Key-money and assignments under the Retail Leases Act 2003 (Vic)

Section 23 of the RLA prohibits the landlord from seeking or accepting payment of key-money.  It is a penalty provision.

“Key-money” is defined in s. 3 of the RLA as:

money that a tenant is to pay, or a benefit that a tenant is to give, that is-

(a)            by way of a premium, or something similar in nature to a premium, in that there is no real consideration or no true consideration given for the payment or benefit (for example, it is so disproportionate to the benefit that it cannot be true consideration);

(b)            in consideration of –

…

(ii)            consent being given to the assignment of a lease or to the sub-leasing of the premises to which a lease relates.

This can catch landlords unaware.  In one case I was briefed in, a lift at the premises had been defective for some years.  The landlord refused to consent to the assignment unless the assignor agreed to pay for the repairs.  To allow settlement to proceed, around $60,000 of the sale price was put in the trust account of the assignor’s solicitor.  The deed of assignment also contained a promise by the assignor to make up any shortfall in the repair costs if the landlord was not obliged to conduct the repairs.

As discussed here, the tenant of a retail premises lease probably cannot be charged by the landlord for the costs of repair and maintenance.  The tenant also usually cannot be charged for capital costs under s 41 of the RLA.

There was a good argument that both the demand for payment and the promise to make up any shortfall was key-money and not only prohibited by, but is an offence under the RLA 2003.