A key money apartment is a form of protected tenancy. Key money, Israel’s equivalent of a rent-controlled or statutory tenancy, does not make the tenant the owner of the property, but it does shield him from eviction for the rest of his life, and in some cases the rights in the property can even be inherited.
When we sign a key money contract, we are not buying the property, but the right to live in it. In exchange for residency without fear of eviction, the protected tenant pays, on signing, a sum far below the purchase price, between thirty and sixty percent of the property’s market value, and afterwards pays a monthly rent well under the going market rate.
In this article, we will learn what a key money apartment is and ask whether the protected tenant living in one can sell his rights in the property and, if so, how.
A key money apartment – things you need to know
In a key money apartment, the protected tenant holds several rights in the property, though ownership is not one of them:
Exclusive use: the protected tenant has the right to occupy and use the property, but only as a residence for himself and his immediate family.
In a key money apartment, the property owner may not evict the protected tenant, even for a family member who needs the property. Protected status means the tenant cannot be removed from the property for the rest of his life.
The rent the protected tenant pays is usually far below market rates. Rent increases are limited to a few percent, in line with the rise in the index.
In a key money apartment, relatives who lived with the protected tenant in the property for at least six months before his death may become protected tenants themselves and continue the protected lease after the tenant dies.
A key money apartment – can the protected tenant sell the property?
A protected tenant may sell his right of residence to another tenant on the free market, but before selling the right to live in the key money apartment, he must approach the property owner and offer it to him first.
If the property owner wants to buy, he has the first right to do so. Only if the owner declines to buy the right in the key money apartment from the tenant may the protected tenant offer his rights for sale on the open market.
When the protected tenant sells his rights, the buyer steps into his shoes. The new buyer can live in the property for the rest of his life, pay low rent, and enjoy the same rights as the protected tenant who sold.
The key money law provides that whenever rights in a key money property are sold, the sale proceeds are divided between the protected tenant and the property owner.
A key money apartment – how are the sale proceeds divided between the protected tenant and the property owner?
When the protected tenant acquired the right to use the property before 1958, the apartment owner receives one-third of the sale proceeds and the selling tenant receives two-thirds.
If the protected tenant bought the right of residence within the past year, the tenant receives 85% of the sale proceeds and the property owner receives 15%.
If the protected tenant bought the rights two years ago, the tenant receives 75% of the sale proceeds and the property owner the remaining 25%.
If the protected tenant bought the rights to the property two to five years ago, at the time of sale he receives 67% of the proceeds and the property owner receives 33%.
If the protected tenant has held the rights in the key money apartment for more than five years, he receives 60% of the proceeds and the property owner receives 40%.
Good to know: selling rights in a protected tenancy is a complicated process, so it is very important to consult a key money lawyer, whether in Jerusalem, Tel Aviv, or anywhere else.
The bottom line: is a key money apartment worth it or not?
There is no single answer. A key money apartment gives the tenant protected status, a home for life, and in certain cases the right to pass the tenancy on. But this form of housing has real drawbacks: no changes to the property, no renting it out, limits on inheritance, and more.
