In Israel's commercial real estate market, especially in historic city centers, many properties are bound by the Tenant Protection Law (Protected Tenancy or "Key Money"). This yields unique rights impacting valuation.
What is a Protected Lease (Key Money)?
Protected tenancy is a legal setup where a tenant pays a substantial upfront lump sum ("Key Money") and in exchange pays very low, regulated monthly rents. Protected tenants enjoy near-total immunity from eviction.
Key Differences from Free Market Leases
While standard leases expire after a set term, protected tenancies: * **Rent Rates**: Are determined by government regulations and do not reflect market rates. * **Eviction Grounds**: Are limited to statutory reasons (non-payment of rent, abandonment of property).
Impact on Property Valuation and Realization
A protected tenant lowers the market value of a property (often by 50% or more) since the owner cannot rent it at market rate. When buying commercial properties, verify tenant status to avoid "locked" assets.