Key money comes up in almost every retail, salon and restaurant deal we handle in Dubai. Someone is asking for it, someone is paying it, and in most cases neither side can tell you precisely what it covers.
It is not a legal term. It appears nowhere in Dubai's tenancy laws. There is no government form for it, no registration, no receipt from any authority. It is pure market practice — and yet it is often the single largest number in a business sale.
So here is what you are actually buying when you pay it.
What key money is
Key money is a payment from an incoming tenant to an outgoing tenant to take over their position in a premises. It is paid to the seller, not to the landlord.
That distinction is the whole thing. You are not buying the property. You are not buying rights from the landlord. You are buying somebody else's place in a queue.
What you are actually paying for
Usually a mix of four things, in different proportions depending on the deal:
The remaining lease. However many months or years are left on the current contract, at the current rent. If the rent is below what the unit would fetch today, that gap has real value.
The fit-out. Flooring, joinery, kitchen, salon chairs, lighting, air conditioning, signage. Whatever is physically installed and staying. This is the part you can actually value, and it is the part most buyers underestimate — a full commercial fit-out is expensive, and doing it yourself means months of no revenue.
The approvals. Civil Defence sign-off, municipality permits, sometimes a specific activity approval that is difficult to get in that location. Not always transferable, but often the reason a unit is worth taking over rather than starting fresh.
The location itself. Foot traffic, the mall position, the corner unit, the neighbours. Nothing tangible, entirely real.
Why key money exists at all
This is the part nobody explains, and it is the reason the practice will not go away.
Dubai caps how much a landlord can raise the rent at renewal. Under Decree No. 43 of 2013, increases are tied to how far the current rent sits below the RERA rental index, on a stepped scale, and a landlord cannot raise the rent at all if it is within 10% of market. The landlord also has to give 90 days' written notice before the lease expires to increase it.
The effect is that a tenant who has held a unit for years is often sitting on a rent well below what the same unit would cost a new tenant today. That gap is worth money — and it belongs, commercially speaking, to the sitting tenant.
Key money is how that gap gets converted into cash. The outgoing tenant sells the benefit of their protected position. The incoming tenant pays a lump sum now instead of a higher rent for years.
Once you see it that way, the number stops being arbitrary. It should roughly reflect the fit-out value plus the value of the rent gap over the remaining term. If a seller is asking far more than that, ask what else you are supposed to be getting.
What key money does not buy you
This is where deals go wrong.
It gives you no legal right to the premises. Your right comes from a tenancy contract in your name, registered on Ejari. Until that exists, you have paid a private individual for something they cannot themselves guarantee.
The landlord is not bound by it. The landlord is not a party to your key money agreement and in many cases is not even told the amount. If they refuse to issue a new contract in your name, your payment has bought you nothing.
It is not registered anywhere. Ejari registers the tenancy. It does not register key money. There is no official record that you paid, which matters enormously if the deal falls apart.
It does not guarantee the rent stays the same. A new contract is a new negotiation. The rent-increase caps protect a renewing tenant; a brand new tenancy at a fresh rent is a different situation.
It does not survive a bad lease. If the lease has eight months left and no renewal commitment, you have bought eight months.
How to protect yourself
The rule is simple: never pay key money before the landlord has agreed in writing to put the lease in your name.
Beyond that:
- Get the landlord's written approval for the transfer first, with the proposed term and rent stated
- Make payment conditional on the new Ejari being issued — staged, escrowed, or held by the broker
- Check the current Ejari yourself: who the tenant actually is, what the rent actually is, when it actually expires
- Confirm there are no rent arrears, because unpaid rent on the unit becomes your problem in practice even when it isn't legally yours
- Value the fit-out separately, in writing, so you know what portion of the money is buying something physical
- Check whether the trade licence transfers with it, or whether you need your own, and whether your activity matches what the premises are approved for
- Ask what happens if the building is sold. Under Dubai's tenancy law a sale does not end an existing lease — the new owner inherits it — but you want your name on that lease before you find out
How much is normal?
There is no standard. We see key money ranging from under AED 100,000 for a small salon or shop up to several million for a prime restaurant or mall position.
What matters is not the headline figure but the breakdown. A seller who can tell you what the fit-out cost, what the rent gap is worth and how long the lease runs is pricing something real. A seller who just names a number and calls it key money is asking you to pay for the location twice.
Frequently asked questions
Is key money legal in Dubai? It is not illegal, but it is also not recognised or protected by tenancy law. It is a private commercial arrangement between two tenants, which is exactly why the paperwork around it matters so much.
Can I get key money back if the deal collapses? Only if your agreement says so and you have documented it properly. There is no statutory route to recover it. This is why payment should be conditional on the lease actually transferring.
Does the landlord have to approve the transfer? Yes, in practice. Whatever you agree with the outgoing tenant, the landlord decides who holds the next contract.
Is key money the same as goodwill? They overlap but are not identical. Goodwill covers the business — brand, clients, staff, trading history. Key money covers the premises position. A deal can involve one, the other, or both, and you should know which you are paying for.
Do I pay VAT on key money? Treat it as a question for your accountant rather than an assumption. How it is characterised in the agreement affects the answer.
Looking at fitted premises in Dubai
Most of the retail, salon and F&B businesses we list involve key money in some form. We set out what it covers before a buyer commits, so nobody pays a number without knowing what sits behind it.
Browse businesses for sale in Dubai, or contact us and we will tell you what the position actually is on any listing.
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