Wholesalers’ Lease Suits Over ‘Key Money’ Settled

The Los Angeles garment district’s first lawsuits over so-called key money have been settled out of court.

Lawyers won’t discuss terms of the agreement reached last month. But apparel wholesalers Dan Seong and Byung Wook Kim--who sued their landlords for trying to extract tens of thousands of dollars in upfront cash as a condition for renewing their leases--remain as tenants in the building on the corner of 11th and San Julian streets.

The dispute started early this year when the landlords, Elias Donay and Fereidoon Kangavari, presented Seong with the terms of his lease extension: a nearly 40% increase in the monthly base rent on his 700-square-foot showroom plus $50,000 in upfront key money.

Named for the custom of compensating landlords for handing over the keys, the practice is a rarity in most U.S. real estate markets. But it has endured for decades in the L.A. garment district, where there is fierce competition for prime locations.

Landlords say it’s legal. Many tenants suspect it’s not, since the fees rarely show up in lease documents and often are demanded in cash. The district’s largely Korean garment wholesalers have grumbled for years at a practice they view as extortion. But Seong, who filed suit in January, was the first to take his gripe to the courts. Kim, who was asked to pay $60,000 on top of a hefty rent increase to extend his lease, did likewise.

Lawyers declined to disclose terms of the deal. But even without a courtroom win, Seong and Kim remain widely admired in the Korean community for speaking out against key money. Still, the out-of-court settlement does little to clarify whether the murky practice is completely legitimate.

“Unfortunately, this didn’t set a precedent for anyone,” said Richard Kim, attorney for Byung Wook Kim.