Since the end of last year, I have been carrying out real estate consulting work on rental properties. The client company plans to relocate part of the facility currently in use to another building. The building in use is an apartment building with multiple tenants, and each lease contract period is different. Separate special provisions also exist. When the building rental contract expires, the lessee restores the leased property to its original state and hands it over to the lessor. The client had the experience of spending excessive costs when renovating a separate building in the same building a year ago because restoration to its original state was not amicably agreed upon. This consulting work includes agreement on restoration. The issues and solutions for each lease contract have been submitted as a planning report. Currently, procedures such as brightening are in progress according to plan. In this article, I would like to explain the general issues and solutions for restoration presented in the consulting plan report.
Typically, tenants complete eviction and restoration work before the end of the contract period. Once the landlord's inspection for eviction and restoration is completed, the lease process is completed and the lease agreement is terminated. Disputes arise between the two parties when there is a difference between the state of restoration completed by the lessee and the state of restoration expected by the lessor. Let’s find out what the specific issues are in the restoration dispute and how to resolve them.
1. Main issues of restoration
The main issues regarding restoration are the scope of restoration and who will bear the burden of rental losses during the restoration period. To what extent should restoration be done? If the rental contract period is exceeded due to restoration, who is responsible for the rental loss incurred? These two are the main issues that arise in restoration.
2. Scope of restoration
Where can we find the words restoration or restitution? The starting point is the lease agreement and the lease provisions of the Civil Code. The following are items of the standard contract and civil law regarding restoration.
(1) Items related to restoration of the lease contract: [Example] When the contract is terminated, the lessee must restore the leased commercial building to its original state and return it to the lessor, and at the same time, the lessor must return the deposit to the lessee (Source: Ministry of Justice Commercial Building) Lease standard contract)
(2) Civil Code Article 615 (Borrower's duty to restore original condition and right to demolition): When the borrower returns the borrowed object, he/she must restore it to its original state. Objects attached to this may be removed.
(Applies mutatis mutandis to leases in accordance with Article 654 (application regulations))
It only states that the rental property must be restored to its original state when returned, but it is not clear to what extent the restoration must be done. The dictionary definition of restoration is to restore something to its original state before loss, damage, or destruction. Should I restore all loss, damage and destruction that occurred during the rental period to its previous condition? Since there is no specific information on the scope of restoration, many disputes are bound to arise.
3. Review of precedents on scope of restoration
Disputes over the scope of restoration ultimately lead to court litigation. By looking at related precedents, you can find out the court's position on the scope of restoration. If an amicable agreement cannot be reached between the landlord and tenant, a forced agreement is made by court decision. The following is a case study related to restoration.
(1) Seoul Central District Court, 2005 Gahap 100279, 2006 Gahap 62053, decided on May 31, 2007
Restoration to its original state means that, according to social norms, if it is in a state where it will be used and profited in a normal way, it is okay to return it as is, even if it becomes worse than when it began to be used. As for normal wear and tear, there is no cause attributable to the lessee... Unless there is a special agreement, the lessor must assume responsibility for the burden. … In a lease of a building, the depreciation of invested capital due to normal wear and tear is generally recovered by the lessor including necessary expenses such as depreciation and repair costs in the rent. … In order to impose such a restoration obligation on the lessee... The scope of damage to be borne is specifically specified in the provisions of the rental agreement itself... A special contract to that effect must be clearly agreed upon, such as when the lessor verbally explains it to the lessee and the lessee is acknowledged to have clearly recognized its purpose and made it part of the agreement.
(2) Seoul Central District Court, 2019 Gahap 4453, sentenced on June 2, 2021
It is unfair to require the lessee to bear the obligation to restore the original condition without considering depreciation, as it gives profits exceeding the profit that should normally be attributed to the lessor. Therefore, the lessee is obligated to restore the original damage even to the part caused by normal damage. It is difficult to believe that it exists. … Mr. A (landlord)... I was only exempted from normal repair obligations... Since you are not exempt from the obligation to repair the ‘building itself’, … It is difficult to say that Morning Glory (lessee) has an obligation to restore the property to its original state because normal wear and tear must be borne by Mr. A (lessor), who bears the responsibility for repairs, etc.
(3) Supreme Court decision 2010da89876,89883, decided on June 14, 2012
In a lease contract, the lessor is obligated to maintain the subject matter in a condition necessary for use and profit during the life of the contract, so if there is damage or trouble to the subject matter, it is so minor that the lessee can easily fix it without spending much money, so the lessee is responsible for the lessee's responsibility. If it is not to the extent of interfering with use or profit, the lessor is not obligated to repair it. However, if it is not repaired to the extent that the lessee will be unable to use or make a profit according to the purpose set by the contract, the lessor is obligated to make repairs. bear.
(4) Supreme Court Decision 2008Da34903 on October 9, 2008
The lessee's obligation to restore the property to its original state upon termination of the lease includes not only transferring possession of the real estate being used by the lessee to the lessor, but also the obligation to cooperate so that the lessor can reuse the property for the purpose for which it was leased.
