Key money in an inherited apartment is an issue that mostly traces back to real estate transactions from the 1950s and 1960s. The arrangement began under the British Mandate as a way to rein in high housing prices, and the Israeli government later used it to give new immigrants, who could not afford to buy property at full price, a permanent home.
According to Ministry of Housing figures, about twenty thousand key money properties remain today, half of them residential apartments. Most sit in the large cities in the center of the country, where property values are high.
In recent years the courts have seen a steady stream of disputes over key money in inherited apartments. Most key money deals, the agreements that created Israel’s protected tenancies, were struck in the 1950s, and the descendants of the tenants who lived in those apartments now want to know exactly where they stand.
In this article we explain who qualifies as a protected tenant, what rights and duties the tenant and the property owner have, what happens when a protected tenant’s rights are sold, and what the law says about key money in an inherited apartment.
Key money in an inherited apartment – the complete picture
Key money is a sum the tenant pays for the right to rent the property for an unlimited period. A person who rents an apartment for key money is a protected tenant. He has no ownership rights in the apartment, but he cannot be evicted, and the monthly rent cannot be raised except as the Tenant Protection Law allows.
Who is considered a protected tenant?
Key money in an inherited apartment is relevant, as noted, only to protected tenants. A protected tenant is a tenant who meets one of the following conditions:
The tenant paid key money for the apartment or business.
The tenant did not pay key money but moved into the apartment before 1940.
A tenant who held the property until August 20, 1968, whose lease did not expressly state that it was a protected tenancy under the Tenant Protection Law.
A family member who inherited the rights in the protected property from the original tenant.
What are the rights and duties of the tenant and the property owner?
Paying key money to the property owner gives the tenant the right to rent the property. It does not give him ownership.
The protected tenant keeps his rights only as long as he honors the terms of the contract. He may not sublet the property, deliberately damage it, run a business in the apartment, or transfer his rights to another person without the owner’s express consent. If he breaches those terms, the owner may sue in court to evict him from the protected property. When such a claim is filed, it is worth retaining a lawyer in Tel Aviv, in Jerusalem, or wherever the property is located.
The protected tenant must actually live in the property. If he leaves it, he is treated as having abandoned it.
In day-to-day terms the protected tenant enjoys rights similar to those of a registered owner, with a few restrictions. He cannot alter the apartment, for example by demolishing or building walls or closing off a balcony, without the owner’s permission. And when it comes to inheritance, the rights of a protected tenant differ from those of an owner whose name appears in the land registry.
Whenever repairs to the property are needed, the cost is split equally between the property owner and the protected tenant.
If the owner wants to demolish the building that houses the protected apartment and build a new one in its place, he may remove the protected tenant, but only if he pays him compensation or provides an alternative property of equivalent value.
Evicting a protected tenant requires filing a claim in court, and eviction cases involving key money apartments are complicated. Both sides are well advised to consult a key money attorney. Experienced counsel matters here for the property owner and the protected tenant alike.
Selling the rights in a key money apartment
The Tenant Protection Law provides that when the protected tenant wants to sell his rights in the property, the owner has priority to buy them before anyone else.
When the rights in a protected apartment are sold, the proceeds are divided between the property owner and the protected tenant.
If the protected tenant has lived in the property for less than a year, the tenant receives 85% of the sale price.
If the tenant has lived in the property between one and two years, he receives 75% of the sale price.
If the protected tenant has lived in the property for more than five years, the property owner receives 45% of the sale amount and the tenant receives 60% of the amount.
If the key money was paid by 1958, the tenant receives 66.6% of the sale price.
Key money in an inherited apartment – what is the heir’s status?
One of the recurring problems with key money apartments is what happens to the protected property when the tenant dies.
When a protected tenant who rented business premises for key money passes away, the deceased’s spouse automatically receives his rights in the property. If there is no spouse, the children receive them. When a protected tenant living in a residential apartment dies, the rights pass to his first-degree relatives, but only if they lived with him in the apartment for at least the six months before his death.
The right to inherit key money rights is a one-time right. The children of the protected tenant cannot pass those rights on to their own children, and so on down the line.
To exercise the heirs’ rights in full, it is worth speaking with an attorney for wills and inheritance who also handles key money in inherited apartments.
The bottom line: key money in an inherited apartment mostly concerns deals made decades ago
Key money is an old mechanism that gives a tenant who paid it the right to use the property for the rest of his life. New key money transactions are rare today, but deals struck decades ago still raise plenty of legal questions when the apartment passes to the next generation.
