Key money

Key money, sometimes called initial lease payment, is an amount paid by the tenant at the time the commercial lease is agreed to.

What is key money?

Key money, sometimes called initial lease payment, is an amount paid by the tenant at the time the commercial lease is agreed to. Key money can be viewed either as additional rent paid in advance, or as the valuation of a range of items including works, location, building characteristics, etc.

It’s important to clearly state what the key money is intended for and to include it in the lease contract. 

KEY MONEY AS AN INTEGRAL PART OF THE RENT

• at the time the rent is revised:
  The parties can request that the rent be revised when the lease can be legally increased (every three years). If the key money is part of the rent, the judge will take it into account when calculating the new rent amount.
• when the lease is renewed: 
  The tenant can request eviction compensation if the lease is not renewed. If the key money is considered part of the rent, it will be included in the eviction compensation.

HOW IS THE KEY MONEY HANDLED IN ACCOUNTING?

From an accounting standpoint, the Court of Brussels is of the opinion that key money can be treated as an amortisable item over the length of the lease and can be recorded in expenses.

Is it legal to request key money?

Key money is not defined legally and is not covered by any legislation. It is custom.

The law on commercial leases does not forbid the payment of key money at the start of the lease. If the lessor makes additional demands at lease renewal time, the judge will always take account of the key money and the reason why it was paid at the time. 

What is the difference between key money and goodwill?

Key money should not be confused with goodwill. To simplify, key money provides access to empty premises, like an entrance fee. On the other hand, goodwill consists of all tangible and intangible assets used to provide services to customers.

Sources : droitbelge.be ; businessdatabase.be