Key money

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Key money is used differently in different parts of the world and sometimes means money paid to an existing tenant who assignes a lease to a new tenant where the rent is below market. In other parts of the world it is used synonymously with security deposits.

In the United States and the United Kingdom, it is illegal for landlords to require key money. However, prospective renters who are willing to pay more for a property often pay.

A cash payment of key money may be required in those parts of North America with strict rent controls, most notably New York City. Because it is paid in cash, it is very difficult to trace and usually impossible to prove in court.

In France it is the norm that a tenant that assigns a lease is paid an amount for a lease that is below market. The Capitalization factor is financial and strategic, depending on cost of money, importance of the site to the taker and the location of the site. The ratio used goes from 0 (poor locations) to 12 (top locations e.g. Champs Elysées). Remaining number of years of the contract has little/no impact unless it falls under the legal provision of “déplafonnement du loyer”, meaning the owner is automatically legally allowed to ask for a new rent irrespective of the rent paid so far :

It is also common in many countries to require 'Key Money' in the form of a security deposit. In the United States, for example, it is common for a landlord to require the equivalent of one or two months rent as a security deposit to offset delinquent rent payments or damage to the property during occupancy. This deposit is held in escrow and is refunded when the tenant moves out, less any repair costs. Some landlords, however, may charge spurious costs for nonexistent repairs.

In Japan, however, key money is non-refundable and often amounts to several times the monthly rent, totaling as much as six months or more. This practice is commonly despised by foreigners living in Japan and Japanese alike.

In Korea, the key money system (Jeonse, as opposed to monthly rent or Wolse) requires the lessee to make a deposit of about 60%~70% of the housing price. The key money is returned when the lease expires. The key money deposit will not be returned before termination of the lease unless another lessee replaces the outgoing lessee.