PlayInfoBox

Home /Education /Key Money in Commercial Leases: The Basics

Key Money in Commercial Leases: The Basics

Tap each step to understand the basics of key money in commercial leasing.

  1. What key money actually is

    Key money is a payment an incoming tenant makes to an outgoing tenant for the intangible and tangible value built up around a commercial space β€” commonly split into location value, business value, and fit-out value.

  2. Understanding location-based value

    This portion reflects the value of the spot itself β€” foot traffic, visibility, and the surrounding commercial district β€” and how much it's worth can vary enormously depending on where the space sits, sometimes independent of how the current business performs.

  3. Understanding business and fit-out value

    Business value reflects the regular customer base and know-how the outgoing tenant built up, while fit-out value covers the interior, fixtures, and equipment left behind β€” these are usually negotiated and priced separately from location value.

  4. Know what legal protection may exist

    In some jurisdictions, landlords are restricted from unreasonably blocking a lease with a new tenant the current tenant has arranged, specifically to preserve the outgoing tenant's chance to recover key money β€” check your local commercial tenancy rules, since protections vary a lot by country and even by lease length.

  5. Use dispute resolution resources if needed

    If a key money disagreement comes up, look for a local commercial tenancy mediation board, small business support office, or similar service before going straight to litigation.

This is general information, not legal advice

This guide introduces basic concepts around commercial key money and is not a substitute for legal advice. Rules and protections for this kind of payment vary significantly by country, region, and even lease type, so confirm the specifics with a local lawyer or commercial tenancy authority before signing anything.

Always negotiate the amount, don't just accept an asking figure

Because key money isn't a fixed or standardized fee, incoming tenants are usually expected to independently verify claimed foot traffic, past revenue, and the real condition of any equipment before agreeing to a price β€” treat the outgoing tenant's asking number as a starting point for negotiation, not a fixed cost.

Frequently Asked Questions

Is the landlord required to pay key money to an outgoing tenant?

No, typically the landlord has no direct obligation to pay it. The core protection in many places is only that the landlord must not unreasonably interfere with the outgoing tenant finding a new tenant willing to pay key money β€” not that the landlord owes the money directly.

Should a key money agreement be put in writing?

Yes. To avoid disputes later, it's best practice to document exactly what the key money covers, the amount, and the payment terms in a signed written agreement between the outgoing and incoming tenant.