The law on key money in businesses regulates the status of the protected tenant in a business and his right to pass the rights in the protected business to his heirs.
Key money is the name for the price the tenant pays the property owner for the right to rent the property for an unlimited period. To acquire key money rights and become a protected tenant, the tenant pays the owner between thirty and sixty percent of the property’s value when he receives the key to the property, hence the name of the transaction, key money. From then on, the tenant pays rent well below free-market rates.
In exchange for the key money, the tenant receives the right to use the property until the end of his life and, under certain conditions, the right to bequeath those rights.
Protected tenancy was widespread in the 1950s and 1960s. A tenant who wanted business premises under a protected lease paid key money, an initial lump sum, and then kept paying reduced rent. Today, most businesses rented for key money sit in old buildings in the centers of large cities, and in recent years almost no new key money leases for real estate have been signed.
In this article, we will discuss the inheritance rights of the tenants, the first tenant and the second, under the law governing key money in businesses.
Business key money law: what is the protected tenant’s right of inheritance?
The business key money provisions deal at length with the protected tenant’s right of inheritance.
The law distinguishes between several types of tenants: an original tenant, a derivative tenant, and a deferred tenant.
An original tenant is the tenant who signed the agreement with the property owner to rent the business premises for key money.
A derivative tenant is the tenant who inherited the protected tenancy right from the original tenant, the first link in the chain.
A deferred tenant is the tenant who steps into the derivative tenant’s shoes after his death, or after he stops holding the leased property.
Business key money law – what are the inheritance rights of the derivative tenant?
The original tenant’s heirs receive the right to inherit the protected property under the conditions set out in Chapter A of the Tenant Protection Law, Sections 19-40. Under the law, they must meet several conditions:
When the original tenant dies, only his spouse enjoys the right of inheritance, and only if the two worked together in the protected business for at least six months before the original tenant’s death.
If the original tenant has no spouse, his children are entitled to inherit, and if there are no children, the inheritance rights pass to other relatives, but again only on condition that they worked with him in the business for at least six months before his death.
And please note: Section 26 of the business key money provisions states that a person is not a protected tenant unless he continued to run the business that the previous tenant ran in the rented property, and did not rent the property out to anyone else, in whole or in part.
Business key money law – what are the inheritance rights of the deferred tenant?
Before turning to the deferred tenant’s inheritance rights, one more pass at the three types of rights:
The first type is the “original” tenant, meaning the protected tenant with whom the protected tenancy agreement was signed.
The second type is the “derivative” tenant, someone who became a protected tenant, by virtue of Sections 20-26 of the law, after the death of the original tenant. He holds the second generation of the protected tenancy right.
The third type is the “deferred” tenant under Section 27(2) of the law, someone who steps into the derivative tenant’s shoes after his death, or after he ceases to hold the leased property. He holds the third generation of the protected tenancy right.
Business key money law – from the desk of a key money lawyer
Avraham H. inherited from his father a store held under protected tenancy. When the father died, Avraham’s mother was working in the business and, in accordance with the law, she inherited the rights, but a few years later the mother also passed away.
The store’s owners learned of the mother’s death only several years later. As soon as they did, they came to visit the rented property and found it abandoned and neglected. They filed a claim asking the court to revoke the inheritance rights of the son, Avraham, on the grounds that the business was inactive and that he had abandoned the rented property.
The court accepted the claim and ordered Avraham’s eviction from the property, because he did not meet the conditions of the law: he had abandoned the property and had not carried on the business.
Business key money law – questions and answers
Question: My late father held a store for key money. I recently joined him, and we worked together on the premises. My father passed away one day after I had worked at the store for six months. Am I entitled to keep holding the property?
Answer: Yes. The law states explicitly that a family member who worked with the protected tenant in the business for more than six months immediately before his death is entitled to inherit the protected rights in the property.
Question: I inherited protected rights in a business lease from my father. How many hours a week must I work in the store to keep my entitlement?
Answer: To keep holding the rights, you do not have to run the business every day of the week, but take care not to abandon it altogether, since abandonment would be grounds for an eviction claim.
The bottom line: what the business key money law says about inheritance rights in key money businesses.
A protected tenant in a business has the right to pass the protected rights to his heirs. The law distinguishes between the original tenant, who signed the key money agreement with the business owner, the derivative tenant, who inherits the rights in the first round, and the deferred tenant, who takes the right of inheritance in the third round.
