Leasehold right and key money: what they are actually worth

Two shops paying the same rent can carry leasehold rights worth very different amounts. Everything turns on the gap to the market rent, on how long the lease has left to run, and on the pitch.

1. Two notions, two legal natures

In everyday practice, « leasehold right » and « key money » are treated as synonyms. In law they have nothing in common.

• The leasehold right is the commercial tenant's proprietary right to remain in the premises and to assign that occupation. It is an intangible element of the business, assigned with it. It is built by operating the premises and it capitalises over time.
• Key money is a sum paid on taking the premises: either by the incoming tenant to the landlord on entry, or by the incoming tenant to the outgoing one in consideration of the leasehold right taken over. It is a payment, not a right.

For the framework of the statute as a whole — scope, conditions, rent review, renewal — see our guide to commercial leases under Law 49-16. This article deals only with value.

2. How a leasehold right becomes a protected asset

A leasehold right is worth something only because it rests on the protective statute of Law 49-16 on leases of commercial, industrial and craft premises, in force on 11 February 2017. Outside that statute the tenant falls back on the general law and has neither the right to renewal nor the right to an eviction indemnity — the two things that give a leasehold right its economic weight.

Benefiting from the statute assumes a commercial, industrial or craft activity actually carried on, entry on the commercial register, and above all effective and continuous operation in the premises for at least two years. That threshold is what turns mere occupation into a proprietary right capable of being valued.

The consequence is direct. The leasehold right of a business that has just opened is worth very little; that of an established, profitable operation, well placed and on an advantageous rent, can represent the bulk of the price at which the business changes hands.

3. Assignment: free in principle, framed in practice (Article 25)

A leasehold right is bought and sold. Assignment is free in principle under Article 25 of Law 49-16, particularly where it accompanies the assignment of the business— customer base and trading connection, leasehold right, equipment and operating items. That is what allows a trader to « sell the pitch » to a successor.

• Assigned with the business — the leasehold right follows the business, on the logic of Article 25. This is the common case.
• Assigned on its own, detached from the business — notice to the landlord is required, on the terms the law provides.

Do not confuse assignment with de-specialisation, which is a change in the activity carried on in the premises and follows a regime of its own — we deal with it in our note on changing activity under Law 49-16. In every case the clauses of the individual lease may impose particular arrangements: have the contract checked before assigning.

4. Key money: a payment, not a right (Article 18)

Key money raises one recurring question: is it a supplement to the rent, or a capital sum? The answer matters, because it governs how the sum is treated and what becomes of it if the lease is brought to an end.

Article 18 of Law 49-16 frames the legal nature of key money. Depending on the drafting of the contract and the common intention of the parties, it may be analysed as a supplement to the rent — an addition spread over the agreed rent — or as consideration for advantages granted to the tenant. That qualification is not a matter of form: it decides how the payment is accounted for and whether anything is returned if the lease ends early. This is a point to settle in the drafting, with your own adviser, before signature.

5. What makes a leasehold right valuable

The value of a leasehold right is not a matter of intuition; it is built from measurable parameters. The main levers:

• The gap between passing rent and market rent. This is the core of the value. A lease whose passing rent sits appreciably below the market rent creates, for the tenant, an economic advantage that capitalises — hence a high leasehold value. A rent above the market erodes it.
• The residual term of the lease and the security of renewal: the longer and the safer the horizon, the more the advantage capitalises.
• The quality of the pitch and the depth of the catchment: visibility, footfall, the pull of the area.
• The activity and the configuration of the unit: area, condition, compliance, fitness for the trade carried on.

That mechanism — the advantage of a passing rent below the market rent — is exactly the one set out in our note on valuing a leased property, over-rented and under-rented. It is also why the leasehold right concentrates most of what is at stake when an eviction indemnity has to be quantified.

6. How a valuer puts a figure on it

To turn those levers into a defensible amount, an appraisal consistent with RICS standards does not rely on a single method. VPS 3 of the Red Book requires the choice of method to be justified and, for an asset as sensitive as a leasehold right, at least two approaches to be crossed with the weighting stated.

• The market approach. The valuer collects the assignments of leasehold rights and businesses observed in the sector, then adjusts them for pitch, floor area and residual term. This is what anchors the valuation in the market.
• The income approach. The valuer applies a multiple to the earnings of the business. It comes to the fore where the business is inseparable from the premises — catering, hospitality, clinics — situations covered by VPGA 4 of the Red Book, which deals with trade-related property. Our note on valuing a gym or fitness club works through a case of exactly that kind.

One distinction is worth holding on to: the property valuer values the premises and the leasehold right; the value of the business as a going concern generally belongs to a separate assignment, often carried out by an accountant. Our own framework is set out on our valuation methodology page. Note too that the security taken over a business is a matter for the commercial code and should not be confused with the valuation of what it is worth.

7. Why « X years of rent » never does the job

On the ground, figures travel as ready-made formulas — so many years of rent. Convenient as an opening to a conversation, these multiples are an order of magnitude for framing, never a valuation. Two units showing the same rent can carry leasehold rights that differ widely, according to the gap to the market rent, the time left to run and the pitch.

What is at stake is concrete. For the buyer, paying an inflated price for a leasehold right ties up cash against an advantage that does not exist. For the seller, underpricing leaves value on the table. And where renewal is refused, it is the same leasehold right that has to be reconstructed to quantify the eviction indemnity — as the Casablanca Commercial Court of Appeal decision of 2019 illustrates, where the leasehold component was the one that held. In all three situations, a valuation documented item by item changes the decision.

8. Negotiation, and the limits of a private appraisal

An independent appraisal of a leasehold right serves, above all, an arm's-length negotiation: between seller and buyer, between landlord and tenant, it is the costed report that frames the discussion and gives it a factual basis. That is its whole usefulness — putting a figure beyond the reach of whichever party has an interest in pulling it their way.

On its scope, let us be plain: a private appraisal helps you decide and negotiate, and it imposes itself on nobody. It is documented and verifiable line by line, which is what allows both sides to test it. Where a matter reaches court, the court appoints its own expert; a private report prepares the file and consolidates a position upstream. A reasoned, costed base is always worth more than an order of magnitude thrown across the negotiating table.

9. Instructing a valuation of a leasehold right

Bring the lease and any addenda, the rent receipts, proof of entry on the commercial register and of the duration of operation, and the accounts of the business where the income approach is in play. Everything else — market rent, comparable assignments, the analysis of the pitch — we establish ourselves. Assignments are handled by RICS-certified experts in Casablanca, Rabat, Marrakech, Tangier, Fès and Agadir, and elsewhere in the country from our network. Reports comply with Red Book standards and are delivered in 5 to 8 days, 48-72 hours on the express service, with a firm quote within 24 hours, from 3,500 MAD excl. tax. What we cover on trading premises is set out on our retail property valuation page. ReaConsult has been advising owners, tenants and institutional clients since 2019, with more than 5,000 valuations completed, offices in 6 cities and a rating of 4.9/5 across 47 reviews.

Note:the framework is set by Law 49-16 on leases of commercial, industrial and craft premises, in force on 11 February 2017. The conditions of the protective statute, the arrangements for assigning the leasehold right (Art. 25), the nature of key money (Art. 18) and their consequences are governed by the texts in force and their interpretation: confirm your own position with a lawyer or an accountant. No percentage, multiple or scale is quoted here — the value of a leasehold right is established case by case, on the evidence of the market. A private appraisal informs a decision and an arm's-length negotiation; it is documented and verifiable line by line and imposes itself on nobody, and where a matter reaches court the court appoints its own expert. To instruct us, see our contact page or the property blog.