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What is key money and do I have to pay it?

Key money is any sort of non-refundable benefit, usually money, paid in exchange for the granting, renewal, extension or assignment of a retail lease.

The Retail Leases Act 1994 prohibits landlords or their agents from asking for or accepting key money in relation to granting or assigning a lease. Lease terms that require the tenant to pay key money are void.

Anyone seeking or accepting key money is guilty of an offence and could be fined up to $11,000.

The tenant is entitled to recover from the landlord any key money paid or the value of any benefit accepted by the landlord as a form of key money.

Other payments

Key money is prohibited, but the landlord or agent is still entitled to receive payment of rent in advance, a security bond or some other bond or guarantee from the tenant.

The landlord pays the full cost of preparing the lease, including the mortgagee consent fee.

However, if the tenant wants changes to the tenant’s disclosure statement after returning it to the landlord or agent, the tenant may be required to pay for those changes.

When a tenant asks to assign a lease, the landlord can expect to have their reasonable legal costs paid. These costs are not key money because the landlord is not benefiting and is incurring costs that they would not incur except for the tenant’s request (assignment).

Leases with a lease period of more than three years, including any option period, must be registered. The tenant usually pays the registration fee.