Key money may also be an amount to extend a lease, as requested or demanded by an apartment owner or manager, beyond the security deposit. In New York state, key money is unlawful if an apartment owner or manager demands, requests, or requires a deposit or extra charge to reserve an apartment unit. Key money restrictions apply under certain conditions in other states, such as California. Commercial and nonresidential property owners or managers can’t require key money for securing, continuing, or renewing a lease or rental agreement—unless it’s in writing. In essence, California prohibits verbal versus written key money agreements. When key money is being requested legally as an initial rent expense, your lease will explain with clearly defined terms and purpose. For example, the U.S. Department of State recognizes key money as a legal expense for qualifying overseas living quarters as an “excessive initial rental expense.” Employees can receive an advance to help cover the key money.
Example of Key Money
Potential activities in competitive rental markets such as New York City offer examples of “key money” expectations. For example, a doorman might charge a fee for building entry, a building superintendent might charge a fee beyond the security deposit, or a tenant might charge key money to someone interested in being a subtenant. In New York, all of these key money exchanges are forbidden. In New York state, tenant advocacy organizations note that key money is illegal, and point to state law. New York state law prohibits “rent gouging,” which can be a class-B misdemeanor when it is in addition to the usual fees and deposits. It’s also illegal for a landlord to hint that if you don’t pay the fee, you reduce your chances of getting or renewing the lease.
Key Money vs. Security Deposits
Review lease documents before handing over funds if you are asked for any deposit and want to verify refundability. In certain states, a landlord can collect various upfront fees and deposits, which may not be refundable in certain circumstances. But paying any type of funds under the table is not advisable. Seek advice from your local tenants’ union or tenants’ rights organization if you are unsure about a key money or deposit request.
