Key Money Is Illegal In Thailand?

[enemedin]

Hello everyone

I found myself in a bad position yesterday morning, when i tried to renew the contract for another 3 years.

The owner Thai asked me for key money.

My wife was sure that there was no mention of any key money in the previous contract that we signed two years ago, however we read it again and the owner, clearly said to us, that Key MOney is illegal in pattaya, therefore it cannot be written. We must just pay up or leave.

Now we took this business already with two years left on the contract, and we paid the money to the previous owner to purchase the business with all furnitures and equipment, and righlty signed the contract with the Thai owner, two years ago.

The lawyer who handled all the papers for us, did not tell us that there was any key money to be paid, on expiring of the contract at the end of January 2009, nor the Thai owner.

When we asked him why he did not tell us, he simply told us that the lawyer should have told us; We asked to the lawyer, and she said that the thai owner, did not mention it to her too....

We have invested so much into this business and just to let it go like that, it will be really a severe loss.

We are lost and we please need urgent advise, on how to deal with this matter.

Key money is illegal in pattaya or not ? Why is not written on a contract ?

Some of my mates did not pay any key money for their business, some others paid only one time, and when they renew the contract they only keep on paying the rent.

Is that possible that some Thais can be so ruthless with farangs, trying to squeeze their wallet thinking that we are living walking Atm's?

Key money is not the same for everybody, indeed when some thais went to ask how much would it be to rent the business and how much key money to be paid, surprisingly our same Thai owner told them that the price was just half of the one we should pay now.

We then went back to the Thai owner, and reported this to him, and he nervously said to us, that we should be careful in pattaya, cos to be against thai people is dangerous, etc ... not to mention all other details that cannot be written here.

The full story about the lawyer, is that she used to be an accountant, and she decided to be a lawyer, cos she makes more money.

In pattaya anyone can be a lawyer right ? you just need few contacts is it ?

Worhty taking to court, the Thai owner, and my previous so-called lawyer for not telling me the full story ?

Any advice greatly appreciated.

Thank you

[Gary A]

The same thing happened to a friend of mine. He ran the business for three years and when he wanted a new lease, he was asked for key money. He too didn't know that would happen. The owner would NOT back off and my friend ended up leaving.

[TheWalkingMan]

I really don't have any advice, but I hope you are able to workout something for yourselves.

Many businesses pay key money with each contract renewal. I have seen this on many businesses offered for sale with the business brokers. The adverts will say something like: Rent of xxx baht, contract of 3 years and key money of xxx is due with each new contract. Or some say key money is due each year of xxx. I have always presumed that it was legal.

Maybe the key money is not written into the contract for tax purposes? Unfortunately it seems like contracts are not worth the paper they are written on. In some cases the owners just do what they want and the tenant is left out in the cold.

Your lawyer was an accountant and changed to a lawyer? Are you sure she is a lawyer?

Double pricing at it's finest. Charge the Thai person half that of a non-Thai.

Finally, typical riff-raff thinking with the landowner. Place the facts in front of his face and the threats come out. Clown.

TheWalkingMan

[lannarebirth]

The paying of key money is a tax avoidance sheme by the landlord. If you operate a business and have to account for all expenses when paying your own taxes you should either demand a receipt for the key money or ask for an apportioned raise in rent that reflects the key money demanded.

[123ace]

I agree that it probably a tax issue with the owner. It is not illegal as far as I am aware as a 'lease premium' or 'goodwill' 'key money' payment is relatively common and has no or little bearing on economic reality. It happens with school entry fees in much the same way here although termed as something else.

Can you be more specific about what the 'business' is? since if you are just renting premises from this party it may be best to just relocate and put a lot more attention in to securing a better deal at a new location.

Whilst this up front payment may be expected at a new site, many landlords are sitting on empty units as Pattaya is awash with these shophouses (mostly derelict) and you can quite easily remove all your fixtures and fittings and transplant them elsewhere.

Threats in Pattaya are to be expected, and take heed as they can be obstructive in many ways (cutting electricity, smashing windows etc) and you will have little or no recourse. Suffice to say that you will not likley ever get your deposit back now or in another 3 years, so factor that in to any decsion you make at this stage.

