What is Key Money in Commercial Real Estate?

[showtime]

I keep hearing the term key money from commercial real estate brokers. In old England back in the day, it was basically considered a bribe, perhaps to get the keys/access to a property? Essentially as a commercial tenant, you're paying for the use of stuff, like renting fixtures.

Does anyone have any color on this? My guess is this is more applicable for restaurants, if they want to take over a space / lease, and want to make use of the existing fixtures and equipment left over from the previous tenant. So then you'd have to pay this key money to the landlord to use it essentially. Right or wrong?

P.S. From what I hear, there are no neophytes in the restaurant business. Landlords will only want to lease to an experienced restaurateur, not a noob. For example, their ideal tenant is a sous-chef who's tired and fed up with not being an owner, and wants to start their own business. They probably don't want to take a risk with an investment banker who suddenly has decided that their passion is now cooking.

[Benny]

Key money may sound egregious, but it's not as bad as some of the other practices that used to go on. For example, in the 1980's commercial landlords would mark up tenants' electric bills by 30%, 50% or even 100%. Simply crazy.

Key money though? Makes more sense. If the previous tenant surrendered usable, intact kitchen fixtures for a restaurant, then why shouldn't the landlord charge a little something for the use of it by the next tenant?

P.S. If you're looking for a good deal as of this writing in 2019, I recommend checking out the Garment District in Manhattan. Because Hudson Yards is going up and Midtown East just got rezoned, there's not much that landlords in the Garment District can offer besides a lower price. As you can imagine, there are some pretty nervous landlords in that area. Maybe a good deal if you're worried about key money :-)