Protected Tenancy — Key Money in Halacha [1]

In the following articles we will address a topic that was once very common and is now steadily decreasing: tenant protection — key money. In this article we will briefly explain this concept, as well as the source of the principle of dina de-malkhuta dina — “the law of the kingdom is law.” In the next article we will present the discussion among the poskim regarding the validity of the law.

Background regarding the development of the law

Tenant protection is a law whose purpose is to grant tenants rights in a property. Although the tenant has no ownership right in the property, he may live in it until his death and pay rent that is significantly lower than the rent charged on the open market.

The Tenant Protection Law dates back to the period of the British Mandate, when rental prices rose from day to day. It was established that if an apartment was rented to a person under an ordinary lease, the landlord could not remove him from the apartment and could not raise the rent beyond what he had paid until then, so as not to evict him in favor of new tenants. This right is known to us as protected tenancy, meaning that protection is given to the tenant so that he cannot be removed from the apartment and the rental price cannot be raised.

Even after the establishment of the State of Israel, when thousands of new immigrants arrived in the country and were unable to purchase apartments, the state sought a way to provide them with a roof over their heads for an unlimited period and enacted the Tenant Protection Law. The tenant was also able to transfer his rights to another person in exchange for a certain payment to the landlord, called the payment of key money, and upon the landlord’s receipt of the consideration, he was obligated to give his consent to the replacement of the tenants.

This law, whereby anyone who rented an apartment became a protected tenant, continued until around the year 5727. [This is the reason why rental contracts state that the laws of tenant protection shall not apply to them, and this practice continues even in our time, although today there would seemingly be no need for it]. Afterwards, the law was changed so that in order for the tenant to receive rights, he had to pay key money. Therefore, these apartments are called “key money,” after the payment that the holder of the apartment pays in order to receive the key, meaning the right of residence.

The law was also practiced outside the Land of Israel

It should be known that this law was not first created in the Land of Israel. Its source is a law enacted in Europe and in the United States after the First World War, which was a time of war with great pressure and hardship; in order that people should not be left without a roof over their heads, an enactment was made for the benefit of tenants.

We find that the great sages of the generation after the First World War — HaGaon Rabbi Meir Arik and the author of Chavatzelet HaSharon — discussed this matter. Likewise, the Minchat Yitzchak wrote a responsum in 5717 while living abroad, and the Igrot Moshe and other poskim discussed its halachic validity {as will be explained at length in the next article}.

The system of tenant protection

As stated, the Tenant Protection Law underwent many changes and regulations until it reached the current law today, whereby the tenant pays key money amounting to thirty to sixty percent of the value of the property when he enters the apartment, and each month he must pay rent that is significantly lower than the rent on the open market. These rights are intended to provide stability for tenants and to make it difficult for property owners to evict them from the apartment without a legal cause.

A protected tenant is someone who entered the property before 20.8.68 as a tenant and, under the auspices of the Tenant Protection Law enacted in 1972, became a protected tenant, or anyone who paid “key money” to the property owner upon entering the apartment.

The rights of the protected tenant

 The protected tenant has no ownership right in the property, but he does have other proprietary rights. When the property is rented to a tenant under protected tenancy, the property owner cannot use the property for himself or for members of his family. The property owner is not permitted to rent the property to another person on the market, even if the rent he could receive is much higher than the protected rent paid by the protected tenant.

The protected tenant pays rent that is significantly lower than the rent paid on the market. The property owner is not permitted to raise the amount of the rent, but only to update the payment by a few percentage points, as established in the Tenant Protection Law.

When the protected tenant dies, his rights in the property pass to his close family members — to the spouse or to the children or grandchildren — but only on condition that they lived in the property for at least half a year before his death [and there are definitions in this regard as to what is considered residence]. It is important to note that the right of inheritance in the property is a one-time right, and the protected tenant who inherited the rights is not permitted to transfer them to his heirs.

There is another principle in the law: a protected tenant may transfer his rights to another, with the property owner having a right of first refusal. That is, at the proposed price, the owners are given the first right of purchase, and if they waive it, the right is sold to another. In return, the tenant and the property owner divide the proceeds according to the division established by law. The benefit of this law is that tenants would often try to deceive the landlord and receive part of the sum without reporting it. For this purpose, the law established that in order to rent to another, the tenant must send the agreed offer together with the amount to the landlord, and the landlord has the right to say that he agrees; then the tenant is already bound by his offer and cannot retract.

The difference between private ownership and the right of a protected tenant

The main difference between the apartment owner and a protected tenant is that the owner holds legal ownership of the property, while the protected tenant does not. The owner has full control over the property: he can determine who may live in the property, how it will be used, when the rent may be raised, and he has the right to bequeath the apartment from generation to generation.

The protected tenant may bequeath his rights in the protected property, provided that the heir lived in the property for six months and does not have another apartment in which he lives. This is in a limited manner and on a one-time basis, meaning that the heir who acquired the right cannot transfer it onward.

In addition, the protected tenant has certain legal rights, including the ability to live in the property for his entire life, protection against eviction of a key-money tenant without cause, and limitations on raising the rent.

If the protected tenant leaves the apartment for a certain period, he is considered to have abandoned the apartment, and his rights in the apartment expire.

The Tenant Protection Law provides that the protected tenant has no building rights in the property. He may not carry out renovations or changes in it unless he has received explicit consent from the property owner; if he makes a change without consent, he may lose his right. [There are additional conditions in the law and in case law, and it is not possible in this article to encompass everything].

