Supreme Court: Rent Must Be Exempted for Duty-Free Shops Unable to Operate Due to 'International Flight Consolidation' During COVID-19

Hotel Lotte and Busan Lotte Hotel Filed Suit Against Korea Airports Corporation
Supreme Court: "Landlord's Non-Performance Means No Rent Can Be Claimed for the Period"

The government has decided to exempt Hotel Lotte and Busan Lotte Hotel from paying rent for the period during which they experienced operational disruptions at duty-free shops in airports, after international flights were consolidated during the COVID-19 pandemic.

According to legal sources on May 26, the Supreme Court's Second Division (Presiding Justice Oh Kyungmi) overturned a previous ruling on May 1 that had ordered the return of approximately 6 billion won out of the 18 billion won in rent claimed by Hotel Lotte and Busan Lotte Hotel from Korea Airports Corporation, and remanded the case to the Seoul High Court.

Hotel Lotte and Busan Lotte Hotel had been operating duty-free shops in the international terminals of Gimpo Airport and Gimhae Airport. However, in April 2020, as the Ministry of Land, Infrastructure and Transport implemented a policy to consolidate international flights at Incheon International Airport due to the spread of COVID-19, their sales dropped significantly. The Ministry announced measures to reduce duty-free shop rent by 50% from March to August 2020, and to exempt rent starting from September 2020.

However, Hotel Lotte and Busan Lotte Hotel asserted their right to request a reduction in rent, arguing that they should be exempted from the full amount of rent starting from April 2020, when the ministry's policy began. Korea Airports Corporation rejected this claim, leading to the lawsuit.

The first and second trials only partially accepted the amount claimed by Hotel Lotte and Busan Lotte Hotel. The first trial ruled that rent should be reduced by 70% for the period from April to August 2020, when the right to request a rent reduction became effective. The second trial recognized the effectiveness of the rent reduction request from March 2020, ruling that 50% of the rent for March and 70% for April should be reduced.

The Supreme Court's decision was different. It ruled that rent should be fully exempted for the period from April to August 2020. The Supreme Court found that the lower court had misunderstood Article 537 of the Civil Act, which states that "if, in a bilateral contract, one party's obligation cannot be performed due to reasons not attributable to either party, the other party cannot demand performance."

The Supreme Court stated, "Since the closure of the airport terminal made it fundamentally impossible to operate duty-free shops, which was the intended use under the lease agreement, it can be socially regarded that Korea Airports Corporation, as the lessor, was unable to provide the premises in a usable and beneficial state." The court added, "Therefore, Korea Airports Corporation cannot demand rent from Hotel Lotte and Busan Lotte Hotel, and any rent already paid must be returned as unjust enrichment."