Imagine finding the perfect retail space in an ideal location with reasonable rent —everything seems perfect until the landlord demands a substantial, non-refundable “key money” payment as a prerequisite for signing the lease. What would you do?
In New South Wales, not only is this situation distressing, but it’s also illegal. In this article, we will delve into what key money is, its legal standing, and the consequences for landlords or agents who demand it.
What is Key Money
Key money is any sort of non-refundable benefit, usually money, paid in exchange for the granting, renewal, extension or assignment of a retail lease. The definition of ‘key money’ in the Retail Leases Act 1994 (NSW) is as follows:
- key-money means any money paid to or at the direction of a lessor or lessor’s agent, by way of a premium, non-repayable bond or otherwise, or any benefit that is conferred on or at the direction of a lessor or lessor’s agent, in connection with the granting, renewal, extension or assignment of a lease (and a reference in this Act to the payment of key-money includes a reference to the conferral of any such benefit).
The Retail Leases Act 1994 (NSW) prohibits landlords or their agents from asking for or accepting key money in relation to granting or assigning a lease. Lease terms that require the tenant to pay key money are void.
Anyone seeking or accepting key money is guilty of an offence and could be fined up to $11,000. The tenant is entitled to recover from the landlord any key money paid or the value of any benefit accepted by the landlord as a form of key money.
Other Payments
While key money is prohibited, the landlord or agent is still entitled to receive following payments:
- payments of rent in advance
- a security bond or some other bond or guarantee from the tenant
- payments for goodwill of a business from a purchaser of the business (but only to the extent that the goodwill is attributable to the conduct of the business by the lessor)
- payments for plant, equipment, fixtures or fittings that are sold by the lessor to the lessee in connection with the granting of the lease
- payment for the grant of a franchise in connection with the granting of the lease
The Retail Leases Act 1994 (NSW) also allows landlords to ask tenants to pay reasonable costs for preparing the lease if the tenant requests changes. However, this does not include changes to the tenant’s details, rent, or lease term. It also does not cover fixing mistakes where the landlord failed to include agreed terms, or any changes requested before the tenant provides the landlord with a disclosure statement.
More Information
If you are considering on entering a retail lease, you should seek legal advice to ensure you fully understand your rights and obligations under the lease.
If you would like to obtain more information, please feel free to contact Paysonberg. We have a proficient legal team equipped to offer reliable advice.
