[Lease, Key Money] Does notifying a new tenant about demolition or reconstruction constitute an ‘interference with the recovery of key money’?

Hello, I am Attorney Eom Sang-yun from Chungchul Law Firm.

Today, I will introduce the protection of the tenant's opportunity to recover key money as stipulated in the ‘Commercial Building Lease Protection Act’ (Commercial Lease Act) along with the latest precedents.

[Protection of the Opportunity to Recover Key Money]

Article 10-4 (1) of the Commercial Lease Act stipulates that the landlord cannot interfere with the tenant's opportunity to receive key money from a new tenant from 6 months before the end of the lease period until the end of the lease. This was introduced in the Commercial Lease Act in 2015 to legally protect the recovery opportunities for key money that had been recognized as a practice, and landlords who interfere with the recovery of key money are liable for damages incurred by the tenant due to such interference.

Meanwhile, the precedents state, “In principle, in order for the tenant to claim damages for interference with key money recovery from the landlord, the tenant must have introduced a person who intends to be a new tenant. However, if the landlord has expressly indicated that they will not contract with the person who the tenant has introduced without any justifiable reasons, requiring the tenant to introduce a new tenant under such circumstances is deemed unreasonable as it forces the tenant to perform unnecessary actions. If such special circumstances exist, the landlord's refusal in the manner aforementioned should be deemed an act of refusal as defined in Article 10-4 (1) (4) of the Commercial Lease Act even if the tenant has not actually introduced a new tenant. Therefore, the tenant can claim damages against the landlord for interference with key money recovery in accordance with the same article, paragraph 3.” The Supreme Court ruled that if the landlord has explicitly refused to contract with a new tenant, it should be judged that it constitutes ‘interference with key money recovery’ even if the tenant has not actually introduced a new tenant (2018Da284226).

[Notification of Demolition and Reconstruction Plans]

From the landlord's perspective, if the building, which is the subject of the lease, is scheduled for demolition and reconstruction, it may be difficult to enter into a lease contract even if the current tenant introduces a new tenant. In practice, there are many cases where the landlord refuses to enter into a lease contract with the person presented for reasons such as the planned demolition.

Then, could the demolition and reconstruction of the leased property be considered a justifiable reason for refusal under Article 10-4 (1) (4) of the Commercial Lease Act?

The precedents state, “Notifying a person intending to be a new tenant during the negotiation process for the lease contract of the demolition and reconstruction plan and its timing alone cannot be regarded as an act of ‘interference with key money recovery’ as defined in Article 10-4 (1) (4) of the Commercial Lease Act.” Thus, it is fundamentally judged that notifying a person intending to be a new tenant about the plan and timing of demolition and reconstruction does not constitute interference with key money recovery (2022Da202498, etc.).

However, the precedents indicated that ① if the necessity for demolition and reconstruction due to the building's durability is not objectively recognized, ② if the demolition and reconstruction plans are not specific yet the landlord only offers a short possible rental period to the person intending to be a new tenant, and ③ if circumstances are revealed that contradict the information provided by the landlord to the person intending to be a new tenant, without justifiable reason it could fall under ‘interference with the recovery of key money,’ and thus can be subject to different judgments based on specific factual circumstances.

[Recent Supreme Court Judgment]

In light of the above legal principles, the Supreme Court ruled in a case where the landlord notified the tenant that the leased building was planned for reconstruction and that a contract with a new tenant could only be made for a period of three years, that ① it has been 39 years since the date of the use approval, and the intention of reconstruction is deemed genuine as a significant portion of the building has been left vacant for reconstruction, ② the landlord's notification aligns with the reconstruction plans and schedule, and ③ there are no indications of contradictory language or behavior from the landlord after notifying about the reconstruction, hence determined that such a notification alone does not constitute ‘interference with key money recovery’ and overturned the prior judgment that made a different decision (2024Da232530).

As such, whether interference with the recovery of key money can be considered depends on the particular factual circumstances, and it is necessary to seek expert assistance in responding.

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