During the lease period, defects in the leased property that occur naturally as the lessee uses and profits for the purpose of the lease are called normal wear and tear. Normal wear and tear is borne by the lessor in accordance with Article 623 (lessor's obligations) of the Civil Act. However, if it is something minor that the lessee can easily fix at a small cost and does not interfere with the lessee's profit from use, the lessee is responsible for the burden. However, parts removed or added due to the responsibility of the lessee are included in the scope of restoration. The scope of restoration borne by the lessee is determined by taking into account depreciation according to the period of use of the leased object. It is sufficient as long as the lessor can reuse the property according to the purpose for which it was used at the time the contract began.
You can find out more easily by looking at the resolution method of court litigation or rental dispute mediation committee mediation. The court or mediation committee's appraiser calculates the current value of the leased property, reflecting the value of the leased property at the time of purchase and depreciation over the period of use. The court or conciliation committee is required to pay the difference. The scope of restoration is only up to the current value of the leased property reflecting depreciation. Exceeding that range can be viewed as unjust enrichment.
4. Who is responsible for rental losses during the restoration period?
The second issue regarding restoration is who bears the burden of rental losses incurred during the period required for restoration. If restoration is completed within the lease contract period, no rental loss will occur due to payment of the specified rent and management fee. However, if the completion of restoration to its original state exceeds the contract period, who should bear the rental losses from the date of completion of the contract to the completion of restoration to its original state? Let’s look at related precedents.
(1) Supreme Court decision 90Daka12035, delivered on October 30, 1990
If the lessee has an obligation to restore the original state due to termination of the lease but delays in doing so, the damage suffered by the lessor as a result is not the amount equivalent to the rent from the date of delay to the date the lessor actually completes the restoration at his own expense, but is restored to the original state by the lessor himself. This is the equivalent amount of rent for the period during which it was possible to do so.
(2) Seoul Central District Court, 2005 Gahap 100279, 2006 Gahap 62053, decided on May 31, 2007
The date on which the plaintiff actually completed restoration work for the rental object was January 9, 2006, but the original construction period was 15 days from December 2, 2005 to December 16, 2005, and the main part of the work was It appears that the content does not require a particularly long construction period as it involves demolition work and floor and ceiling work to restore the original state, and the actual construction began a few days after the agreed-upon construction start date, and after the scheduled end date of the construction period, it was completed in 2006. It can be acknowledged that the construction until January 9 was merely a matter of supplementing deficiencies at the request of the plaintiff. The period required to restore the building rented by the defendant to its original condition varies depending on the content and extent of the facilities installed by the lessee, but since there are no specific claims or proofs from both the plaintiff and defendant regarding the same, the lessor must be held in light of the above construction content and extent. It is reasonable to assume that the period in which the plaintiff was able to restore his condition on his own did not exceed five days at most. Therefore, the defendant is obligated to pay the plaintiff 2,306,451 won (=1,430 x 5/31), the equivalent of 5 days' rent for the building in this case, as compensation for damages resulting from the failure to fulfill the obligation to restore the original condition.
According to the above precedent, if restoration is completed beyond the contract period, the rental loss that the lessee must bear is the amount equivalent to the rent for the period actually required for restoration, not up to the actual date of completion of restoration. The lessee must be billed only for the net construction period for restoration to original condition.
5. Change in scope of restoration
Can the scope of restoration be changed? This is possible if the changed scope is included in the contract. The changed scope of restoration must be specifically specified in the lease agreement, or there must be the lessee's knowledge and consent to the changes. However, it is necessary to determine whether the act of changing the restoration is a fair legal act. This is because unfair legal acts are invalid. Since unfairness is considered based on the time at the time of contract, it cannot be simply included in the contents of the contract. It must be determined whether the situation at the time of contract is fair and there must be sufficient understanding and active consent of the lessee.
We looked into who would bear the cost of restoration. If a dispute arises between the lessor and the lessee regarding restoration to original state, explaining the scope of restoration and who will bear the cost according to precedent can help reduce costs and time by resolving the dispute quickly without litigation or mediation. The landlord must not make excessive demands on the tenant in terms of rent. The brightness must be agreed upon at a reasonable level.
Concluding the article…
Through this consulting work, we looked at many precedents regarding restoration to original state. The court seems to be slightly more inclined to the side of the lessee than the lessor when it comes to rent disputes following the termination of a lease agreement. Landlords are protected by detailed ownership regulations in the Civil Code, but it seems that the protection provisions for tenants' rights are insufficient. This may be because in modern society, where the importance of economic activities has increased compared to the past, the economic activities of tenants are viewed as more important than protection of ownership. Looking at Article 1 of the Commercial Building Lease Protection Act, it is stated that this law is ‘for the purpose of ensuring the stability of the people’s economic life.’ In ‘national economic life’, ‘citizens’ seem to mean ‘lessees engaged in economic activities’ rather than landlords. If a dispute over the brightness of a lease leads to a lawsuit, it is likely that a ruling unfavorable to the landlord will be made.
The author majored in architectural engineering at Hanyang University/Graduate School. He worked at a construction company and a software development company for about 20 years, and majored in law and business administration at Korea Open University. Currently, he is the team leader of the Blackstone team at Remax Wide Partners, which specializes in corporate real estate services.
