Court's criteria for determining ordinary wear and tear and excess damage

One of the most frequent disputes between landlords and tenants upon the termination of a lease agreement is the issue of restoration to the original condition. Particularly in the case of commercial leases, demolition and restoration costs amounting to tens of millions of won often become an issue, frequently leading to lawsuits over the return of the security deposit.

In practice, landlords often demand that the property be fully restored to its original condition, while tenants frequently argue that they cannot be held responsible for wear and tear resulting from normal use. If so, what exactly does the term "restoration to original condition" mean under the law?

Article 654 of the Civil Act applies Article 615 of the Civil Act concerning loans for use to leases; accordingly, the lessee bears the obligation to return the object in its original state upon termination of the lease. However, the term "original state" as used here does not mean physically reproducing the condition prior to the lease perfectly.

The courts have consistently interpreted the meaning of restoration to the original condition as “returning the leased property after restoring it to a state where there is no impediment to its ordinary use.” The rationale is that since wear and tear and deterioration due to the passage of time are inevitable once the lessee has used the property for a certain period, the entire responsibility for these cannot be attributed to the lessee.

The key concept here is precisely 'ordinary loss'.

Ordinary wear and tear refers to the deterioration of the condition or decrease in value that naturally occurs as a tenant uses the leased property normally according to its intended purpose. Typical examples include discoloration of wallpaper, wear and tear on flooring, everyday scratches, and the aging of facilities.

The court views such wear and tear as anticipated from the time the lease agreement was concluded. It holds that the economic value of the rent or security deposit received by the landlord already reflects the natural wear and tear of the leased property. Therefore, the court determines that imposing the tenant's burden for the cost of repairing ordinary wear and tear could result in providing an unfair advantage to the landlord.

On the other hand, there are cases where the tenant's liability is recognized.

An obligation to restore the property to its original condition is recognized when special damage exceeding the scope of natural wear and tear occurs, such as when the lessee arbitrarily removes a wall, severely damages a floor, or damages facilities by significantly violating their duty of care.

However, the lessor must assert and prove the existence of such excessive damage. It is not sufficient to merely state that “the building has aged” or “the condition of the facilities is poor.” The lessor must prove that the damage has exceeded normal wear and tear through objective evidence that allows for a comparison of the condition at the time of lease and at the time of return.

Furthermore, depreciation is also an important factor to consider when calculating the cost of restoration. For instance, the tenant cannot be held liable for the entire cost of replacing flooring or fixtures that have been used for a considerable period. The court recognizes only the amount reflecting depreciation, taking into account the elapsed years and period of use of the property, as the amount of damages.

The scope of restoration to the original condition is not determined uniformly. The Supreme Court also takes the position that it must be judged on an individual basis by comprehensively considering the circumstances of the conclusion of the lease agreement, the contents of the contract, the condition of the property at the time of the lease, the tenant's period of use, and the details of changes to the facilities.

Particularly for the transferee of a commercial property, the "condition at the time of handover" serves as a crucial standard. Unless otherwise agreed, the transferee is not obligated to remove all facilities installed by the previous tenant. However, the situation may change if the contract includes a special clause stating that "all transferred facilities shall be removed." In practice, such clauses can lead to the burden of unexpectedly high restoration costs, so careful review is required at the contract signing stage.

To prevent disputes regarding restoration to the original condition upon termination of a lease, it is advisable for both the landlord and the tenant to document the site condition at the time of occupancy and vacating with photos and videos, and to prepare a facility handover document. Additionally, when calculating restoration costs, normal wear and tear and excessive damage must be clearly distinguished, and depreciation must be fully reflected.

Restoration to the original condition does not by any means mean "making it like new and returning it." Natural wear and tear resulting from the tenant's normal use falls within the scope of risks anticipated by the lease relationship. Ultimately, the core of a dispute regarding restoration lies in a specific and individual determination of where ordinary wear and tear ends and excessive damage begins.