The term "key money" is used differently in different parts of the world. It sometimes means money paid to an existing tenant who assigns a lease to a new tenant where the rent is below market. It sometimes means a bribe to a landlord. In other parts of the world it is used synonymously with normal security deposit

Security deposit

In the field of taxation, a deposit is not included as gross income to the receiving party until the depositing party chooses to apply the funds to purchase services. A 1990 ruling provides that a deposit differs from an advance payment because the depositing party has dominion over the funds and...

s, which are used to cover nonpayment of rent and excessive damage to a rental unit.

Japan

In Japan, is a mandatory payment to the landlord that is often the same amount as the original deposit (shikikin). However, reikin can be the equivalent of six months (or more) of rent, but is typically the same as one to three months of rent. This money is considered a gift to the landlord and is not returned after the lease is canceled.

In recent years, an increasing number of landlords and real estate agencies have begun to offer "reikin-free" rental housing.

Korea

In Korea, the key money system (as opposed to monthly rent or wolse) requires the lessee to make a deposit of about two-thirds the total cost of the leased property in lieu of monthly payment. The key money is returned when the lease expires. The key money deposit will not be returned before termination of the lease unless another lessee replaces the outgoing lessee.

Europe

In the United Kingdom, it is illegal for landlords to require key money.

In France a tenant that has a lease that is below market can assign that lease to a new tenant. The new landlord is required to accept the original rent from the new tenant. The new tenant essentially buys the lease from the original tenant. The capitalization factor is financial and strategic, depending on cost of money, importance of the site to the taker and the location of the site. The ratio used goes from 0 (poor locations) to 12 (top locations e.g. Champs Elysées). Remaining number of years of the contract has little/no impact unless it falls under the legal provision of déplafonnement du loyer, meaning the landlord is automatically legally allowed to ask for a new, market-rate rent irrespective of the rent paid so far.

United States

In the United States, it is illegal for landlords to require off-the-books key money. The terms of the written lease can be enforced in court. However, a cash bribe, styled as "key money," may be demanded in cities with strict rent controls. Because it is paid in cash

Cash

In common language cash refers to money in the physical form of currency, such as banknotes and coins.In bookkeeping and finance, cash refers to current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately...

, it can be very difficult to prove in court.

Generally in America, apartment leases are not transferable without the consent of the landlord. The primary exception is the right to rent a space in a mobile home park, which is frequently transferable, frequently rent-controlled, and frequently subject to French-style "key money" payments to the original tenant in the form of buying the current mobile home

Mobile home

Mobile homes or static caravans are prefabricated homes built in factories, rather than on site, and then taken to the place where they will be occupied...

 at an inflated price. The new tenant can then junk the existing, outdated trailer and replace it with a modern one while keeping the terms of the original lease for the land underneath it.

When renting commercial properties in which the premises already contains various trade-fixtures, equipment, electric, and plumbing (items typically left when a former tenant vacates), such items have a value above and beyond the typical rent for an empty "vanilla shell" premises. The Landlord would charge the Tenant "Key Money" in order for the Tenant to have the right to use and take over all of the existing equipment.

It is also common to require key money in the form of a security deposit. It is common for a landlord to require the equivalent of one or two months rent

Renting

Renting is an agreement where a payment is made for the temporary use of a good, service or property owned by another. A gross lease is when the tenant pays a flat rental amount and the landlord pays for all property charges regularly incurred by the ownership from landowners...

 as a security deposit to offset delinquent rent payments or damage to the property during occupancy. This deposit is held in escrow

Escrow

An escrow is:* an arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money and/or documents for the transacting parties, with the timing of such disbursement by the third party dependent on the fulfillment of...

 and is refunded when the tenant moves out, less any repair costs or unpaid rent. Though illegal, it is not uncommon for unscrupulous landlords to refuse to refund some or all of this deposit, instead keeping it for unneeded "cleaning" or "repairs." Landlord-tenant laws in the United States typically specify that a landlord must provide a detailed accounting of all deductions from a security deposit on request, and normally cannot charge for "normal wear and tear," such as replacing old carpets or painting walls that have not been painted for many years.

Australia

As per the Retail Leases Act 2003, key-money is a payment or benefit without true consideration

Consideration

Consideration is the central concept in the common law of contracts and is required, in most cases, for a contract to be enforceable. Consideration is the price one pays for another's promise. It can take a number of forms: money, property, a promise, the doing of an act, or even refraining from...

, expected from a tenant in order for a lease being granted, renewed or modified.