[Ryu Taemin's Real Estate A to Z] Why Can't Key Money Be Received for Department Store and Large Mart Tenants?

No Protection for Key Money When Entering Large Stores or State-Owned Buildings
Winning Key Money Lawsuits Is Difficult... Confirm Applicability in Advance

[Asia Economy Reporter Ryu Tae-min] #Mr. A, who has been operating a store in a department store in Seoul for five years, recently decided to close his business due to a sharp drop in sales caused by the prolonged COVID-19 pandemic. However, his worries grew even more when he learned that tenants in department stores, unlike those in regular commercial buildings, cannot receive key money.

Many self-employed business owners who have operated in one store for a long time receive key money when leaving. Key money refers to the monetary compensation paid to the existing tenant in recognition of the tangible and intangible property value related to business facilities, business know-how, and location advantages. Since the revision of the Commercial Building Lease Protection Act (CBLPA) in 2015, merchants have been legally protected in their opportunity to recover key money.

However, not all merchants are entitled to key money protection, so caution is necessary. If a business is located in a building classified as an ‘exclusion from key money application’ under the current CBLPA, it is not eligible for key money protection. According to Article 10-5 of the CBLPA, buildings that are part of large-scale or semi-large-scale stores as defined in Article 2 of the Distribution Industry Development Act, or buildings owned by the state under the State Property Act or public property under the Act on the Management of Public Property and Goods, are excluded from key money protection.

First, ‘large-scale stores’ as defined in Article 2 of the Distribution Industry Development Act include department stores, large supermarkets, shopping centers, and complex shopping malls with a store area exceeding 3,000㎡. ‘Semi-large-scale stores’ refer to stores operated in a franchise chain business format. State-owned buildings under the State Property Act or public property under the Act on the Management of Public Property and Goods refer to buildings owned by the government. However, traditional markets are exceptionally recognized for key money even if they fall under the above conditions.

The reason key money does not apply to buildings of such large scale is that the landlord’s contribution to the store operation base is considered higher. Attorney Eom Jeong-sook of the Comprehensive Law Office explained, “Unlike general commercial buildings where tenants increase the store’s recognition and business capability by operating directly, large-scale stores themselves have high recognition and business power, so tenants often benefit from this, and thus the opportunity to recover key money is not recognized.”

Attorney Eom further explained that since the law does not protect key money in these types of buildings, it is difficult to win lawsuits over key money claims. She advised, “If you want to secure key money in the future, the first step is to check whether the building is excluded from key money protection before renting a store. Although the CBLPA overwhelmingly protects tenants’ key money rights, it clearly specifies cases where protection is not provided, so it is essential to confirm this before signing a contract.”