One of the biggest concerns for tenants doing business in a commercial building is whether they will be able to keep their deposit when the building is auctioned due to the building owner's circumstances. This is because the money they have saved over a long period of time can disappear in an instant during the auction process. What should tenants be careful about in such a situation?
The Supreme Court has made an important ruling regarding the tenant's demand for distribution in a case where a leased building was put up for auction (Supreme Court Decision 2013da58057, April 30, 2014). This ruling clearly shows what tenants should keep in mind in order to protect their rights during the auction process.
The circumstances of the case are as follows. The tenants signed the first lease agreement and received a fixed date, and renewed the contract for several years. Then, after the mortgage was established, they signed a new lease agreement, and the deposit, contract period, and landlord were changed, and they received a fixed date again. However, when they demanded distribution after the auction began, they demanded distribution based on the new contract concluded after the mortgage was established, and only after the distribution demand deadline had passed did they claim the fixed date of the first contract and demanded distribution with priority.
However, the Supreme Court did not accept this demand by the tenants. That is, since the tenants themselves had entered the date of confirmation based on the newly concluded contract after the establishment of the mortgage at the time of the distribution request and submitted this as supporting documents, it was considered that insisting on the date of confirmation of the first contract after the distribution request deadline was not a simple supplement, but an attempt to change the distribution order itself. As a result, the Supreme Court ruled that this claim by the tenants was an act that had a significant impact on the auction buyer's decision on the bid price, and therefore could not be permitted unless there were special circumstances.
This ruling raises several important practical implications.
First, thorough management of changes to the lease agreement is necessary. This is because the legal status may differ depending on whether it is a simple extension of the term or a substantial change to the contract. If there is a substantial change in content, such as a change in the landlord, an increase or decrease in the deposit, or a modification to the contract period, there is a risk that it will be evaluated as a separate new contract.
Second, proper management of the confirmation date is key. The date of confirmation is the reference point for the right of opposition and priority payment. When entering into a renewal or change contract, it is necessary to obtain a new date of confirmation, and at this time, it is necessary to legally review whether the order of the existing date of confirmation is maintained.
Third, writing a dividend claim is by no means a simple administrative procedure. All items, including the rental deposit, contract date, final date, and building delivery date, must be carefully written down. Minor mistakes in writing or errors in attaching the contract can result in fatal limitations in asserting rights later on.
Fourth, since changing claims after the dividend claim deadline is prohibited in principle, caution must be exercised. The auction buyer calculates the scope of the acquisition burden and determines the bid price based on the contents of the sale item description and the distribution request, so changing the ranking after the closing date is prohibited as it would cause a significant change to the legal status of the buyer.
In the event that a leased building is auctioned, protecting tenants’ rights begins with thorough pre-planning and detailed legal review. The demand for distribution in the auction process can be a one-time opportunity for tenants. However, in order to not miss this opportunity and make the most of it, the best countermeasure is to receive assistance from a lawyer or other expert at each stage, from the contract signing stage to the time of renewal/change and preparation for distribution after the auction begins.
The above Supreme Court ruling reminds us once again that the tenant's demand for distribution is not a simple formality but a practical turning point in protecting rights. If you are a commercial tenant, the best way to protect your deposit is to check and prepare thoroughly every time you renew your contract and every time you hear news of an auction.
Attorney Sunjin Kim has been mediating franchise disputes based on coexistence for the past 10 years and is working to restore the franchise to its original state. KLF handles nearly 100 franchise lawsuits every year and is Korea's top franchise-specialized law firm that serves as an advisor to several franchise companies.
KLF Franchise Law Firm Room 205, 2nd floor, 151 Seochojungang-ro, Seocho-gu, Seoul 02-738-9600
