Legal Definitions - key money

Key money refers to a payment made in connection with obtaining a lease for a property, but it has two distinct meanings, one generally legal and the other often illegal.

• In its first sense, key money is a legitimate payment, such as an initial rent payment, a security deposit, or a fee for specific amenities, that a new tenant provides to a landlord to gain access to the leased property. This is a standard and transparent part of many rental agreements.
• In its second sense, key money refers to an additional, often undisclosed, payment made by a prospective tenant to a landlord or an existing tenant. This payment is typically offered in competitive rental markets or areas with housing shortages, with the aim of increasing the payer's chances of securing a lease over other applicants. This type of key money is frequently illegal, as it can be considered a bribe or an unfair practice that violates housing regulations.

Here are some examples illustrating these different contexts:

• Example 1 (Legal Key Money - Sense 1):

  A small business owner, Sarah, is leasing a new storefront for her boutique. The lease agreement requires her to pay the first month's rent and a security deposit equal to one month's rent before she receives the keys and takes possession of the space.

  This is an example of key money in its legal sense. The payment of the first month's rent and security deposit is a standard, transparent requirement for Sarah to gain access to and begin using the leased commercial property.

• Example 2 (Potentially Illegal Key Money - Sense 2):

  In a bustling city with extremely limited housing, Mark is desperately searching for an apartment. He finds a desirable unit, but there are many applicants. To improve his chances, Mark secretly offers the landlord's agent an extra $2,000 in cash, separate from the official rent and deposit, stating it's to "ensure his application stands out."

  This illustrates key money in its second, often illegal, sense. Mark's additional, undisclosed payment is an attempt to gain an unfair advantage in a competitive market, essentially bribing the agent to secure the lease. Such payments often violate local housing laws designed to ensure fair access to housing.

• Example 3 (Potentially Illegal Key Money - Sense 2, involving an existing tenant):

  Emily is looking to take over a lease from a current tenant, David, who needs to move out early. David tells Emily that if she wants him to recommend her to the landlord and ensure she gets the apartment, she needs to pay him $1,500 directly, in addition to the standard security deposit and first month's rent she'll pay the landlord.

  This is another instance of key money in its potentially illegal sense. David, the existing tenant, is demanding an extra payment from Emily to facilitate her obtaining the lease, leveraging his position. This type of payment, especially if undisclosed to the landlord or if it circumvents fair housing practices, can be unlawful.