Key money is an upfront payment made to a landlord to secure a lease on a rental property. It is illegal in some regions but acceptable in others. It is more common in areas where housing is scarce and is considered extra compensation to the landowner. In some areas, security deposits are also called key money and may or may not be repaid when the lease expires. The practice of asking for extra money is more common where rent control laws are in effect. In Thailand, the term means different things, including a bribe to a landlord who can lower monthly rent in exchange for cash upfront. South Korea and Japan also allow similar payments.
Key money refers to an upfront payment made to a landlord to secure a lease on a rental property. It is sometimes paid in cash and is illegal in some regions, such as the United States, but is a perfectly acceptable business practice in some countries. Key money is more common in areas where housing is scarce and is considered extra compensation to the landowner before he or she hands over the keys. Security deposits are also called key money in some areas and may or may not be repaid when the lease expires.
The practice of asking for extra money is more common where rent control laws are in effect. A landlord may offer to rent a residence or commercial building in exchange for key money, especially if neighboring communities do not enforce rent controls, driving up regional rental prices. The cash upfront payment guarantees the tenant a low rent that cannot be increased for the duration of the lease. Some landlords will waive the payment to attract a desirable tenant to live on their property.
In Thailand, the term means different things. It may refer to a security deposit which is returned if the property is left in good condition at the time of move-in. Key money also refers to a bribe to a landlord who can lower your monthly rent in exchange for cash up front. This allows the landlord to avoid paying taxes on part of their rental income. The custom is most common when commercial property is leased in Thailand.
The South Korean government also allows key cash payments, except in low-income housing projects. Called jeongsei, which translates to “full money,” the term typically appears in lease agreements. A tenant usually gives the landlord 25 to 70 percent of the value of the residence when he signs the lease. No monthly payments are required and the money is returned to the tenant, without interest, at the end of the lease term, which is generally two years.
Japan also allows similar payments, which are more common in traditional cities and big cities. The practice evolved in the 1940s when a housing shortage limited the number of available rentals. A deposit is usually part of the lease and is equivalent to two months’ rent. Foreigners living in Japan usually pay a rental fee in desirable areas.
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