Often there are issues that attract legal analysis but are essentially commercial concepts. Key money is such an issue. In jurisdictions outside Thailand, ‘key money’ would be referred to as a ‘purchase premium’, ‘lease premium’ or some other form of additional payment relating to a property right over and above the general payment terms.

Often the question arises, what legal rights exist in relation to key money and in terms of statute in Thailand? The answer is none.

A typical example of where key money would be asked for would be the offering of a lease of a property or for the purchase of a business as an ongoing concern. Readers unfamiliar with such a concept should note that this should commercially exist where the demand for the space or goodwill existing in the business is high enough to justify the additional payment.

A typical way of calculating ‘actual costs’ of a lease including key money would be to divide the total amount of the key money by the months of
the term of the lease and add that amount to your rent to provide you with an idea of monthly ‘outgoings’ on the property.

Although key money is paid in advance, that money must be recovered as part of your business plan. In relation to businesses for sale, if key money is to be paid over to a seller in relation to a restaurant, guest house, hotel, or any type of commercial enterprise, then without specific provision in the contract, there is no legal right for a buyer to recover the key money if what the buyer receives is clearly not what was envisaged at the point the key money was handed over.

To provide an example, if a seller promises that a business attracts a certain number of clients, users or customers generating enough goodwill to warrant key money, then such details should be attached to the contract.

An initial payment of key money could be provided for with a retention of monies held by the buyer or the buyer’s lawyers pending actual evidence of the estimated turnover (within fixed percentage margins of error), number of clients/users or other key indicators.

Any seller not confident regarding sales representations made or ‘sales puff’ will be wary of such a retention but, of course equally, a buyer must be prepared to take some risk and also responsibility for ongoing management of the business and a seller should not be expected to retain too much risk in the competence or otherwise of the buyer.

In relation to leases, key money can act as a premium when the property market (as it currently is in certain places) is buoyant and demand for space high. If a unit has been empty for some time then the new tenant should not be expected to make up for that fact by paying key money to a landlord.

In such instances in developed property markets, in order to encourage a tenant to move in, commercial landlords will offer ‘rent-free periods’ for fitting out or ‘reverse premiums’ which could be called ‘reverse key money’ – actually paying for a tenant to move in so that rental income is guaranteed.

The landlord could also offer other incentives, such as paying registration fees and taxes. Key money should therefore not be viewed as a legal right or a commercial standard but a variable part of negotiation which can either benefit the investor, buyer or lessee or alternatively the seller or landlord.

Desmond Hughes is a partner in Belmont Limcharoen.
Tel: +66 (0) 76 342 882-4
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desmond@belmontlimcharoen.com
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