If you are about to enter or renew a business lease, you may encounter a landlord who requests key money: money paid to secure the lease in addition to any rent, bond or payments for services.

However, key money is often — but not always, illegal. This article unpacks the issue of key money as it applies to retail and commercial leases in Australia.

What is Key Money?

Key money is defined in the retail leasing legislation of each state and territory. As each state and territory has its own retail leasing legislation, the definition of key money also differs. In general, ‘key money’ refers to benefits on top of the rent that the landlord requests from a tenant in order to grant them the lease.

However, all states and territories are similar in that they prohibit the landlord from accepting key money for a retail lease. However, key money may be legal for certain commercial leases, so it is important to determine if your lease is retail or commercial.

Is it a Retail Premises?

Each state and territory has its own definition of ‘retail premises’. To determine if you have a retail lease, you will need to compare the permitted use of your premises with the definition in the relevant retail leasing legislation. The retail legislation provides a certain level of protection for tenants.

 

State or Territory Definition of ‘Key Money’ Penalty for Landlord
Victoria Money or benefits received by the landlord for a lease, including to make amendments to renew or vary the lease. Tenant may recover the money with possible additional penalties imposed by the court.
Queensland Money or benefits provided to the landlord for the tenant to obtain a benefit such as being granted or renewing the lease. Fine of up to $10,000 and the tenant may recover the money.
Tasmania Money or benefits provided to the landlord for the tenant to obtain a benefit such as being granted or renewing the lease. Fine of up to $1,300 and the tenant may recover the money.
South Australia A premium relating to the grant of a lease. Fine of up to $10,000 and the tenant may recover the premium.
Western Australia Money paid on top of the rent to obtain the lease. The request is void and not enforceable.
New South Wales Money requested by the landlord for the tenant to obtain a benefit such as the grant of the lease. Fine of up to $11,000 and the tenant may recover any money paid.
ACT Any money paid to the landlord that is not for rent or other necessary payments such as bond or security deposit. The tenant can recover the money.
Northern Territory Money paid as a premium for the tenant to obtain the grant, extension or assignment of the lease. The tenant can recover the money.

 

What about Commercial Leases?

Commercial leases are all leases for commercial and industrial premises not covered by the retail legislation. As there is no other law prohibiting key money, landlords may request key money for a commercial lease if negotiated with the tenant.

This request can be for either approval of a new lease or renewal of a lease. The introduction of unfair contract laws may, however, make key money unfair for certain commercial leases.

The unfair contract laws apply to leases entered on or after 12 November 2016. This includes leases that are renewed or varied on or after this date. If the commercial lease contains a request for key money that is ‘unfair’, the clause will be void.

Unfair contract terms are those that:

  • cause a significant imbalance between the parties;
  • are not reasonably necessary to protect the legitimate interests of the party wishing to enforce the clause; and
  • would cause detriment to one of the parties if it were relied on.

Key Takeaways

Key money is illegal in retail leases, but may be legal in a commercial lease. If you are entering or renewing a commercial lease and a landlord requests key money from you, obtain legal advice to determine whether this is request is valid or whether it may be considered unfair.

LegalVision’s leasing lawyers can advise you on whether you should pay key money. Get in touch by calling 1300 544 755 or by filling in the form on this page.

 

Kristine Biason
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