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macleod101

What Is Key Money?

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i really can't make head or tail why if i want to rent a unit and i'm thai posting under my husbands name, why i should need to pay key money. is it a deposit which is refundable, i had no idea about this.. :o

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i really can't make head or tail why if i want to rent a unit and i'm thai posting under my husbands name, why i should need to pay key money. is it a deposit which is refundable, i had no idea about this.. :o

Hi, if you are talking about renting a condo or a similar place to live in the deposit is to cover the water, electric and phone bill. It is to cover the owners risk of what you use over the month. A good example would be like this: Rent for condo 1 Month 10,000 baht, deposit 5,000 baht. At the end of the Month you run up 3,000 baht of bills so when you move out you will pay the 3,000 baht from your deposit and then get 2,000 baht back.

If you are talking about a business then it is a different story, I hope that helps.

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im talking about a businesss, i understood it to be the same for property leasing and commercial leasing, in another thread it was expected that i had to have 800000baht for key money, this sounds ridicoulous

thganks for your help

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Key money is very rare here, but common in places like New York. Of course, I can't say for certain that the term is being used the same way here either, but I can tell you what it means out there in the real world.

Key money is NOT a deposit. You do NOT get it back. It is simply a payment you make for the privilege of signing a lease.

Key money is commonly charged in New York, for example, when you sign, say, a sublease at a favorable, below-market rate. The leasor in effect 'sells' you the right to the below-market rate by charging you key money. The right to sign the favorable lease has a tangible value, so the owner charges for it as he would any other property right. It's that simple.

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im talking about a businesss, i understood it to be the same for property leasing and commercial leasing, in another thread it was expected that i had to have 800000baht for key money, this sounds ridicoulous

thganks for your help

In that case it is for goodwill or because it is in a prime location. I can't speak for your precise business but farangs who purchase bars for example nearly always have to pay key money.

It works like this, a bar is full every night, everyone can see it is doing well. This puts a premium on that bar because it is an established business with plenty of customers. It is not uncommom for such a business to be sold on to a new buyer with say a 1 million baht key money tag. Then you have to pay rent on top.

You can get that money back if you sell it to someone else and maybe you can even sell it for more but you never own it. If your lease runs out in 3 years for example and the Thai owner wants to bulldoze that land then you will lose that key money because that business is no longer worth anything.

If it is an empty building then you can be sure key money is being paid because it is in a prime location. Key money is negotiable.

There are professional business advisers around like Sunbelt Asia who can better advise you than what I can but this is a rough guide. Good luck.

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One way of looking at key money is this:

A commercial lease of a premesis is 10M baht for 5 years, it may consist of 5M key money and 1M per year. It is not a refundable security deposit. High key money lower rent. It becomes an asset as part of the business. Key money is negotiated as part of every commercial lease and renewal I have seen on Thai business web sites.

Another thing to appreciate is that it is not uncommon to have t to pay to total lease money up front. There are businesses available with a 25 year lease pre paid. This is not uncommon in the larger shopping centres.

Ask Greg from Sunbelt Asia or a suitable proffessional in the area to help, as much of these numbers can be negotiated.

If I remember correctly leases over 3 years can be registered with the land department, which gives better security of tenure, and makes the lease an asset.

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im talking about a businesss, i understood it to be the same for property leasing and commercial leasing, in another thread it was expected that i had to have 800000baht for key money, this sounds ridicoulous

thganks for your help

In that case it is for goodwill or because it is in a prime location. I can't speak for your precise business but farangs who purchase bars for example nearly always have to pay key money.

It works like this, a bar is full every night, everyone can see it is doing well. This puts a premium on that bar because it is an established business with plenty of customers. It is not uncommom for such a business to be sold on to a new buyer with say a 1 million baht key money tag. Then you have to pay rent on top......

If someone is actually using the term that way, they are not using it correctly.

Key money refers to a payment for the assumption or signing of a lease agreement ONLY. If you buy a bar, you will be buying an operating business. You will sign an agreement to purchase the business, which will include a negotiated price for the fixtures, inventory, and good will. The agreement will also provide for your assumption of the lease for the property in which the bar is operating. If the agreement provides for the payment of key money in connnection with the lease assumption, that is different from the purchase of the business's good will.

Look at it this way. It doesn't matter whether you pay for the premises in rent or key money. What matters is what the leased premises cost you. Twelve months rent at, say, B10,000 per month plus B120,000 in key money ads up to B240,000 for the year. That's exactly the sample as paying B20,000 per month and no key money.

