The law on selling key money rights addresses a protected tenant who rents a property for key money and wants to sell his rights in the property to another tenant.
It is commonly assumed that key money transactions no longer happen. Not so. Quite a few still close today, deals in which a tenant holding protected rights in a property transfers them to another tenant. Most sales of properties protected under the key money rules involve commercial premises; a smaller share involve homes.
In this article, we will learn about the rules for selling key money rights, the term key money itself, the rights and duties of a tenant in a protected property, and how a sale of a property protected under the Tenant Protection Law is carried out.
Selling key money rights – what is key money?
Key money, which creates a protected tenancy under the Tenant Protection Law, is the payment made for a residence that is neither owned nor conventionally rented. It is an agreement between the property owner and the tenant: the tenant pays the owner a sum of money when he receives the key to the property, hence the name. In return, he receives an open-ended right to live in the property, usually until the end of his days, and under certain conditions also the right to pass the property on.
Selling key money rights – what are the rights and obligations of the protected tenant?
The protected tenant is entitled to live in the property until his death, but he cannot bequeath it except in the specific cases set out in the Tenant Protection Law.
Tenants in a protected tenancy may not alter the apartment. They may not knock down walls, change the layout, close in a balcony, or make any substantial change to the property without the owner’s express permission.
To keep the right of residence in the protected property, the tenant must actually live in it. If he moves elsewhere or leaves the home, even for a period and for any reason, the property owner may seek his eviction on grounds of abandoning the property.
The law permits the tenant to sell his rights in the protected property, but only on condition that the owner of the apartment has approved the move.
If the protected tenant dies, his heirs can continue holding the protected property and inherit his rights, under several conditions: the right passes first to the spouse; if the deceased has no spouse, his children are entitled to inherit the rights, and if there are no children, other relatives inherit them. In every case, the heir qualifies only if he lived with the deceased in the property in the period before the death, at least six months before he died.
On renovations, the Tenant Protection Law splits the burden: exterior work, such as repairing stairwells, the roof, and outside lighting, and painting and whitewashing the outside of the building, falls on the property owner, while the cost of interior work, carried out inside the apartment, falls on the protected tenant.
If the protected property is included in a demolition-and-rebuild project, the owner may remove the protected tenant to carry out the project, but only on condition that he provides a suitable alternative, whether compensation of monetary value or protected housing elsewhere.
Selling key money rights – how is a key money property sold?
A protected tenant who wants to sell his rights in the property must first approach the property owner and offer him the chance to buy them.
If the landlord wants to buy the rights, he and the protected tenant sign a contract for the sale of the rights in the protected property.
If the property owner declines, the protected tenant can offer the rights in the property for sale on the open market.
When a tenant is found who wants to buy the rights, he steps into the shoes of the selling tenant: he pays key money, gains an open-ended right to live in the property, and pays low rent.
Whenever key money rights are sold, the law entitles the property owner to a significant share of the sale proceeds.
When the selling tenant entered the apartment before 1958: the property owner receives one-third of the proceeds and the protected tenant the remaining two-thirds.
For tenants who acquired key money rights after August 14, 1958:
If only one year has passed since the key money contract was signed between the tenant and the property owner, the owner receives 15% of the consideration and the selling tenant 85% of what the sale brings in.
If two years have passed since the protected tenancy agreement was signed between the selling tenant and the owner, the protected tenant receives 75% and the owner 25% of the sale amount.
If between two and five years have passed since the protected tenant entered the property, the owner receives 33% of the proceeds and the protected tenant 67%.
If more than five years have passed since the protected tenant signed the key money contract with the owner, the owner receives 40% of the proceeds, while the selling tenant receives 60% of the money the sale brings in.
Please note: selling the property is a complicated process. The rules must be followed to the letter, and it is wise to use the services of a key money lawyer.
The bottom line: a tenant protected under a key money contract may sell his rights in the property.
Key money housing does not confer ownership of the property, but the protected tenant is far from rightless. He may live in the protected property for the rest of his life, under certain conditions he can pass his rights in it on, and he is permitted to sell his rights in the protected property.
