Ministry of Housing data show that tens of thousands of tenants in Israel benefit from the Tenant Protection Law and the key money arrangement. More than half of them live in key money apartments; the rest hold business premises.
Even in 2023 and 2026, several hundred key money transactions are still carried out each year, the vast majority in old neighborhoods in the centers of various cities.
In this article we discuss the Tenant Protection Law and key money: the thinking behind the law, the rights and duties of the protected tenant and the property owner, and how a protected tenant can be evicted.
Tenant Protection Law and key money – what is the thinking behind the law?
The use of key money began during the British Mandate period, when the authorities tried to curb runaway rental prices in the housing market by extending the rental period indefinitely.
After the establishment of the state, the Israeli government continued to promote key money rentals under the Tenant Protection Law. At that time, in the early 1950s, hundreds of thousands of new immigrants arrived in Israel without the means to buy an apartment, and the authorities had to put a roof over their heads. The key money system was meant to guarantee new immigrants and people of limited means housing for life.
What is key money?
Key money is a payment made for the right to live in an apartment. That right arises neither from ordinary rent nor from purchase of the property. It is a distinct mechanism that gives the tenant more than a lease grants, but less than full ownership.
When a key money contract is signed, the tenant pays a sum that is far lower than the price of buying the apartment. After paying the key money, the tenant pays monthly rent that is also far below open-market rates. As long as he keeps up the monthly payments and his other obligations, he may live in the apartment without fear that the landlord will be able to evict him.
Tenant Protection Law and key money – what are the rights and duties of the owner and the protected tenant?
The Tenant Protection Law gives the protected tenant the right to rent the property for an unlimited period, but it does not give him ownership.
To obtain that open-ended right, the tenant pays the owner a sum of between thirty and sixty percent of the property’s market value. On top of that one-time payment, he pays a low monthly rent plus a percentage fixed by the Tenant Protection Law.
The right to live in the property lasts for life and in some cases can be inherited.
The protected tenant receives the rights in the property either from the owner or from the previous tenant who lived in the protected property before him.
A protected tenant may live in the property for the rest of his life and cannot be evicted, but several restrictions apply to him:
He may use the property only as a residence for himself and his family, and may not operate a business in the apartment.
In a residential apartment, he may not rent the apartment out to another tenant or subtenant.
He may not transfer the rights in the apartment to someone else without the owner’s express consent.
He may not make changes to the apartment, such as closing off a balcony or demolishing or building walls, without the owner’s permission.
When the tenant breaches one of these provisions, the landlord can file a claim for eviction of a key money tenant in court, seeking to remove the tenant from the protected property.
If the tenant leaves the apartment, he is treated as having abandoned it and his protected tenancy rights expire.
When renovation work is carried out in the building, the duty to share the cost falls on both the protected tenant and the apartment owner, even when the work does not relate directly to the apartment.
The Tenant Protection Law obligates the owner to keep renting the property to the tenant. The owner has no right to use the property himself and may not rent it out on the open market.
Tenant Protection Law, key money, and inheritance
When a tenant living in a key money apartment passes away, his rights pass to his immediate family, his spouse, sons and daughters, but only on condition that they lived with him in the apartment for at least six months before his death.
When a protected tenant of business premises passes away, the spouse automatically receives the rights in the premises. If there is no spouse, the rights pass to the children.
Note that the right of inheritance is a one-time right. The heirs of the protected tenant cannot pass the inherited rights on to their own heirs.
Tenant Protection Law and key money – how is a protected tenant evicted?
When the owner of a protected property wants to demolish the old building and put up a new one in its place, he can evict the protected tenant, but only on condition that he provides an equivalent replacement property or equivalent monetary compensation.
Section 131(10) of the Tenant Protection Law provides that where the owner seeks to evict the tenant in order to demolish the structure and build a new one, and has notified the tenant of his willingness to provide alternative housing or monetary compensation, a legal ground for eviction exists.
Getting to know the Tenant Protection Law and key money – a short summary
The Tenant Protection Law is meant to make sure everyone has a permanent roof over their head. The protected tenant does not own the property he lives in, but he pays no high rent, and the landlord cannot evict him from the apartment for the rest of his life.
Alongside these substantial rights, the protected tenant is bound by various prohibitions: he may not rent the property out to others, and he may not knock down walls or alter the property without the owner’s express consent. In many cases the protected tenant can also pass his rights in the property to his heirs.