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Key money is a gratuity paid by a prospective renter to a landlord before he or she can move into a property. The term "key money" applies almost exclusively to Asia. In the United States, it is illegal for landlords to require key money. However, prospective renters who are willing to pay more for a property often pay. “Key money” is non-refundable to the renter and is not illegal in Thailand as long as the Landlord pays tax on this gift. How much key money needs to be paid depends on how good the location is.

Usually, landlords use one of two methods when renting out places: either they require key money – which means a lower monthly rent – or they ask for a deposit, which entails paying a higher monthly rent, but at least you get the deposit back (minus any charges for damages).

www.sunbeltasiagroup.com

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Key money, which is very common here, is a way asset owners use to make sure they get as much money in advance as possible, thereby minimizing the losses in case the tenant closes down his buisness or just defaults on his payments.

One can say that the proportion of key money reflects the balance (or lack of) power between the owner and the tenant. More money in advance pratically means more control and bargaining power over the tenant.

Twelve months rent at, say, B10,000 per month plus B120,000 in key money ads up to B240,000 for the year. That's exactly the sample as paying B20,000 per month and no key money.

This is not exactly the same, due to reasons I mentioned above, in addition to:

1. The greater finance burdon for the tenant. If you expect to make 25,000 baht a month income from that asset, you can easily pay 20,000 a month (ignoring other expsenses). On the other hand, you might not have all the required key money before you start operating.

2. The Time Value of Money. With today's interest rates, one can get over 6% interest a year in risk-free deposits. In your example, the owner can start earning the interest on a full year's rent in advance, on the expense of the tenant of course.

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“Key money” is non-refundable to the renter and is not illegal in Thailand as long as the Landlord pays tax on this gift.

Correct, but unfortunetaly in practice there are plenty of cases this is indeed a tax-free "gift" which is not reported as income and without a formal receipt for the tenant.

Usually, landlords use one of two methods when renting out places: either they require key money – which means a lower monthly rent – or they ask for a deposit, which entails paying a higher monthly rent, but at least you get the deposit back (minus any charges for damages).

Yes, and some landlords ask for BOTH key money AND deposits.

Edited by ~G~

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Correct, but unfortunetaly in practice there are plenty of cases this is indeed a tax-free "gift" which is not reported as income and without a formal receipt for the tenant.

We strongly advocate for someone to report any "key money" expense and demand a receipt. The key money transaction should be justifiable and transparent in every stage. Please bear in mind that if someone does not report this expense, they are involved in tax evasion and even money laundering if you cannot justify the amount of money in the key money transaction. You can not say “My money was just lost in thin air”

If the only way around this, is to pay the income tax the Landlord would need to pay and you still find the expense is reasonable. Do so as long as you get the receipt.

www.sunbeltasiagroup.com

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Key money is very rare here,

Incorrect. It's actually the basis of a huge number of rental agreements.... for example: nearly all of the rental shops in Pratunam, Chatuchak, and every single Mall and Central department store plaza area employ it.

Key money is NOT a deposit. You do NOT get it back. It is simply a payment you make for the privilege of signing a lease.

Correct. More commonly known locally as "seng." Can be used as a verb or a noun. It allows for faster break even points for building/real estate investments and it allows those who don't have large amounts of capital to buy or rent (for high rent areas) retail space to make a living.

:o

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If the only way around this, is to pay the income tax the Landlord would need to pay and you still find the expense is reasonable. Do so as long as you get the receipt.

Either that or otherwise people pay it from their own pocket, not from company's cash. Both ways practically mean you pay their tax.

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Key money is NOT a deposit. You do NOT get it back. It is simply a payment you make for the privilege of signing a lease.

Correct. More commonly known locally as "seng." Can be used as a verb or a noun.

I always though the Thai word is "Ginpao"? :o Is there a difference?

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Key money is NOT a deposit. You do NOT get it back. It is simply a payment you make for the privilege of signing a lease.

Correct. More commonly known locally as "seng." Can be used as a verb or a noun.

I always though the Thai word is "Ginpao"? :o Is there a difference?

Ginpao would be the vernacular. Most folks that would use the term 'ginpao' among themselves would also use the term 'seng' when dealing with the landlord.... since 'ginpao' implies that the landlord is "eating for free" when in reality all he did was amass the capital to purchase whatever the tenant wants to 'seng,' whereas the tenant did not.

:D

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