Is the payment of “key money” legal? Our Commercial Lease Attorneys in Los Angeles were recently asked this very question by a commercial lease landlord and the laws on the books would suggest that the payment of “key money” would not constitute a violation of California law as long as the amount of payment is stated in the written lease or rental agreement. California Civil Code § 1950.8(b) states the following:
It shall be unlawful for any person to require, demand, or cause to make payable any payment of money, including, but not limited to, “key money,” however denominated, or the lessor’s attorney’s fees reasonably incurred in preparing the lease or rental agreement, as a condition of initiating, continuing, or renewing a lease or rental agreement, unless the amount of payment is stated in the written lease or rental agreement.
Thus, as long as the amount of payment is stated in the written lease, then presumably, the “key money” demand is within the purview of California law. California Courts seem to interpret a violation of the “key money” statute as including (a) the demand for “key money” and (b) the failure to state the amount of the demanded payment in the resulting written lease or rental agreement between the parties. See Edamerica, Inc. v. Superior Court, (2003) 114 Cal. App. 4th 819, 822. The California Court of Appeal for the Second District held that “it is not unlawful for a landlord to merely make a demand for “key money.” Rather, in order for liability to attach under the statute, a plaintiff must allege that the landlord (1) made a demand for “key money” as a condition of initiating, continuing or renewing a lease or rental agreement, and (2) failed to state the amount of the demanded payment in the resulting written lease or rental agreement between the parties.” Id.
Therefore, as long as a commercial lease landlord makes a “key money” demand, and states the amount of the demanded payment in the lease agreement, there will be no “key money” statute violation as a matter of law.