Business Brokers Consultants is never a business that’s shy of tackling controversial issues and the subject of “Key Money” has certainly had its critics, but for many it’s just part and parcel of the purchasing process and they brush over it.
So it’s about time we put the record straight and dealt with it, and that’s exactly what we will do in this insightful blog.
What is key money
So some of you might not know, but most of you will not sometimes when you look to lease a property in Thailand, you will be asked for Key Money.
This is besides the security deposit, but the outcry from ex pats regarding this Thai practice is not what it always seems.
The subject of key money always promotes discussion, but it is not that hard to understand. Basically, key money is an upfront payment of rent to the owner of the building in return for a lower monthly rental payment.
There are those out there that assume this is a greed tactic or some form of tax avoidance, but the truth is very different.
Not all landlords charge key money, and it can often be negotiated. It is more common in the nightlife and tourist industry sector, but that may well be because of a landlord’s previous experiences with tenants.
Remember, this is not your security deposit, that is lodged separately and is returnable. Yes, the landlord benefits from an upfront rental payment, but the tenant benefits from a lower monthly rent, which in a lot of cases is useful to the start-up cash flow.
As one of the largest and most successful Business Brokers in Asia, we have dealt with business sales that feature key money or don’t. Either way, it is about what works best for you as the prospective business owner.
Is Key Money an Extra
No, it’s not, and the calculations are very simple. A landlord may decide to charge key money in exchange for a reduced rent per month. So, taking a simple scenario like this, you can see how it would work.
The landlord has advertised the business rent at 100,000 baht a month rent (1.2m a year or 3.6m every 3 years). The landlord has decided to charge 1.4m in key money every 3 years and has reduced the monthly rent to only 60,000b.
So there is no extra charge. The option keeps the costs the same over the three-year lease period.
Some Landlords prefer the key money alternative because it guarantees their income, even if the tenant decides or has to terminate the lease early. In some cases, it is better for the incumbent tenant as it makes the monthly rental commitment a little easier to meet as a startup business.
As professional Business Brokers in Asia, BBC will advise you on the pros and cons of both options and discuss your ongoing budgets with you to make sure that everyone’s happy and you are in the best position to enjoy your new business.
The internet is a great tool in many areas but can also be dangerous. There is sadly lots of unsubstantiated and ill-informed information about buying a business here in Pattaya.
Always talk to experienced professionals who can offer legal and contract services.
You are moving here to live the dream. Make sure you start things right with Business Broker Consultants, your premium Business Brokers in Asia.
“If you can dream it, you can do it.”
- Walt Disney