Protected Tenancy & Landlord-Tenant Law
Key Money in Israel —
What Every Landlord and Tenant Must Know
Key money (דמי מפתח) is a payment owed to a long-standing protected tenant when asked to vacate. Understanding the rules can save landlords from costly litigation and ensure tenants receive what the law guarantees them.
What Is Key Money and When Does It Apply
Key money is a payment owed to a long-standing tenant — usually one protected under the Tenant Protection Law or a long-term commercial tenant — when the landlord asks them to vacate the property. Its purpose is to compensate for the tenant's historic investment in the premises and for the below-market rent they paid over many years.
The concept originates in the era of rent controls, when thousands of Israeli tenants paid artificially low rents in exchange for security of tenure. When a landlord wishes to recover possession — whether to sell the property, redevelop it, or simply end the tenancy — the law requires fair compensation to the tenant for the economic value of the tenancy right they surrender.
Key money disputes are common in Jerusalem and other cities where protected tenancies dating from the 1950s and 1960s are still in force. Both landlords and tenants benefit from understanding their rights before entering negotiations — or before a dispute reaches the courts.
Calculating Key Money and Negotiating Departure
The standard legal benchmark for key money is one-third of the open-market value of the apartment or premises. In practice, a licensed real-estate appraiser is engaged to assess the property's current market value; the key money figure is then derived from that assessment, adjusted for the specific circumstances of the tenancy.
Landlord and tenant are free to negotiate a different amount. Landlords sometimes offer above the one-third benchmark to achieve a swift and certain resolution; tenants may accept a lower sum in exchange for favourable departure terms — a generous notice period, moving cost assistance, or a right of first refusal to re-rent. A negotiated settlement is almost always preferable to litigation, which can last years and incur significant legal costs.
If the parties cannot agree, either side may apply to the courts. The court will appoint an appraiser if necessary and determine the key money due. If a tenant refuses to vacate after a proper key money offer has been made and confirmed by the court, the landlord can pursue formal eviction proceedings through the Execution Office.
Frequently Asked Questions — Key Money in Israel
Answers to the most common questions about key money and protected tenancy
Need Advice on Key Money?
Landlord or tenant — get clear legal guidance before negotiating
Free initial consultation with Adv. Liron Elmaliach