What Is Key Money?
Let me explain key money directly: it's a fee you pay to a manager, landlord, or even the current tenant to lock in a lease on a residential rental property. Sometimes people use the term to mean a security deposit, but in tough rental markets, it's basically a gratuity or outright bribe.
You should know that charging key money can be legal in some commercial real estate deals, as long as it's spelled out in the lease agreement.
Understanding Key Money
The meaning of key money shifts depending on where you are—in different parts of the world and even within the U.S. In some spots, it's just another name for a security deposit, which is usually one or two months' rent paid upfront when you sign the lease. State laws differ, but typically, this money goes into escrow and comes back to you with interest at the end of the lease. The landlord can only keep part or all of it if you damage the place or skip out on rent.
Key Takeaways
- Key money is sometimes a synonym for a security deposit. Other times it's a bribe.
- Key money can be an under-the-table payment in return for an apartment lease in a tough market.
- Payment of key money is legal and acceptable in certain commercial lease transactions.
When Key Money Is a Bribe
In certain cities, you might pay key money to the property owner, manager, superintendent, or current tenant just to get your application picked. This is essentially a bribe to jump ahead of others. You'll see this in places with low vacancies, high prices, and sometimes rent controls that make units extra appealing.
Keep in mind, requiring key money is only legal if it's written into the lease. Back in the day, demands for key money were common but illegal in New York City, thanks to its rent stabilization rules creating a split between pricey market-rate apartments and scarce controlled ones. Those laws are still around, but paying key money isn't as widespread now.
Key Money for Commercial Property
From what I've seen on sites like brickunderground.com, key money is still a thing in New York City's commercial real estate, and it's totally legit there. If someone has a sweet long-term lease at a good price, they might hand it over to you for a key money payment—especially if it's a setup ready for something like a restaurant.
As LegalEagle points out, it's legal to require key money if it's explicitly in the property's lease. And in some countries like Japan and Mexico, giving key money to a landlord as a gift is just standard practice.
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