[Column] "They Ask to Raise Commercial Rent"... Tenant Consent Is Essential, Win-Win Culture Must Take Root

The 5% Cap on Rent Increases Is Not an Automatic Right for Landlords
A Rent Increase Requires the Tenant's Consent

According to a recent survey by the Korea Economic Association, self-employed business owners reported that their main burdens are raw material and supply costs (22.2%), labor costs (21.2%), and rent (18.7%), in that order. Among these, rent is a typical fixed cost for tenants, and it is safe to say that there is virtually no way to reduce rent without the cooperation and concession of the landlord.

Tenants facing the expiration of their lease contracts often worry about the possibility of landlords raising the rent. For many tenants, negotiating a rent reduction during contract renewal is out of the question; they consider themselves lucky if they are not confronted with a demand for a rent increase.

Under the Commercial Building Lease Protection Act, the maximum allowable rate for rent increases is 5%. This raises the question of whether landlords can raise the rent by 5% every time they renew a contract. To be clear, landlords cannot increase the rent by 5% without the tenant's consent. Even a 1% unilateral increase is not permitted.

A rent increase only takes effect when both the landlord and tenant agree. In other words, if the tenant agrees to the landlord’s request for a rent increase, the rent is raised; otherwise, the existing rent remains unchanged. The Commercial Building Lease Protection Act does not grant landlords the right to increase rent, but merely the qualification to request a rent increase.

Landlords cannot unilaterally evict tenants simply because the tenant refuses a rent increase. Tenants become lawful occupants by exercising their right to renew the contract under the Commercial Building Lease Protection Act. In other words, tenants can refuse the landlord’s request for a rent increase, and unless there are special reasons such as three consecutive missed rent payments, landlords cannot refuse the tenant’s request to renew the contract.

If a tenant exercises the 10-year contract renewal right stipulated by the Commercial Building Lease Protection Act and refuses the landlord’s request for a rent increase, the lease is renewed, but the rent remains unchanged and becomes a matter for further negotiation.

If the two parties cannot reach an agreement on the rent increase, the tenant, as a lawful occupant, can continue to operate the business, and the landlord must choose between continuing negotiations with the tenant, giving up on the rent increase, or filing a lawsuit to request a rent increase. In reality, the landlord may face a situation where they cannot raise the rent at all for 10 years.

If the landlord tries to unilaterally increase the rent without the tenant’s agreement or the tenant endlessly refuses the landlord’s request for a rent increase, the two parties may end up in extreme conflict, deepening the rift between them.

The purpose of the 5% cap on rent increases under the Commercial Building Lease Protection Act is to prevent indiscriminate rent hikes and to foster a culture of mutual prosperity between landlords and tenants by ensuring stable business operations for tenants.

Both parties should not neglect efforts to respect, consider, and make concessions and compromises with each other. This process is expected to be the starting point for forming a mature leasing culture.

Kyuhyun Hwang, Adjunct Professor at Konkuk University Graduate School of Real Estate.