Question 1

How does key money function in Florida lease transactions?

Accepted Answer

In lease transactions, key money functions as a market mechanism: it allows landlords to capture the premium value of desirable spaces beyond what base rent alone would provide, it allows tenants to secure competitive locations that might otherwise go to higher bidders, it compensates outgoing tenants for their investment in the space (buildout, goodwill, customer base), and it creates a barrier to entry that ensures only financially committed tenants occupy premium spaces. In Florida’s competitive commercial markets, key money transactions require careful documentation to protect both parties and ensure compliance with lease terms, assignment provisions, and landlord consent requirements.

Question 2

What due diligence should a Florida tenant perform before paying key money?

Accepted Answer

Before paying key money: verify the landlord’s ownership and authority to lease (check the county property records), confirm the lease terms are acceptable (key money should not be paid without a fully negotiated lease), inspect the space thoroughly (physical condition, building systems, ADA compliance), review all restrictions (use restrictions, exclusive use provisions, CAM charges), analyze the total occupancy cost (including key money amortization), research the market (determine whether the key money demand is supported by comparable transactions), confirm the space is properly zoned for the intended use, and review any existing violations or code compliance issues. Key money paid without adequate due diligence can result in significant financial loss if the space does not meet the tenant’s needs.

Question 3

What happens to key money if a Florida commercial lease is assigned?

Accepted Answer

Lease assignment and key money: the original tenant’s key money is generally not refundable upon assignment (it was a premium for the right to occupy the space). The incoming tenant may need to pay additional key money to the landlord (depending on the lease terms and market conditions), or may pay the outgoing tenant for the assignment (this payment to the outgoing tenant is separate from any key money owed to the landlord). The lease’s assignment provisions control: whether landlord consent is required (almost always yes in commercial leases), whether the landlord can charge a transfer fee, and whether the landlord can recapture the space instead of consenting to the assignment.

Key Money in Lease Transactions

Key Money in Florida Lease Transactions

Market Function

Tenant Due Diligence

Assignment

Related Terms

Barnes Walker Commercial Leasing

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