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Key deposit @ 50 X weekly rent - normal?

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  • Key deposit @ 50 X weekly rent - normal?

    I enquired about a retail property for lease. Owner says he wants a non-refundable, one off "key deposit" to the tune of 50 times the value of the weekly rent. In return he is going to throw in... nothing! Property is a sh*t hole and needs a total overhaul.

    Is this normal?
    “Our favorite holding period is forever.”

  • #2
    So that is essentially a year's rent in advance?

    cheers,

    Donna
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    • #3
      Yes. Plus the rent! So you could say double rent for the first year. He said it was for 'good will', but non-refundable!
      “Our favorite holding period is forever.”

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      • #4
        Seems OK to me. You going for it?

        (disclaimer - don't know if it is normal)
        www.3888444.co.nz
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        • #5
          We have a bit more due diligence to do but pretty keen. I just haven't had that before so wanted to check if it is above board. I'd want to sign a pretty long lease.
          “Our favorite holding period is forever.”

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          • #6
            Were you a negotiator in a previous life?
            Tax and trust lawyer

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            • #7
              As far as I know, it is legal for commercial.

              'Key money' was very common back in the 1970s for retail shops in high-demand areas like Queen Street and Hurstmere Road.
              Usually a reflection that many tenants are competing to get into that one property.

              The big question is - what will he do if you say that you will not pay it?
              Are there any other possible tenants available to the Landlord if you drop out?

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              • #8
                Originally posted by flyernzl View Post
                Are there any other possible tenants available to the Landlord if you drop out?
                Also, along similar lines - how long has it been available for?
                Premium Villa Holidays in Turkey

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                • #9
                  Key money lol. Haven't heard of that for decades. Robert Muldoon regulated against key money in about 1983 from memory but I suppose its lawful these days. There could be a tax ruling on it too.

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                  • #10
                    I have seen this once around 15years ago, but as others have said, it used to be a common charge a long time ago before our economy was deregulated in 1984.

                    Liquor licenses used to be the same. They'd sell for hundreds of thousands I think, simply because you couldn't get a new one so you had to buy an existing one, and then the shop would be a huge success because there were so few of them.

                    It's all down to how much you value the location. You could say to yourself, ok they want $x up front but if I have a 6 year lease then it's an extra $x/6 per year I'm paying on the lease. And is that worth it? Or can you get a much cheaper shop in a slightly worse location and be better off with that?

                    Or sell your stuff over the internet?
                    Squadly dinky do!

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                    • #11
                      I wouldn't go for that. Don't know the ins and outs of Commercial property but I wouldn't go for it regardless, if there's something else you could lease I'd go for that in all honesty.

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                      • #12
                        Originally posted by td91 View Post
                        I wouldn't go for that. Don't know the ins and outs of Commercial property but I wouldn't go for it regardless, if there's something else you could lease I'd go for that in all honesty.
                        x2...........

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                        • #13
                          I have heard of similar things happening recently, but usually as a trade off for something else and never not refundable. For example, the shareholders of the tenant company didn't want to give personal guarantees so instead agreed with the landlord to pay key money which was held in a independent stakeholder's account (essentially like a residential tenancy bond).

                          The rent must be very cheap for you to be thinking about this? Obviously we don't have all the background but on the face of what we do know I would agree with the others that you need to be cautious. Are there any unusual clauses in the lease particularly around your obligations or termination of the lease? Last thing you want is to pay this and then have the landlord turn around and try to cancel the lease (and then do the same thing to someone else).

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                          • #14
                            I've found out it's basically a monopoly situation. The landlord owns all the properties in the block of shops. There's not really any other options but to go through them. They know it and have pretty much said as much. "We can charge this amount and you have no choice so we will" is the attitude. We're still considering it but my gut is telling me... something. Maybe to take an early lunch today? There are a few other issues I haven't mentioned. One issue on it's own would be ok but factoring all together and reading the feedback here I think we'll let it go. There are other locations.

                            This is an interesting discussion given the uncertainty about key deposits though. Any legal eagles prepared to comment?
                            “Our favorite holding period is forever.”

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                            • #15
                              Originally posted by donthatetheplayer View Post
                              I've found out it's basically a monopoly situation. The landlord owns all the properties in the block of shops. There's not really any other options but to go through them. They know it and have pretty much said as much. "We can charge this amount and you have no choice so we will" is the attitude.
                              This puts you in a very weak position, now and in the future. He would have you over a barrel when you sign the agreement and later at rent review time, property maintenance etc etc.
                              Premium Villa Holidays in Turkey

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