Partner Jonathon Cohn Authors Article on “Key” Money Requirements in Nursing Home Leases
Health care partner Jonathon Cohn authored an article for California Healthcare News on nursing facility owners who lease beds in order to retain the asset and the requirement of most landlords for “key” money as a condition of the lease.
“Key Money is a form of payment made by the tenant to the landlord not included in rent which compensates the landlord for giving the tenant the keys to the commercial property. The legal basis for supporting the enforcement of key money obligations relates to the concept of goodwill in that the landlord is turning over a going concern for the tenant to operate. In other words, the landlord is transferring a viable operating business to the tenant which has an intrinsic value the tenant pays for in the form of key money. Currently, key money paid in connection with nursing home leases can vary from as much as $10,000 - $14,000/bed,” explains Jon.
He added “[i]n requiring key money as a condition of the lease, landlords (and tenants) must be aware of California Civil Code Section 1950.8 which requires that key money or other amounts required as of a condition of a commercial lease or non-residential lease of real property must be stated in the lease agreement. So while there may be good business reasons to deal with key money issues in ancillary documents, and while it may be expedient to do so from the perspective of drafting, buyer beware…or more to the point, landlord beware. If not in the lease, key money provisions are unenforceable and illegal,” concludes Jon.