The Leasing Hotline

Under California law, a landlord has no liability for damages when he merely requests “key money” (an upfront bonus payment made by the tenant in order to secure the tenancy); he may be subject to a penalty where key money is requested and paid by the tenant, and where the landlord subsequently refuses to state the amount of the key money payment in the resulting lease. Edamerica Inc., et al., v. Superior Court of the State of California for the County of Los Angeles; Kwan Jin Jung, Real Parties in Interest, B167449, Court of Appeal of California, Second Appellate District, Division Eight, Dec. 23, 2003.

Yeng Pil Ji and Kyong Ji operated a Korean restaurant through their company Edamerica. Edamerica entered into a written commercial lease with the Jungs in 1995. From December 2001 through March 2002, the Jis sought to obtain a new lease or extend their existing lease with the Jungs. The Jungs informed the Jis that they would neither issue a new lease nor extend the existing lease unless the Jis paid the Jungs $1 million in “key money.” The Jis did not pay the Jungs any key money and lost an offer from a third party to purchase their business because they did not make the key money payment and, as a result, had no lease to assign to the third party. The Jis sued the Jungs, claiming that the Jungs' request for key money was a violation of Section 1950.8 of the California Civil Code. The Jis sought damages for their business losses and a civil penalty of $3 million.