[Hugin]

Hi mate

I dont understand how you can be so surprised over the key money " extra pay" - that is how it is - yes off course its a rib off policy in this country . rib foreigners for so much money as possible and dont care of anything, or use of threaths are common.Get money from others without work is standard.After waht I heard -anyone can call themself a laywer without any education but I dont now if its true

I dont really understand why so many are still investing here.. we are not wellcomed - only our money.There are other place we are more wellcomed in this region.

[enemedin]

I agree that it probably a tax issue with the owner. It is not illegal as far as I am aware as a 'lease premium' or 'goodwill' 'key money' payment is relatively common and has no or little bearing on economic reality. It happens with school entry fees in much the same way here although termed as something else.

Can you be more specific about what the 'business' is? since if you are just renting premises from this party it may be best to just relocate and put a lot more attention in to securing a better deal at a new location.

Whilst this up front payment may be expected at a new site, many landlords are sitting on empty units as Pattaya is awash with these shophouses (mostly derelict) and you can quite easily remove all your fixtures and fittings and transplant them elsewhere.

Threats in Pattaya are to be expected, and take heed as they can be obstructive in many ways (cutting electricity, smashing windows etc) and you will have little or no recourse. Suffice to say that you will not likley ever get your deposit back now or in another 3 years, so factor that in to any decsion you make at this stage.

HI and thank you for reply.

It is a Restaurant on which i have spent 2 mil baht to renew two years ago.

I guess will be best to pay the key money and try to sell the business to someone else, recoverig what is possible.

I told him this morning that i might pay the key money, in the next two or three days, but i will also try to sell the business to someone private and then the new "Buyer, Business owner" will sign a new contract with the thai owner.

This Thai owner, wants to know how much i want to sell it for, and when i told him 2 mil baht, he said to me he will give me 500,000 to get out of of the restaurant.

Very strange, he must have understood that he can sell it for more.

[enemedin]

Hi mate

I dont understand how you can be so surprised over the key money " extra pay" - that is how it is - yes off course its a rib off policy in this country . rib foreigners for so much money as possible and dont care of anything, or use of threaths are common.Get money from others without work is standard.After waht I heard -anyone can call themself a laywer without any education but I dont now if its true

I dont really understand why so many are still investing here.. we are not wellcomed - only our money.There are other place we are more wellcomed in this region.

Sorry to ask you, but where is that we are more welcomed in Thailand ? I have heard oh Udon Thani, is that true ?

many farangs there....

At the time i did invest, cos it looked so cheap to buy only 600,000 baht. I managed to make some money during the high season, and then i spend again all those money during the low season, keeping on paying staff , rent, electric, and company borisat 8,000 per month, not mentioning social security and all other expenses that all of us have.

[enemedin]

The paying of key money is a tax avoidance sheme by the landlord. If you operate a business and have to account for all expenses when paying your own taxes you should either demand a receipt for the key money or ask for an apportioned raise in rent that reflects the key money demanded.

He will not give receipt for that he said ....

[dmax]

your being screwed by this bas***d, why didnt you go to a reutable law firm like mcenzie smyth in pattaya ? too late now for that. he obviously wants to sell it on and get you out, i would tell him that you can sell it on for 2.5 mill and try get him to give you 1 mill to get out rather than giving him the key money and trying to sell it on yourself, the chances of anyone buying it are very slim in the current climate so you can get out now or have another headache for 2-3 yrs then pay more key money by which time this bas***d will probably increase it as he knows you paid up the last time.

[MegaRanter]

My advice.

If after you have exhausted all means to avoid paying this key money and still has to because you cant walk away. Ask the landlord to allow you to space out the payments, like 5 times over the course of the contract/lease. I believe he would agree.

Goodluck.

[123ace]

Does the landlord expect to get the fixtures and fittings for THB 500k?

I would look at simply relocating the contents to another shop, and assuming you have sufficient lease time left, let the landlord know you have been 'offered' a great deal somewhere else (but have not accepted any offer) and he will only get a bareshell back if you move. The bareshell is worthless to him as the 'goodwill' was created by you.

