Key money, known in Japanese as 礼金 (reikin), is a non-refundable payment made to the landlord at the start of a rental contract. Unlike a deposit, it is not held for damages and is not returned at move-out.

Today, key money typically ranges from 0 to 2 months’ rent, depending on the property, area, and landlord preference.

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Why Did Key Money Exist in the First Place? (Historical Background)

Key money did not originate as a random fee.

Its roots trace back to post-World War II Japan, during a period of:

• Severe housing shortages
• Large population displacement
• Rapid urban rebuilding
  

At the time, landlords held scarce and valuable housing assets. Key money emerged as a gesture of gratitude rather than a contractual obligation - a way for tenants to thank landlords for providing accommodation when demand far exceeded supply.

Over time, this custom became institutionalized into the rental system.

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How a Cultural Practice Became a Standard Fee

As Japan’s rental market stabilized, key money evolved from a voluntary thank-you Into a standardized contractual requirement

By the late 20th century, key money was commonly expected, particularly in:

• Central Tokyo
• Newer buildings
• High-demand neighborhoods
  

Even as housing supply improved, the practice remained - not due to necessity, but tradition and landlord leverage.

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Why Does Key Money Still Exist Today?

Key money persists for three main reasons:

1. Market Dynamics

In competitive rental areas, landlords can still require it without losing applicants.

2. Risk Offset

Key money acts as a buffer against vacancy risk and early termination.

3. Institutional Inertia

Rental customs in Japan change slowly. Once a fee becomes normalized, it tends to remain unless market pressure removes it.

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When Is Key Money Required Today?

Key money is not universal anymore.

It is more commonly required when:

• The property is newly built
• The location is highly desirable
• The landlord is an individual rather than a corporation
• Demand is strong and vacancy is low
  

It is often not required for:

• Older buildings
• Corporate-managed properties
• Promotional listings
• Properties competing in softer markets

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Is Key Money Unique to Japan?

Japan is one of the few countries where non-refundable landlord gratitude payments are still common.

Comparable practices elsewhere:

• South Korea: Large refundable deposits (Jeonse), but no key money
• France / Germany: Security deposits only, strictly regulated
• United States: Deposits and fees, but no landlord gratuity
• United Kingdom: Deposits capped by law
  

Japan stands out for preserving a cultural-origin fee rather than a purely financial one.

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Is Key Money Mandatory?

No. Key money is property-specific, not legally required. Two apartments in the same building can even have different conditions depending on landlord decisions.

This is why professional agents focus on:

• Identifying no-key-money options
• Comparing total upfront costs, not just rent
• Advising when paying key money may still be strategically reasonable

The Modern Reality: Key Money Is Declining

Over the past decade, key money has steadily decreased, especially in:

• Outer Tokyo wards
• High-supply residential areas
• Listings targeting international renters
  

However, it has not disappeared - especially in premium locations.

Key money is not a scam, nor is it a legal requirement. It is a historical artifact that survived into modern Japan due to tradition and market leverage. Understanding why it exists helps renters make informed decisions - instead of emotional ones.

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