The obligation to maintain the house in a protected-housing property

The landlord is obligated to ensure the proper condition of the house, the cleaning and proper maintenance of the facilities, the garden, the stairwells, the lighting, and the other areas used by the tenants, such as the roof, sealing, mailboxes, stairwell railing, the exterior cladding of the building, and everything necessary for the proper condition of the property. The property owner must bear responsibility for repairing defects.

When internal repairs are needed in the property, the protected tenant must bear the cost of the repairs, except for a number of specific repairs in which the apartment owner and the protected tenant share the cost equally.

Division of the monetary proceeds when tenants are replaced

As stated, the Tenant Protection Law provides that when tenants in the property are replaced and a sale for key money takes place, the property owner is also entitled to receive a percentage of the proceeds received.

The division of the proceeds between the property owner and the protected tenant is carried out as follows: A tenant who entered the protected property before 1958 receives two thirds of the monetary proceeds, and the property owner receives one third of the proceeds.

When the tenants paid key money and entered after August 14, 1958: if the tenant lives in the apartment for less than one year, the portion of the key money that goes to the outgoing tenant is 85%. In a case where the tenant lives in the apartment between one year and two years, he is to receive 75% of the amount. If the tenant lives in the apartment for 2–5 years, the tenant receives two thirds of the amount, and the landlord one third of the amount. If the tenant lives in the apartment for more than 5 years: the landlord receives 40%, and the tenant 60%.

Key-money apartments are cheaper to acquire, since they constitute a right of use but not ownership, and a certain rent must be paid for them each month. Failure to pay rent constitutes grounds for eviction of the protected tenant.

In our time the phenomenon is not at all common, and there are few apartments offered for sale with key money. Most of these apartments belong to hekdesh trusts, yeshivot, and kollelim.

Today the tendency is not to expand tenants’ rights but to reduce them, since protected tenancy is a serious infringement of the landlord’s property rights.

In summary, the Tenant Protection Law grants the protected tenant many rights, but not ownership of the property. A tenant who lives under protected tenancy has significant rights in the property, the most important of which are a low monthly rent payment and the possibility of living in the property until his death. When the tenants in the protected property are replaced, the monetary proceeds received from the sale of the protected rights are divided between the property owner and the protected tenant.

The halachic validity of the law

It should be known that when a tenant explicitly agrees to a lease under the Tenant Protection Law, the condition takes effect under the rule that everything follows their stipulation. As ruled in the Shulchan Aruch (Choshen Mishpat, siman 315, se’if 2), just as a person may stipulate any condition he wishes in a sale, so too he may stipulate in a lease. The poskim discussed a case in which, at the time they rented, the key-money system had not yet been instituted, but by the time the landlord wished to remove the tenant from his house, the law had already taken effect, and the tenant claimed that he had a right of tenant protection under the laws of the state. The question is whether this is binding. {This will be explained at length in the next article}.

The definition of dina de-malkhuta dina: from the Torah or rabbinic

The source of the matter is the words of Shmuel (Nedarim 21a; Gittin 10b; Bava Kamma 113a; Bava Batra 54b), who maintains that dina de-malkhuta dina. The Beit Shmuel (siman 28, se’if katan 3) wrote that this law is rabbinic. However, the Avnei Miluim (siman 28, se’if katan 2, s.v. ela be’ikar) and the Chatam Sofer (Responsa, Yoreh De’ah, siman 314, s.v. amnam) disagreed and maintain that it is a Torah law. [There is a great deal to elaborate on this, but this is not the place].

The dispute among the Rishonim whether dina de-malkhuta dina applies also to Jewish kings

The Rambam (Gezelah Va’Avedah 5:11) holds that dina de-malkhuta was stated both regarding a non-Jewish king and regarding a Jewish king. However, the Ran (Nedarim 28a, s.v. bemoches) wrote in the name of Tosafot that dina de-malkhuta dina was stated specifically regarding kings of idolaters, because the land is his and he can tell them that if they do not fulfill his command he will expel them from the land; but regarding Jewish kings, this law was not stated, because all Israel are partners in the Land of Israel. This is also clear from Rashi (Gittin 10b, s.v. dina), who wrote: the dina de-malkhuta of idolaters.

And in Chatam Sofer (Responsa, Choshen Mishpat, siman 44, s.v. ach) he wrote that regarding taxes and customs duties that the king imposes against the will of the people of the state, in this the Rishonim hold that there is a difference between a Jewish king and a non-Jewish king. But regarding customs and ordinances, they hold that the reason is that they accepted upon themselves the laws of the king, as is explained in Rashbam (Bava Batra 54b, s.v. veha’amar), that the reason is that all the people of the kingdom willingly accept upon themselves the king’s law and judgments, and therefore it is a complete law. If so, the same applies to a Jewish king, whose law is likewise valid.

Dina de-malkhuta dina in the Land of Israel

The Darchei Moshe (Choshen Mishpat, siman 369, se’if 3) cited the view of the Ran without any dissenting opinion, and so wrote the Biur HaGra (Choshen Mishpat, siman 369, se’if katan 35). See Chazon Ish (Choshen Mishpat, Likkutim, siman 16, se’if katan 11). [There are several additional reasons among the Rishonim regarding this law, and the Acharonim discussed their words, but this is not the place to elaborate].

In the following articles, with God’s help, we will present the responsa of the poskim and dayanim who discussed this law.

From “Torat HaMishpat”