Rental Arrears Conflicts... Increase in Eviction Lawsuits
"Advice on Debt Assignment Contracts When Purchasing Commercial Properties"
Following the government's decision for a phased return to normalcy, restrictions on business hours and the number of customers were eased, and on the night of the 1st, pubs in front of Hongdae in Mapo-gu, Seoul, were crowded with patrons. Although the commercial and office markets are warming up due to the "step-by-step daily recovery (With Corona)," conflicts between building buyers and existing tenants over unpaid rent arrears are occurring in various places.
According to real estate specialized law firms on the 24th, lawsuits between landlords and tenants due to commercial rent arrears conflicts have recently increased. In the case of commercial properties, under Article 18-8 of the Commercial Building Lease Protection Act, if rent arrears reach three terms, the landlord can request the tenant to vacate.
In particular, recently, landlords who have purchased commercial properties have been filing eviction lawsuits against tenants demanding that they vacate the premises. Although commercial properties were purchased with expectations of revitalizing major commercial districts due to With Corona optimism, many inquiries about lawsuits are arising as rent arrears issues continue.
According to the independent statistics of the Law Eviction Lawsuit Center, which provides specialized legal consultations on eviction lawsuits, out of a total of 301 recent eviction lawsuits, 212 were related to commercial properties.
The problem is that even if a lawsuit is filed due to rent arrears issues with the previous owner, the likelihood of the buyer winning is low, according to legal experts. Attorney Kim Seong-ho said, "Even if rent arrears exceed three terms from the previous landlord, the new buyer must basically settle accounts with the previous landlord, so the new buyer cannot evict the tenant based on this."
Therefore, experts advise confirming whether there are any rent arrears before purchasing commercial properties and, if there are arrears, separately concluding a 'claim transfer agreement.'
Attorney Kim said, "When the previous owner transfers ownership to the current owner, the lease relationship is also transferred. If it is explicitly stated that the claim is transferred together and this is notified to the tenant, the effect of three-term arrears will transfer to the new landlord, fulfilling the requirements for an eviction lawsuit."
Attorney Eom Jeong-sook of the Lawdo Comprehensive Law Office said, "If a claim transfer agreement was not made at the time of the sales contract, the existing arrears must be waived, and the new building owner must count three or more terms of rent arrears from the time they became the owner to file an eviction lawsuit."
Meanwhile, the commercial and office real estate market has recently regained momentum. According to the Korea Real Estate Board, a total of 100,412 commercial and office real estate transactions were recorded nationwide in the third quarter of this year. This exceeds the previous quarter's transaction volume of 95,000 and is the highest transaction volume since the first quarter of 2018. Returns are also recovering. The investment returns for the third quarter were 1.8% for offices, 1.57% for medium-to-large commercial properties, 1.38% for small commercial properties, and 1.61% for collective commercial properties. These figures surpass the investment returns of the first quarter of last year during the COVID-19 outbreak period.
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