Key Money in Rentals — Legal Risks, Common Forms and Tenant Tips

Answer

Intro: Key money generally means any payment a tenant gives beyond normal rent, deposit or authorized fees to secure a tenancy or a specific unit. Landlords, tenants and brokers encounter it in different forms: a one-time extra payment to move in, an upfront premium for a desirable unit, or informal “under-the-table” cash to hold a lease.

What key money looks like and how it differs from normal charges:

• Premium to secure a unit: A tenant pays extra to the landlord (or current tenant) to get the lease—distinct from a security deposit or first month’s rent.
• Payment to a current tenant: Sometimes incoming tenants pay existing tenants to take over a favorable lease or to vacate early.
• Broker or finders’ fee vs. key money: Licensed brokers can charge market fees; key money can be an unregulated premium that bypasses formal receipts or statutory protections.
• Non-refundable “bonus”: Unlike an itemized security deposit, key money often lacks written terms or lawful justification.

Legal and practical concerns: The legality of key money varies by state and city. Many jurisdictions treat undisclosed or nonrefundable premiums skeptically; some local laws ban payments that effectively evade rent-control limits, limit required disclosures, or strip tenants of statutory protections. Unrecorded cash payments increase dispute risk, and landlords who accept them can face penalties where statutes require itemized deposit accounting or limit allowable fees.

Practical steps for tenants and landlords:

• Insist on written terms. Any premium should appear in the lease with clear treatment (e.g., applied to last month’s rent or defined as a nonrefundable premium).
• Request receipts and document communications. Keep copies of checks, bank transfers, or signed acknowledgments.
• Confirm whether local rent-control or tenant-protection laws restrict extra payments or require refunds if the unit remains occupied less than a stated period.
• Avoid informal cash deals with incoming/outgoing tenants—these complicate security and habitability claims later.

Bottom line: Key money can range from a permitted premium to an illegal or risky payment depending on local law and how the parties document it. It’s advisable to consult a licensed attorney or local housing authority before paying or accepting any extra move-in sum to ensure compliance and protect both landlord and tenant rights.