The Definition and Legality of Key Money
Trying to rent a home in New York City can be a hassle. You’ll need to find a borough to live in, browse through the spaces available, make sure what you’re signing is not a scam, and dread the looming rent surges in an almost-post-COVID world.
Many looking to rent in NYC are probably familiar with a broker’s fee, which is a commission a real estate broker is paid to provide their services. These services include finding tenants to live at a place on behalf of a landlord or overseeing the closing. The fee that is charged can range from one month of the rent to 15% of the annual rent, which can become pretty hefty. But we’re not talking about legal fees that renters are required to pay. A term that probably doesn’t come up much anymore is “key money.” So, what is key money?
What is Key Money?
Key money is when a landlord asks for extra money on top of what you are paying to secure an apartment. These transactions are usually a hush-hush deal between the landlord and the tenant. In some ways, it’s like a deposit that a renter would have to put down to secure their unit, but in other ways, it can be considered a bribe, and therefore not legal. This practice is illegal because only licensed real estate brokers are allowed to collect commission for a rental. Key money is usually demanded verbally and is hard to challenge without witnesses or evidence.
But why do some people even agree to this kind of bribery? Normally, key money is served as a settlement for a lease that holds a particular value. If a rental was available for a good deal, the management might take advantage of that and ask a potential tenant for key money up front in order to guarantee their spot for the apartment. While this kind of bribery definitely still happens throughout NYC, it has become less frequent and even less reported, unless there is some sort of argument between the landlord and tenant. Today, this practice is most commonly seen in the restaurant business. Business owners will try to sell off the remainder of their lease in order to redeem some of their investment.
How to Protect Yourself as a Renter
One of the bigger complaints people have about renting a property in NYC is bumping into scammers. Here are some tips on what to look out for before signing a lease.
- Watch closely for fraud
One of the top rules when apartment renting in NYC is that if it looks too good to be true, it most likely is. Instead of blindly getting into contact with a rental that looks and sounds amazing, look for details like an exact address. Go into all the details like cross referencing photos on Google Street View, verifying the price and amenities listed, and if there’s an onsite leasing office, calling them immediately.
- Warding off competition
If you have found a great (legitimate) place, you will most likely have a lot of competition. Remember that crazy TikTok from last year showing a crazy long queue just to see one apartment? You might see that. In order to impress the landlord, you can arrive with a credit report and even a list of references and their contact information.
This is the part where you might have to watch out for a key money bribe. Make sure you are getting a clear view of what you’re expected to pay up-front. Note what is legal and illegal.
- Reading through the lease
If you are offered a lease to sign, it is so important to go through every single detail. A lease isn’t like the 200 page Terms and Conditions from Apple. A lease will contain all the details like what you are paying for, utilities that come out of your own pocket, deadline for rent each month, special building rules (includes guests, pets, etc.), what happens if you break the lease, how you can renew the lease, or if you can sublet your apartment.
It’s also good to note what kind of rights your landlord has to access the apartment. If it’s not included in the lease, ask for wording that limits the way your landlord can enter your apartment.