If you own a retail shop or commercial unit in Iran — inherited or purchased — and are considering leasing it out, or ending an existing commercial lease, you'll run into a concept that has no clean equivalent in most Western landlord-tenant law: sarghofli (سرقفلی), commonly translated as "key money" or "goodwill." Getting this wrong is expensive — it can mean owing a tenant a large compensation payment you didn't budget for, or, on the tenant side, losing a valuable right without realizing you had it.
Ownership vs. the Right to Occupy: Two Separate Things
In Iranian legal terminology, a commercial storefront involves two distinct concepts:
- Melkiat — ownership of the physical property (the land and structure)
- Sarghofli — the right to use and occupy that storefront, which can be sold, valued, and compensated separately from ownership itself
This split matters because a landlord can own the building outright while a tenant simultaneously holds a real, transferable, financially valuable right to occupy and operate a business there — a right that in many cases is worth close to the value of the shop itself, even though the tenant is paying a comparatively modest monthly rent.
Where Sarghofli Comes From
The concept traces back to a merchants' custom in Iran's traditional business districts, later codified into law as haqq-e kasb o pisheh o tejarat (the right of trade, profession, and commerce) under pre-1979 landlord-tenant legislation. After the 1979 revolution, the legal framework was revised, and the modern Landlord and Tenant Relations Law of 1997 restructured how key money is created and compensated. Despite the legal overhaul, the underlying practice of leasing shops with a sarghofli component remains, by a wide margin, the most common form of commercial lease in Iran's retail market today.
What This Means Practically
For landlords: Under the 1997 law's framework, if a landlord receives key money from a tenant through a legally correct arrangement at the outset of the lease, the tenant generally has the right to reclaim the current fair-market value of that key money when the tenancy ends — not simply the amount originally paid. This can be a substantial sum, especially after years of appreciation in the local commercial market, and it is a completely separate calculation from any security deposit.
For tenants: A validly created sarghofli right is a real, often transferable asset — in some circumstances it can be assigned to a new tenant (subject to lease terms), and courts have addressed disputes over whether an assignment triggers partial compensation obligations. This is precisely why unauthorized subletting or assignment is one of the most heavily litigated issues in Iranian commercial tenancy disputes.
Eviction is different too. Removing a commercial tenant who holds a valid sarghofli right is not simply a matter of the lease term ending — courts weigh the underlying key money right in a way that has no equivalent in a standard month-to-month or fixed-term residential eviction. Commercial eviction and rent disputes in Iran are also generally handled by the general courts, rather than the residential Dispute Resolution Council. (For residential eviction procedure specifically, see our guide to landlord-tenant disputes in Iran.)
What Owners Abroad Should Confirm Before Leasing Commercial Property
- Whether any sarghofli/key money arrangement exists on the property already, inherited from a prior lease — this can attach to the unit and outlive a change in landlord, so review the property's leasing history before assuming you're starting with a clean slate.
- Whether your lease document creates a new key money right, intentionally or by accident — the specific legal form of the arrangement determines whether the tenant will later be entitled to compensation, so this needs to be drafted deliberately, not left ambiguous.
- A properly scoped power of attorney authorizing your local representative to negotiate lease terms, handle a renewal, and — critically — understand and manage any sarghofli exposure on your behalf, since this is a nuance a generic property manager may not flag.
- Independent legal review before signing any commercial lease, whether you are the landlord or the tenant — the compensation exposure on the landlord side, or the asset value on the tenant side, is usually too significant to leave to a standard-form contract.