What Is Key Money?

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Updated on September 23, 2022

A couple holding keys of new apartment — Photo:
Vladimir Vladmirov / Getty Images

Definition

Key money is an amount paid to obtain or extend an apartment lease. While it is legal in some countries, in the U.S., the term is typically used to describe illegal bribes paid to a landlord, superintendent renting an apartment, or tenant seeking a subtenant. In specific situations, key money may be a legally requested deposit, as determined by state law.

Key Takeaways

In the context of U.S. residential real estate, key money typically describes an illegal bribe to acquire an apartment.
In commercial real estate, key money could be legal and common in certain situations, but might require documentation.
To ensure the legality of key money, thoroughly review lease terms before making the transaction.

How Key Money Works

In general, the term “key money” carries connotations of a verbal, under-the-table, or otherwise undocumented payment for an apartment unit. Key money may work like a bribe and might be illegal because it’s above the legally allowed rent or security deposit amount, and is made in exchange for preference for that apartment.

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.

Note

In competitive markets such as New York City, licensed real estate brokers can legally request fees to help you find an apartment. This fee is negotiated in advance and only paid after the broker has helped you find and get the apartment lease. But a building owner, property manager, and their agents or employees cannot collect a broker’s fee for a managed or owned unit.

Key Money vs. Security Deposits

Key Money	Security Deposit
Non-refundable	Refundable pending damages
Paid in cash to a landlord, owner, tenant, or doorman	Provided by check, held in escrow or bank account
Not government regulated	Often government regulated
Verbal only	Documented in contract

Frequently Asked Questions (FAQs)

Is key money refundable?

In the U.S., key money for a residential apartment isn’t like a security deposit or normal fee, which is usually refundable and spelled out in a contract. Because key money in this context functions more like a bribe, if you pay key money, it likely isn’t refundable.

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.

Is key money legal?

If it’s demanded as the cost of getting or renewing a lease on top of any other renewal fees and deposits, key money may be illegal. Key money may be legal in some states in specific circumstances (such as for commercial property, and then only when documented in writing).

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.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

New York State Homes and Community Renewal. "Renting an Apartment - Security Deposits and Other Charges."
California Civil Code. “Chapter 2. Hiring of Real Property."
U.S. Department of State. "Frequently Asked Questions: Living Quarters Allowance."
New York State Senate. "Section 180.55: Rent Gouging in the Third Degree."
New York State Senate. "Section 180.56: Rent Gouging in the Second Degree."