Tenant Advocates Denounce Startup Offering Buyout Services

Rent Masters, a startup offering to help tenants willing to move out of rent-controlled housing figure out what they would be owed in buyout money, came under fire last week by the city’s housing rights community.

In a buyout, a tenant agrees to vacate a unit in exchange for a payout by the landlord. Negotiations involved in this process can be lengthy and taxing and tenants are often left with a compensation that sounds big, but vanishes quickly as the tenants search for new housing.

Rent Masters founder Brian Bensch, however,  argues that there are situations in which both parties can benefit equally from a buyout.  His company, he said, taps into a “unique but necessary” market by using technology to empower tenants. 

He cautioned, however, that his service and buyouts are not for lifelong San Francisco residents. “If you want to stay in the city, any lump sum of money isn’t going to be enough to compensate you for leaving a rent-controlled apartment,” he said.

Instead, Bensch said, “this service could make sense to you,” if you are a newcomer who has rented a place for a few years and are ready to leave San Francisco “to go back to the midwest” or to “buy a place in the suburbs.”

“We’re looking to facilitate deals between landlord and tenant where there is truly a mutually beneficial interest,” said Bensch, who launched his company out of a downtown co-working space in February. 

But Tenant advocates are wary of the service and wondered about the presumption that it was needed.  

“If someone already wants to leaves, they’ll leave. That’s what people have always done. So why suddenly are we throwing this buyout thing in there?” said Tommi Avicolli Mecca, of the Housing Rights Committee, an organization that provides free counseling on tenants rights. “I don’t want to see this become a business.”

Deepa Varma, executive director of the Tenants Union at 558 Capp St., added, “there is no reason for a landlord to give money to [a tenant] who was truly leaving voluntarily. The whole reason the tenant is getting money, new or old, is because the landlord wants their unit and the tenant doesn’t want to give it up. There is no need for a middleman linking scared tenants to greedy landlords, and taking a cut.”

Any unit built before 1979 – about 170,000 units –remain under rent control.  Once a unit has been vacated it can rise to market level for the next tenant, but annual rent increases for the new tenant are prescribed by rent control. 

Bensch, who said he expected “some level of debate” about his company knows his service isn’t for everyone, and a disclaimer on his website makes that clear.

Still, the entrepreneur views his service as being at the forefront of measuring the impact of buyouts on the housing crisis, and promised to share his data with the San Francisco Rent Board and the Tenants Union in an effort to comply with a new buyout ordinance passed last year to ensure transparency by requiring buyouts to be disclosed to the Rent Board.

“With respect to low-income tenants for whom rent control is most important, we have absolutely zero intention of doing such deals,” he said.

Geoffrey Squires, a landlord in the Mission, said that it is important for both landlords and tenants to know their rights, but that tenant-initiated buyouts do happen and that in the end, it is up to the landlord to agree to a deal or not.

“If [a rent-controlled unit] is the only asset that some people have, and they can go wherever they were thinking of going anyway with some money in their pockets, why wouldn’t they?” asked Squires, adding that although he has a good relationship with his tenants, he would most likely refrain from offering a buyout.

“If they said $20,000 is the difference between them staying or going somewhere else, I might consider it,” said Squires. “It depends if the unit needs work and what their rent is compared to what I can get for it. It’s an equation.”

Still, tenant advocates balked at what they say is a businessman turning a law that is meant as a protection for tenants  into a cash grab.

A fear shared across the board by housing activists is that Rent Masters, which offers to negotiate relocation payments upwards of $20,000, could be leading inexperienced tenants into being low-balled when it comes to accepting buyouts.

As a tenant lawyer and law educator, Ora Prochovnick said she has negotiated six-figure buyouts for rent-controlled units, and fears that renters who turn to an online service to sign away the rights to their home may be selling themselves short.

Prochovnick and others also questioned the wisdom of working on a buyout without the counsel of an experienced lawyer.

With a background in marketing and development, Bensch does not claim to be a lawyer and says he does not expect to work with low-income tenants. 

Instead, he sees his company as offering information and providing a negotiating service. For legal matters, he relies on a handful of attorneys. For legal issues that are out of his realm, clients will be referred to one of these trusted “partners,” he said.

Scott Weaver, a tenant attorney, said that it sounded as if Bensch is  offering legal advice without a license. “And if he’s not, then he should be practicing law if he’s advising people about their rights in buyouts. If you’re going to do this right, you have to know the law, you have to understand risks.”

A niche market middleman

After witnessing several close friends engage in buyouts, Bensch said he saw an opportunity to serve a group of people who may have been approached with a buyout offer by their landlord and who are unlikely to remain in San Francisco indefinitely.

Though admittedly small, this group could include the city’s wave of tech newcomers, recent college graduates, and young professionals who have lived in rent-controlled apartments for at least four years, said Bensch.

Bensch said he is consciously serving this small niche and has no plans of displacing people who do not wish to leave.

With roughly 70 percent of the city’s housing protected under rent control, the entrepreneur added that “even a single digit percentage of that number turning over” could yield a modest profit.

A month-old company, Rent Masters works similarly to an online do-it-yourself tax service — a $99 deposit fee gives renters access to a free 30-minute consultation and supplies them with a basic contract template to present to their landlords. For a more tailored representation, Bensch charges 10 to 20 percent of the buyout on top of the initial deposit.

“We will basically go to bat for [the tenant],” said Bensch. A free estimate of how much a renter’s tenancy is worth based on market-rate rents in the neighborhood and the building’s “specs” is what Bensch calls the service’s “secret sauce” — a formula that he has made accessible on the Rent Masters website as a free public resource.

Prochovnick, who also serves as a pro-bono tenant lawyer at the Tenants Union, advises renters to think twice before using a service that charges for any buyout service.

“Its very simple to determine what your tenancy is worth – take your rent, and see what the market-rate comparables in your neighborhood are going for,” said Prochovnick. 

Paul Cohen, executive director of the Eviction Defense Collaborative, an organization that works to protect affordable housing and has a sliding-scale policy when it comes to service fees, is also skeptical of Rent Masters’ payment structure.

“If you want to save affordable housing, you would discourage buyouts entirely, and not capitalize on them,” said Cohen. “Anytime I hear about a fee being charged to do something that is not very well spelled out as far as whose side people are on, the renter should beware.”