Have your wife go to the landlord complaining that you can move but she does not want to. Ask for him to help by reducing the key money, as she needs to play that she prefers to stay but you have great offer and the whole situation has changed - and you are the decision maker. I suggest you do not meet the landlord directly and agree now the future renewal basis after 3 years lease not 2.

It will be hard to sell the business without the landlord signing a new lease with the new tenant - he will want his share at that time and it will likley prevent a sale & transfer of the business contained within the shop.

[LivinLOS]

I fail to understand your complaint..

Your lease is out, correct ?? Now unless it is contractually agreed previously, your new lease can be anything.. It can be a billion baht or a satang.. Its down to the land owner or sub leasee.. Does this surprise you ??

In fact I am stunned hes offering you 500k to leave, most here would just raise the price and have you walk, I guess it must have >500k worth of fixtures and fittings.

This is normal standard biz practice.

[manjara]

My advice is to find another place to rent and then take everything from the old place over there. We moved an entire shop for less than 50k, so unless your key money is lower than that, just move.

As he is Thai, he will not see reason or logic and he will not 'cave-in' after you go. In my experience, they are willing to let places stand empty rather than lose face, i.e. back down.

If you are not making money where you are, then probably best to move anyway.

Where we were, the owner wanted to sell us the property, for an extortionate amount. We declined so the owner then said that they had someone who wanted to buy and we would have to move. My wife said, 'fine, go ahead and sell if you can!' and we moved everything, leaving a bare shell.

Their 'sale' fell through, if it ever existed, and the place has been empty for 2 years now. It is effectively owned by the bank now as there is more loan than the place is worth, but no-one acts on these places, so they just sit there waiting for property prices to outstrip interest payments.

I wonder how many of these places are owned by the banks with no chance of the owners repaying the debt, even if they sold?

[123ace]

I fail to understand your complaint..

Your lease is out, correct ?? Now unless it is contractually agreed previously, your new lease can be anything.. It can be a billion baht or a satang.. Its down to the land owner or sub leasee.. Does this surprise you ??

In fact I am stunned hes offering you 500k to leave, most here would just raise the price and have you walk, I guess it must have >500k worth of fixtures and fittings.

This is normal standard biz practice.

I agree, on the basis that the current lessee has no right of renewal - this has not been clearly established.

I assume that it's a shophouse and not in a centre, therefore it's a commodity in over-supply (notwithstanding we don't know where it is) and the landlord would not be able to replicate the current business without the 2m in fixtures & fittings, and by retaining the Chef (possibly the OP?) as such he is probably better with the existing tenant staying put and negotiating a fair deal. I imagine he would face a bareshell mess once vacated as the lease will hardly have a repairing clause and a long void period before he can replace the tenant.

[Colabamumbai]

Hi mate

I dont understand how you can be so surprised over the key money " extra pay" - that is how it is - yes off course its a rib off policy in this country . rib foreigners for so much money as possible and dont care of anything, or use of threaths are common.Get money from others without work is standard.After waht I heard -anyone can call themself a laywer without any education but I dont now if its true

I dont really understand why so many are still investing here.. we are not wellcomed - only our money.There are other place we are more wellcomed in this region.

Sorry to ask you, but where is that we are more welcomed in Thailand ? I have heard oh Udon Thani, is that true ?

many farangs there....

At the time i did invest, cos it looked so cheap to buy only 600,000 baht. I managed to make some money during the high season, and then i spend again all those money during the low season, keeping on paying staff , rent, electric, and company borisat 8,000 per month, not mentioning social security and all other expenses that all of us have.

Remember in Thailand you only get what you pay for and less, there are no good deals "It Looked cheap to buy". There is your answer.

[gardening9966]

The same thing happened to a friend of mine. He ran the business for three years and when he wanted a new lease, he was asked for key money. He too didn't know that would happen. The owner would NOT back off and my friend ended up leaving.

Don't give in to them. They are robbers.Stick to your rights. Don't be afraid if you DID NOT BREAK any laws there.Contract is contract , anything out of the contract is not admissible in court.You have all the rights to the arbitration courts.I have been "robbed" by 2 female "friends" in a space of 10 years and lost 700K in cash and vehicles to each of them just because I am easy going and trust people easily.Now and if ever i meet somethiong like that I bring them to court.Get a good and well known lawyer in Bangkok and teach them a lesson.

