[Asia Economy Reporter Jo Gang-wook] “I brought a prospective tenant who was willing to pay the key money to the building owner. However, the building owner refused to sign the contract, stating that they planned to operate the commercial space themselves. Because of this, I gave up on finding someone to pay the key money and move in. As a result, I couldn’t introduce a new tenant to the building owner. Do I have to leave without receiving the key money?”
The issue of key money is often complicated and controversial. Fundamentally, under the Commercial Building Lease Protection Act, to claim the opportunity to recover key money, the tenant must introduce a new tenant to the landlord. But what if the building owner clearly expresses their intention not to enter into a new lease agreement with the prospective tenant?
According to the court and related industries on the 30th, the Supreme Court recently ruled that if the building owner (landlord) clearly expresses their intention not to enter into a lease agreement with a new tenant, they are responsible for the tenant’s key money.
If the tenant introduces a new tenant but the building owner definitively expresses their intention not to enter into a lease agreement without justifiable reason, this is considered an act of interference with the recovery of key money as stipulated in Article 10-4, Paragraph 1, Subparagraph 4 of the Commercial Building Lease Protection Act.
Real estate attorney Eom Jeong-sook (Beopdo Comprehensive Law Office) said, “In principle, to receive key money, the tenant (commercial tenant) should find and introduce a new tenant to the landlord before the lease term expires. However, if the reason for failing to introduce a new tenant is due to the landlord, the tenant can recover the key money through a damages claim lawsuit.”
Article 10-4 of the Commercial Building Lease Protection Act stipulates that the building owner must not interfere when the commercial tenant tries to receive key money. The commercial tenant must find and introduce a new tenant who will pay the key money from six months before the contract expires until the expiration date. If the tenant fails to find a new tenant, the building owner is not liable for damages.
Some building owners exploit this by claiming they plan to use the building themselves and therefore refuse to contract with a new tenant willing to pay key money. This causes the current tenant to give up on finding someone to pay the key money and move in.
The problem arises when the commercial tenant files a key money lawsuit against the building owner. A key money lawsuit refers to a damages claim filed by a commercial tenant who was unable to protect their key money due to the landlord’s interference. The building owner often argues in such lawsuits that they are not responsible because the tenant did not introduce a new tenant willing to pay the key money.
However, if the building owner has expressed their intention to refuse the contract because they plan to use the building themselves, the situation changes. Since the tenant could not introduce a new tenant due to the building owner, the building owner must compensate the key money.
There is a precedent where the court ordered the building owner to pay key money after the tenant claimed they could not introduce a new tenant willing to pay key money (Supreme Court 2018Da284226). Tenant A introduced a prospective tenant willing to pay key money to building owner B before the lease expired and requested the lease contract. However, B refused the contract, stating they planned to use the commercial space themselves. A had no choice but to stop looking for a new tenant willing to pay key money.
Tenant A filed a damages claim lawsuit against B for interference with key money recovery. B argued that A did not introduce a new tenant to them.
The Supreme Court ruled, “If the landlord definitively expresses their intention not to enter into a lease agreement, requiring the tenant to introduce a new tenant in such a case is an unnecessary act and unfair,” thus siding with A.
Attorney Eom explained, “The situation should be interpreted in light of the purpose of the law,” adding, “Not only this precedent but also various actual situations should be interpreted according to the law’s intent.”
She continued, “There are four types of landlord interference with key money recovery as stipulated in Article 10-4 of the Commercial Building Lease Protection Act: demanding or receiving key money from the new tenant introduced by the tenant, preventing the payment of key money, demanding excessively high rent or deposit, and refusing to enter into a lease agreement without justifiable reason. If any of these occur, the tenant can claim damages through a lawsuit to receive the key money from the landlord.”
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
