Key Money
What Is Key Money?
Key money is a fee paid to a manager, a landlord, or even a current tenant to secure a lease on a residential rental property. The term is sometimes used to allude to a security deposit. Nonetheless, in a few competitive rental markets, key money is just a tip or a bribe.
Charging key money might be legal now and again for commercial real estate agreements for however long it is written into the lease for the property.
Grasping Key Money
The term key money has different meanings in different parts of the world and in the U.S.
In certain spots, key money is inseparable from a security deposit. It is a payment of the equivalent of a couple of months' rent, payable when the lease is agreed upon. Laws shift from one state to another, yet generally, this money is required to be held in escrow and is to be returned to the leaseholder, with interest, after the lease lapses. The landlord might keep payment of some or all of the security deposit provided that the tenant damages the property or neglects to pay the rent.
At the point when Key Money Is a Bribe
In certain urban communities, key money is paid by a prospective tenant to a property owner or manager, a building superintendent, or even the current tenant with expectations of getting a rental contract. In such cases, the key money is a bribe to guarantee that the prospective tenant's application is chosen over others.
This practice is limited to urban communities with low vacancy rates and high prices, especially assuming a few rentals are subject to price controls that make them even more alluring.
A requirement for key money might be legal in the event that it is written into the lease.
Requests for key money in exchange for condo leases were once common, albeit illegal, in New York City. The city's complex rent stabilization regulations brought about a two-layered system of incredibly costly market-rate units and rarely accessible rent-settled units. The city's rent stabilization laws actually exist, however the practice of paying key money apparently is presently not common.
Key Money for Commercial Property
As per the real estate website brickunderground.com, payment of key money for commercial real estate is as yet common in New York City, and in this case, it's entirely above-board. The holder of an alluringly priced long-term commercial lease might give up the lease to another tenant in return for a payment of key money. It is especially common when the previous tenant is signing over a business that has proactively been prepared for use as a restaurant, for instance.
The legal site LegalEagle notes that requiring key money might be legal assuming it is explicitly written into the lease for the property.
Giving key money to a landlord as a gift is common practice in certain countries, prominently Japan and Mexico.
Highlights
- Payment of key money is legal and acceptable in certain commercial lease transactions.
- Key money can be an under-the-table payment in return for a loft lease in an extreme market.
- Key money is sometimes an equivalent word for a security deposit. Different times it's a bribe.