[surayu]

Really sorry for your eperience, go and read back what you previously signed, then work out what you can take away with you to a new location and try to leave the landlord with as less as possible of your hardly earned cash, next time expect similar "tricks" or even worse from the new landlord, never assume they are going to be honest or have any sort of morality, they like to live cheating others and you learned up the hard way, good luck mate!

[Penkoprod]

Don't give in to them. They are robbers.Stick to your rights. Don't be afraid if you DID NOT BREAK any laws there.Contract is contract , anything out of the contract is not admissible in court.You have all the rights to the arbitration courts.I have been "robbed" by 2 female "friends" in a space of 10 years and lost 700K in cash and vehicles to each of them just because I am easy going and trust people easily.Now and if ever i meet somethiong like that I bring them to court.Get a good and well known lawyer in Bangkok and teach them a lesson.

The point you seem to be missing is .......the contract is expired and the OP is (was?) in the process of negotiating a new contract, and has just discovered one of the many pitfalls that non Thais come up against when trying to run a business in Thailand.

The previous purchaser of the lease could well have paid this "key money" to the Thai owner of the place, for all we know (and probably did) without the OP either knowing, nor caring. A case of "buyer beware" if ever there was one

Your rant at the end has no relevance to the topic......but its good to get it off your chest, huh?

Penkoprod

Edited February 2, 2010 by Penkoprod

[chiang mai]

It certainly sounds as though stripping the place and moving to a new location is a serious option, the owner would lose much and that may improve your bargaining position.

[britmaveric]

Well your lease is up? The owner has the right to change the terms for the new lease. You either agree to the terms or leave.

[enemedin]

your being screwed by this bas***d, why didnt you go to a reutable law firm like mcenzie smyth in pattaya ? too late now for that. he obviously wants to sell it on and get you out, i would tell him that you can sell it on for 2.5 mill and try get him to give you 1 mill to get out rather than giving him the key money and trying to sell it on yourself, the chances of anyone buying it are very slim in the current climate so you can get out now or have another headache for 2-3 yrs then pay more key money by which time this bas***d will probably increase it as he knows you paid up the last time.

Yes indeed; I know it can be sold for at least 2,2 mil baht . I have had some viewing about 9 in two months and all english and russian investors. The owner is aware that it can be sold for that price. Law firm in pattaya you mean can help ? too late now ? not sure when it comes to law in pattaya, thais seem to agree between each others very easily when it comes to deal with farangs.

sorry about that ! not all thais of course are like that, but experience and talkings between mates gets you a bigger pic of whats going on here. This seem to be the only country where the people seem to be joined against the enemy "The Farang" why we became so unwelcomed in this country is still a mistery. have been travelling all over the world, Brazil, cuba, spain, venezuela, Italy, philippines ... and after few months you live there, you seem to mix very well with people, and they forget you are a foreigneier ... people call the german man .. by name, or simply the German man, or call the english man... the english man ... but in this country no matter how kid you can be, am always called the Farang. i choose to live here, so now not much complaining about it, thats life i guess.

[enemedin]

I fail to understand your complaint..

Your lease is out, correct ?? Now unless it is contractually agreed previously, your new lease can be anything.. It can be a billion baht or a satang.. Its down to the land owner or sub leasee.. Does this surprise you ??

In fact I am stunned hes offering you 500k to leave, most here would just raise the price and have you walk, I guess it must have >500k worth of fixtures and fittings.

This is normal standard biz practice.

Hello

my lease was for three years, and now almost expired.

Only surprises me that the landlord did not tell me before that there was key money to be paid at the end of the three years. more over i took over the lease with only two years left. the previous lessee paid only very low amount of key money to the owner, because she was a thai herself.

Before taking over i went to speak with the business owner first, and asked the price, then asked to speak with the landlord to make sure that he was the owner of the land, then asked for a contract, then asked if there was any key money to be paid to get in.

