Article 10, Paragraph 2 of the Commercial Building Lease Protection Act (hereinafter referred to as “this Act”) stipulates that “the tenant’s right to request renewal of the contract may be exercised only within the scope where the entire lease period, including the initial lease period, does not exceed 10 years.” Disputes arise between landlords and tenants regarding the meaning of “initial lease” in this provision regarding whether contract renewal is possible. Such disputes frequently occur, especially when the contents of the lease contract are changed during its existence or when the lease contract is written multiple times.
Article 10, Paragraph 2 of this Act stipulates that the “total lease period including the initial lease period” for the lease period guaranteed by exercising the right to request renewal of the contract shall not exceed 10 years, so the initial lease referred to in the relevant provision refers to the first lease for the relevant commercial property.
In this regard, our Supreme Court, in light of the legislative intent of this provision, has ruled that “the term ‘initial lease period’ refers to the period of the first lease agreement concluded for the relevant commercial building, whether in a lease agreement concluded after the enforcement of this Act or in a lease agreement concluded before the enforcement of this Act and renewed after the enforcement of this Act” (refer to Supreme Court Decision 2005Da74320 dated March 23, 2006). In other words, the initial lease period refers to the lease period of the first lease agreement concluded for the relevant commercial building, and even if a new contract is drawn up, the rent is increased, or the lease period is set differently thereafter, it is not a new lease agreement and is included in the period after the initial lease period.
Furthermore, the Supreme Court has ruled that even if there are periods during the 10-year period when the business registration name does not match, if the lessee is the same, the right to request contract renewal can only be exercised for 10 years after the initial lease period.
If the tenant changes during the lease term and a new lease is concluded, the new tenant is guaranteed the right to request a renewal of the contract for another 10 years from the time of the new lease. From the landlord's perspective, since only the tenant has changed, he may want to include the existing lease term in the total 10 years. To this end, there have been frequent attempts to calculate the entire lease term, including the existing lease term, by transferring the lease rights with the landlord's consent rather than concluding a new lease term.
Due to this transfer of lease rights, the contract renewal period guaranteed to the new tenant is reduced by the amount of the existing lease term. The Supreme Court holds that if the existing tenant (the transferor of the lease rights) transfers the lease rights to the new tenant (the transferee of the lease rights) without explaining this to the new tenant (the transferee of the lease rights), this may constitute an act of fraud (see Supreme Court Decision 94다41003, June 14, 1996). The disposition document regarding the contract for the transfer and acceptance of lease rights should clearly state that the entire lease term is calculated based on the date of the existing lease agreement, or at least provide clear evidence that this has been sufficiently explained to the new tenant and their understanding sought.
Attorney Lee Yong-hwa of Ubiz Law Firm has extensive experience and deep expertise in the real estate field. Through his long practical experience, he has handled a variety of real estate-related issues and provides reasonable and practical solutions to customers.
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