Anyone who has rented an apartment in Israel knows the line at the top of the lease: “unprotected tenancy.” What does it mean, why does it matter, and what does it have to do with protected tenants and key money?
For answers we turned to Adv. Avital Horef, a Tel Aviv and Jerusalem attorney who practices real estate law.
Protected tenants are tenants who paid key money and acquired rights in the property. To keep a lease from turning into a protected tenancy, with all the rights the law attaches to one, every standard lease opens by stating that the Tenant Protection Law does not apply to it.
In this article, we will go over the key real estate concepts around protected tenancy and key money, and review the restrictions, duties, and rights of the protected tenant and the property owner.
Protected tenants – what is key money?
The key money system, Israel’s version of rent control, took shape in the 1950s to help new immigrants who arrived in Israel destitute find a place to live. It gave them a home for life, with no need to keep hunting for the next apartment.
The Tenant Protection Law governs the relationship between the property owner and the protected tenant. It spells out and protects the tenant’s rights, lists his duties, sets how the property’s running costs are divided, and more.
Protected tenants and key money – who is a protected tenant?
A protected tenant is someone who paid key money on entering the property, someone who was living in the rented property before August 20, 1940, or a successor tenant who inherited protected tenancy rights in accordance with the law.
The protected tenant enjoys real rights in the property even though he holds no ownership. He can live in the property until the day he dies and pays very low rent.
He also faces limits. He may not rent out the property or change its use, for example turning a residential apartment into a business.
Can the property owner evict the protected tenant?
The Tenant Protection Law grants tenants extensive rights and permits eviction of a protected tenant only in specific circumstances. In practice, a protected tenant is shielded from rent increases and from eviction for the rest of his life. These protections apply to residential and commercial properties alike.
The Tenant Protection Law lists the legal grounds on which a protected tenant may be evicted:
Persistent failure to pay the rent fixed in the contract between the property owner and the protected tenant.
Breach of the agreement or unlawful activity in the property, for example running a business in it or renting it, even in part, to another tenant.
Malicious damage to the property by the protected tenant.
Ongoing disturbance and harassment of the neighbors by the protected tenant.
Where the property owner intends to demolish the property, in which case the protected tenant must be offered an alternative property.
Abandonment of the property by the protected tenant.
The language of the law makes one thing plain: evicting a protected tenant is a demanding, complicated process. Even when a legal ground for eviction exists, the court does not always allow it. So on any question of protected tenancy and key money, it is worth consulting a lawyer who focuses on real estate law.
What happens when the property is sold?
The protected tenant may sell his rights in the protected property. He must first approach the property owner, and only if the owner declines to buy the tenant’s rights may the tenant sell them on the open market.
When a protected property is sold, the new tenant steps into the shoes of the previous one and enjoys the same rights as the protected tenant who sold.
The proceeds of the sale are divided between the property owner and the protected tenant leaving the property.
How are the sale proceeds divided?
For tenants who moved into the apartment before 1958, the key money is split as follows: the landlord receives 1/3 and the tenant receives 2/3.
For tenants who paid key money and entered the property after August 14, 1958, the split runs like this:
In the first year, the landlord receives 15% of the key money and the tenant receives 85%.
Between one and two years, the split shifts to 25% for the landlord and 75% for the tenant.
From two to five years, 33% of the proceeds go to the landlord and 67% to the protected tenant.
If the lease has run more than 5 years, the property owner receives 40% and the protected tenant receives 60%.
Can the protected tenant bequeath his rights to the apartment?
The key money law allows protected tenancy rights to be inherited under the following conditions:
The protected tenant’s spouse, children, or relatives inherit his rights if they lived with him for at least six months before his death.
A divorced spouse can inherit the tenancy if a divorce agreement or court decision entitles him to live in the apartment.
Note that inheritance of a protected tenancy in an apartment or business is generally limited to one generation, unless specific conditions are met that extend it further.
The bottom line: protected tenancy and key money are real estate concepts worth knowing.
What key money is, who counts as a protected tenant, the duties, rights, and limits that bind the tenant and the owner, how sale proceeds are divided, whether the tenancy can be inherited, and more. All of it matters to anyone active in real estate, and to anyone about to sign an apartment lease.