My lawyer (so-called) handled the documents, and i felt much better to feel protected by her, as she is quite well known in pattaya, handling practices for many rich business men living here.

The contract was in Thai, and my wife can speak good english therefore she translated for me, just to make sure that all was written according to the terms that we agreed verbally before hand.

Yes the fixtures and fitting are worth over 500k . am selling the business with all equipment inc.

[enemedin]

Don't give in to them. They are robbers.Stick to your rights. Don't be afraid if you DID NOT BREAK any laws there.Contract is contract , anything out of the contract is not admissible in court.You have all the rights to the arbitration courts.I have been "robbed" by 2 female "friends" in a space of 10 years and lost 700K in cash and vehicles to each of them just because I am easy going and trust people easily.Now and if ever i meet somethiong like that I bring them to court.Get a good and well known lawyer in Bangkok and teach them a lesson.

The point you seem to be missing is .......the contract is expired and the OP is (was?) in the process of negotiating a new contract, and has just discovered one of the many pitfalls that non Thais come up against when trying to run a business in Thailand.

The previous purchaser of the lease could well have paid this "key money" to the Thai owner of the place, for all we know (and probably did) without the OP either knowing, nor caring. A case of "buyer beware" if ever there was one

Your rant at the end has no relevance to the topic......but its good to get it off your chest, huh?

Penkoprod

Yes it is good. this forum is the only greatful way to understand something more, from other people ,,,, and the comments added to the thread, are just to make it more colorful and put in the real feelings of the moment. monaning and winging a bit ? let it be mate !!

Whether i get off my chest or from somewherelse, you know what they say, " That art Thou "

whatever happen to one ......... is good to know cos might happen to others to.

am sorry if my talking seem to be against thais, its just i did not expect the famous "Land of smile" to be like this.

and anyway i just report what happened to me. i have also met some great thai people, unfortunately have to say not in pattaya, but i did meet them.

[quiksilva]

The concept of "key money' has really been abused in Thailand.

Originally this was meant to be a payment made by one tenant to another existing tenant to give up their location.

Hence the term 'key money' as it was used to open the door on a prime location, which would otherwise not be available because shops in prime locations tend to have the habit of making money and rarely close their doors. Therefore some of the major retailers who really wanted to be in a certain spot were prepared for it.

So key money never went to the landlord, who in mature markets would be satisfied with the very high rents and deposits that such locales can command, due to the favourable trading environment. It was certainly not paid at the end of a lease.

What you might have is a situation where someone else wants the space, and perhaps are paying the landlord not to renew your lease. If this is the case then they are unlikely to back down, insisting that you match their 'key money'.

In any event such a payment should be subject to a contract and be taxable.

[Penkoprod]

Yes it is good. this forum is the only greatful way to understand something more, from other people ,,,, and the comments added to the thread, are just to make it more colorful and put in the real feelings of the moment. monaning and winging a bit ? let it be mate !!

Whether i get off my chest or from somewherelse, you know what they say, " That art Thou "

whatever happen to one ......... is good to know cos might happen to others to.

am sorry if my talking seem to be against thais, its just i did not expect the famous "Land of smile" to be like this.

and anyway i just report what happened to me. i have also met some great thai people, unfortunately have to say not in pattaya, but i did meet them.

My comment was aimed at gardening9966, and NOT you.

You are quite at liberty to both tell people about what happened, and to rant about it, if need be.

But the giving of false hope to you and information about what you can and should do about the situation you find yourself in, is something thats not a clever thing to do.

Like others have said to you on here, just cut your losses as much as you can, move on, and most of all learn how not to repeat the same situation. Or at least know, and play by the rules of the game (both written and UNwritten) before you start to play.

Penkoprod

[enemedin]

The concept of "key money' has really been abused in Thailand.

Originally this was meant to be a payment made by one tenant to another existing tenant to give up their location.

Hence the term 'key money' as it was used to open the door on a prime location, which would otherwise not be available because shops in prime locations tend to have the habit of making money and rarely close their doors. Therefore some of the major retailers who really wanted to be in a certain spot were prepared for it.

So key money never went to the landlord, who in mature markets would be satisfied with the very high rents and deposits that such locales can command, due to the favourable trading environment. It was certainly not paid at the end of a lease.

