What Is Key Money?

The amount paid to obtain or extend an apartment lease is known as key money. While it is legal in some countries, the term is typically used in the United States to describe illegal bribes paid to a landlord, superintendent renting an apartment, or tenant looking for a subtenant. Key money may be a legally required deposit in certain circumstances, as determined by state law.

How Key Money Works

In general, the term "key money" connotes an undocumented, verbal, or under-the-table payment for an apartment unit. Key money may function as a bribe and may be illegal because it is greater than the legally permitted rent or security deposit amount and is given in exchange for preference for that apartment.

Key money can also be an amount paid to an apartment owner or manager to extend a lease beyond the security deposit. Key money is illegal in New York state if an apartment owner or manager demands, requests, or requires a deposit or additional charge to reserve an apartment unit.

In other states, such as California, key money restrictions apply under certain conditions. Unless it is in writing, commercial and nonresidential property owners or managers cannot require key money for securing, continuing, or renewing a lease or rental agreement. In essence, California prohibits key money agreements that are not in writing.

When key money is legally requested as an initial rent expense, your lease will explain the terms and purpose. The US Department of State, for example, recognises key money as a legal expense for qualifying overseas living quarters as a "excessive initial rental expense." Employees may be eligible for a cash advance to help cover the key money.

Example of Key Money

Examples of "key money" expectations can be found in competitive rental markets such as New York City. A doorman, for example, may charge a fee for building entry, a building superintendent may charge a fee in addition to the security deposit, or a tenant may charge key money to someone interested in being a subtenant. All of these important money exchanges are illegal in New York.

Tenant advocacy organizations in New York state note that key money is illegal and cite state law. Rent gouging is a class-B misdemeanor in New York state law when it is in addition to the usual fees and deposits. It's also illegal for a landlord to suggest that if you don't pay the fee, you'll have a harder time getting or renewing a lease.

• In competitive markets such as New York City, licensed real estate brokers are legally permitted to charge fees to assist you in finding an apartment. This fee is negotiated in advance and is only paid after the broker has assisted you in finding and obtaining an apartment lease. However, a broker's fee cannot be collected by a building owner, property manager, or their agents or employees for a managed or owned unit.

Key Money vs. Security Deposits

Frequently Asked Questions (FAQs)

Is key money refundable?

In the United States, key money for a residential apartment is not the same as a security deposit or regular fee, which is usually refundable and specified in a contract. Because key money functions more like a bribe in this context, it is unlikely to be refundable.

If you are asked for a deposit and want to confirm refundability, review the lease documents before handing over funds. A landlord can collect various upfront fees and deposits in certain states, which may or may not be refundable in certain circumstances.

Is key money legal?

Key money may be illegal if it is demanded as part of the cost of obtaining or renewing a lease, in addition to any other renewal fees and deposits. Key money may be legal in some states under certain conditions (such as for commercial property, and then only when documented in writing).

However, paying any type of funds under the table is not recommended. If you are unsure about a key money or deposit request, seek advice from your local tenants' union or tenants' rights organization.