $500 and $5,000, and it said amounts depend on the property's value, its condition, the new owner's plans and how long the tenant needs to move. Build your number from two sides instead.

What's the most you can get for cash for keys?

There's no cap. The ceiling is what an empty house is worth to the owner over an occupied one, after the cost of waiting. A tenant with a long lease, a low rent and AB 1482 protection has the most to give up, so expect to offer the most there.

The tenant's side of the cash for keys math

What does moving cost them? Movers, a deposit on the next place (California now caps it at one month's rent, with an exception for some small landlords, under 1950.5(c)), the first month's rent, and the difference in rent if the new place costs more. Add time off work and the hassle of moving on your schedule.

Your side of the cash for keys math

What does waiting cost you? The months of mortgage, tax and insurance until the lease would end, minus the rent you'd collect, plus the price gap between selling vacant and occupied. If you could serve a no-fault notice instead, AB 1482 would cost you one month's rent anyway.

A cash for keys example at Sacramento's typical rent

Use Zillow's typical Sacramento asking rent of $2,045 a month as the tenant's next rent. A one-month deposit and first month come to $4,090 before movers. Say, as an assumption, the movers quote $1,500: the tenant's cost is about $5,600. An offer near that covers the move; going above it pays for the date you want. If an empty house is worth $15,000 more to you after holding costs, you have room to pay more and still come out ahead.

Cash for keys, AB 1482 and Sacramento's rules

We found no California statute or City of Sacramento ordinance that sets cash-for-keys terms. Two rule sets still shape the deal.

AB 1482 relocation money and cash for keys

AB 1482's relocation payment, one month's rent paid within 15 days or a waived final month, applies when you serve a no-fault termination notice (1946.2(d)). A voluntary agreement isn't that notice, so the payment isn't legally triggered, but the tenant knows what they'd get, and it sets a floor. AB 1482's sections run until January 1, 2030.

Sacramento's Tenant Protection Program and cash for keys

Chapter 5.156 of the Sacramento City Code exempts single dwelling units, condos and units built after February 1, 1995, and it has no buyout or relocation section. For a duplex or older multi-unit building it does apply, with its own just-cause list and 120-day notice for owner move-in, which raises what a tenant gives up by leaving. Our Sacramento rental rules guide covers the program.

Taxes and attorneys: finishing a California cash for keys deal

This is general information, not legal or tax advice.

How the IRS treats cash for keys for the tenant

IRS Publication 544 says payments a tenant receives for cancelling a lease are treated as an amount realized from the sale of property, so the tenant may need to report it. How you, the owner, treat the payment on your sale depends on your situation: ask your CPA before closing.

When an attorney should draft the cash for keys agreement

Use one whenever the tenancy is under AB 1482 or chapter 5.156, the payment is large, the tenant has a lawyer, or any notice has already been served. If someone negotiates the deal for you, the DRE says the activity can require a real estate license under Business and Professions Code 10131. When you're ready to price the house both ways, start with selling a Sacramento rental.

Cash for keys in California: common questions

Sources

• California Department of Real Estate: "Cash for Keys", information for consumers and DRE licensees (rev. April 2012)
• California Civil Code 1946.2: just cause, relocation assistance, waiver (AB 1482)
• California Civil Code 1947.12: rent cap and exemption (AB 1482)
• California Civil Code 1950.5: security deposits, including the one-month limit
• City of Sacramento: Tenant Protection Program
• Sacramento City Code chapter 5.156: Tenant Protection and Relief Act
• IRS Publication 544: cancellation of a lease