What you might have is a situation where someone else wants the space, and perhaps are paying the landlord not to renew your lease. If this is the case then they are unlikely to back down, insisting that you match their 'key money'.

In any event such a payment should be subject to a contract and be taxable.

Indeed should be written in the contract, but the owner said, that it could not write it for obvious reasons. i enquiried why by asking him what are these obvious reasons . his answer was: "Well just pay the money, Khun Tom" - "Everybody do that in Pattaya"

He is not willing to give me a receipt for the key money am paying, and if he does, he wants to write it under the voice of "Services"

I guess i should just pay, and afterwards apply to court. In court i could prove that i was forced to pay, otherwise i would lose a big investment, Once the contract will be renewed for another three years, he will not try to get me out, and i will not to speak to him again, but only my wife will in thai. can this be a good idea ?

Relocating somewherelse cannot be a good solution, as i could carry with me the furniture, but what about all work done... i guess i cannot take away the expensive wall marbles, the decorations, and the platform made all in wood.

Thank you i appreciate your comments on this ...

[Benjie]

HI and thank you for reply.

It is a Restaurant on which i have spent 2 mil baht to renew two years ago.

I guess will be best to pay the key money and try to sell the business to someone else, recoverig what is possible.

I told him this morning that i might pay the key money, in the next two or three days, but i will also try to sell the business to someone private and then the new "Buyer, Business owner" will sign a new contract with the thai owner.

This Thai owner, wants to know how much i want to sell it for, and when i told him 2 mil baht, he said to me he will give me 500,000 to get out of of the restaurant.

Very strange, he must have understood that he can sell it for more.

Nice.

Pass the problem onto someone else, perhaps this is what happened to the original owner.

[Jdietz]

You don't think having had visits of "Russian Investors" looking for a deal has anything to do with suddenly outrageous key money demands by your landlord? Guess they found a way to get it all for a better price.

[quiksilva]

The concept of "key money' has really been abused in Thailand.

Originally this was meant to be a payment made by one tenant to another existing tenant to give up their location.

Hence the term 'key money' as it was used to open the door on a prime location, which would otherwise not be available because shops in prime locations tend to have the habit of making money and rarely close their doors. Therefore some of the major retailers who really wanted to be in a certain spot were prepared for it.

So key money never went to the landlord, who in mature markets would be satisfied with the very high rents and deposits that such locales can command, due to the favourable trading environment. It was certainly not paid at the end of a lease.

What you might have is a situation where someone else wants the space, and perhaps are paying the landlord not to renew your lease. If this is the case then they are unlikely to back down, insisting that you match their 'key money'.

In any event such a payment should be subject to a contract and be taxable.

Indeed should be written in the contract, but the owner said, that it could not write it for obvious reasons. i enquiried why by asking him what are these obvious reasons . his answer was: "Well just pay the money, Khun Tom" - "Everybody do that in Pattaya"

He is not willing to give me a receipt for the key money am paying, and if he does, he wants to write it under the voice of "Services"

I guess i should just pay, and afterwards apply to court. In court i could prove that i was forced to pay, otherwise i would lose a big investment, Once the contract will be renewed for another three years, he will not try to get me out, and i will not to speak to him again, but only my wife will in thai. can this be a good idea ?

Relocating somewherelse cannot be a good solution, as i could carry with me the furniture, but what about all work done... i guess i cannot take away the expensive wall marbles, the decorations, and the platform made all in wood.

Thank you i appreciate your comments on this ...

I am not a lawyer, but me guess is if you pay the money you are unlikely to be able to recover it in court at a later stage. Its not like you have to pay.

You do have the option to refuse, and recover what decorations you can from the decorations and move elsewhere. In that case you will have to pay for a new fit-out any way... so it boils down to cash vs principals.

How much is he asking for vs the cost of a new fit-out and relocation?

By staying and paying will you be better off than moving?

Can you find similar premises in a better location for comparable rents? Does location matter for your business? If the current location is so good that it virtually guarantees revenues, perhaps its worth it... perhaps not..

Only you can come to that decision, but hope I have given you some food for thought.