[Exclusive] Paris Croissant Loses Rent Lawsuit Against Building Owner... "Sales Decline Due to COVID-19"

[Asia Economy Reporter Kim Hyung-min] Paris Croissant Co., Ltd., the operator of Paris Baguette, lost the first trial in a lawsuit related to rent against the building landlord over the closure of the Paris Baguette directly managed store in Seogyo-dong.

According to the legal community on the 19th, the 11th Civil Division of the Seoul Northern District Court (Presiding Judge Song Kyung-ho) ruled on the 9th in favor of Company A, which manages the building housing the directly managed store in Seogyo-dong, Mapo-gu, Seoul, in the first trial of the debt non-existence confirmation lawsuit filed by Paris Croissant. The court ordered Paris Croissant to pay Company A approximately 443.09 million KRW in unpaid basic rent and maintenance fees from June 2021 to December last year, as well as the expected rent and maintenance fees from January to June of this year.

Paris Baguette
Photo by Yonhap News

If payment is delayed, for the period from June 2021 to June 2022, interest at 6% per annum will be charged until July 18, 2022, from each calculation date, and 12% per annum from the following day until full payment is made. For the period from July to December 2022, interest at 6% per annum will be charged until January 11, 2023, from the calculation date, and 12% per annum thereafter until full payment.

Paris Croissant and Company A signed a sublease contract for a commercial building in June 2018 for five years, with a deposit of 700 million KRW and a monthly rent of 38 million KRW. Paris Croissant opened and operated a directly managed Paris Baguette store there but requested contract termination or a 30% rent reduction from Company A in June 2020, citing decreased sales due to COVID-19. Subsequently, the directly managed store was converted into a consignment store.

When Company A opposed, Paris Croissant filed a debt non-existence confirmation lawsuit with the court along with a certified letter demanding a rent reduction. Additionally, based on the amendment to the Commercial Building Lease Protection Act passed in January last year, which grants tenants the right to terminate lease contracts due to closure caused by quarantine measures, Paris Croissant obtained a 'Certificate of Business Closure Report' in the name of the consignment store owner on January 10 of the same year and filed an additional lawsuit for lease contract termination, requesting the court to consolidate it with the previous lawsuit.

Company A argued that the contract party for the building is clearly Paris Croissant, not the consignment store owner, so the demands for rent reduction and contract termination due to closure are unjustified. They contended that the evidence regarding sales decline due to COVID-19 was not valid and that even if the directly managed store's sales decreased, the headquarters remained profitable, so rent reduction and lease termination due to closure could not be accepted. Paris Croissant maintained that they exercised their legitimate rights to request rent reduction and contract termination without any issues.

The court pointed out, "It cannot be concluded that the decrease in sales at the relevant branch was solely due to external economic changes such as the outbreak and spread of COVID-19," adding, "Internal factors such as changes in customer satisfaction may also have played a complex role, and sales during the period when in-store dining was prohibited did not differ significantly from sales before and after the dining ban."

Furthermore, the court stated, "The plaintiff (Paris Croissant) is a holding company of the SPC Group, which operates multiple franchise food service businesses. It is a sound corporation operating 35 directly managed stores and securing 3,425 franchise stores. Therefore, the sales loss caused by the operation of the store in question can be considered very minor in light of the plaintiff's overall business scale."