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Thailand Real Estate and Property: What Is Key Money?

Transcript of the above video:

As the title of this video suggests, we are discussing Thai property matters and real estate law, specifically one issue that I seek with respect to clients that have questions, especially foreign clients, that don't understand how things work here in Thailand with respect to property issues and long-term leases and rentals here; not even all that long-term, even year-to-year rentals, here in Thailand is the issue of “Key” money.  

Strictly speaking, and I should say as a practical matter, I only ever see this really come up with respect to commercial property especially commercial property having to do with food and beverage; so a bar and grill, restaurant type of things. You see this issue come up with respect to landlords on those kinds of facilities. 

What are we talking about? Often times, a landlord in Thailand will demand what is called "Key" money which is funds, generally over and above and set apart from the terms of the actual lease itself. This “key” money generally will be demanded in cash and basically the "key" money needs to be paid or the lease won't be signed and the landlord will not lease the property. As a legal matter, "Key" money is a nebulous thing in my opinion.  In theory, "key" money could be perfectly legitimate but it's been my experience, just as an observer, a lot of the landlords that demand "key" money tend to demand it over and above the terms of the lease, it tends to be demanded in cash, and therefore it's presumed that they're not paying any tax on that "key" money.  Again that's not exactly legitimate when it comes to issues involving the Revenue Department, but frankly that's kind of an issue for that landlord to deal with, not really the issue of the lessee. But that being said it is also just it is sometimes it's just a given and whether or not it's really fair, equitable or frankly even legal to demand this payment over and above the terms of the lease, as a practical matter the main result of the situation is if "key" money isn't paid, the lease isn't going to be signed.

"Key" money can be really problematic from the standpoint of taxes especially Corporate Tax pertaining to a given venue because again if it's all paid in cash and the landlord isn't declaring it, how can one actually write off that or how can a company actually write off those funds as a legitimate business expense; as a practical matter that's not possible. 

So the thing to take away from this video is Yeah, "key" money is if nothing else it may be a requisite evil, for lack of a better term, a necessary evil when doing business here in the Kingdom. But that being said, sometimes it is possible, it has been my experience that some landlords will go ahead and work “key” money into some sort of structure within a lease, if nothing else to provide a tax write-off to the given business or the given individual but I have also seen landlords who can be very stubborn with respect to the issue of "key" money and not be willing to go ahead and provide any sort of record of that transaction.  

So it is probably a good idea to seek legal professional advice on this issue, understand the situation and in some cases where it's just an untenable set of circumstances, maybe it's a good idea to just move on down the road and look for a landlord that isn't making such demands.