A lease agreement prescribes important terms and conditions and special provisions required for a contract.
Preparation of a contract
- A lease agreement must contain the following matters (Article 26(1) of the Licensed Real Estate Agents Act and Article 22(1) of the Enforcement Decree of the Licensed Real Estate Agents Act).
· Personal information on parties to the transaction
· Marking of the object
· Date of the contract
· Matters related to payment, such as transaction amount and contract deposit amount, and the date of payment thereof
· Time and date of handing over of the object
· Details of transfer of rights concerned
· Terms and conditions or time limit of the contract, if any
· Confirmation of brokerage object and explanatory note issuance date of brokerage object
· Details of other stipulations
※ As you will be subject to the rights and duties specified in the lease agreement prepared, due care must be exercised. In particular, the parts where any issues may arise, such as in special provisions on the business type, premium, use of parking lot, etc. care should be made to thoroughly check and consult with the lessor before including them in the agreement.
Documents to receive after signing an agreement
- When signing a lease agreement, the following documents should be inspected and preserved.
· A commercial lease agreement (Article 26(1) of the Licensed Real Estate Agents Act)
√ When a practicing licensed real estate agent inflicts property damage upon a transaction party intentionally or by negligence during brokerage, he/she will be liable for the damage (Article 30(1) of the Licensed Real Estate Agents Act).
√ In addition, where a licensed real estate agent fails to prepare, deliver or keep a contract document in a proper manner, the registration authority may issue an order to suspend his/her business for a fixed period of time not exceeding 6 months (Subparagraph 8 of Article 39(1) of the Licensed Real Estate Agents Act).
· A written confirmation and explanation of object of brokerage (Article 25(3) of the Licensed Real Estate Agents Act)
√ Where a licensed real estate agent fails to prepare and provide a written confirmation and explanation on object of brokerage, or details prepared in the confirmation differs in the fact and inflicted property damages, the party to the transaction may file a claim for damages against the licensed real estate agent (Refer to Article 25(3) and Article 30(1) of the Licensed Real Estate Agents Act).
√ In addition, where a licensed real estate agent fails to prepare, deliver or preserve a contract document in a proper manner, the registration authority may issue an order to suspend his/her business for a fixed period of time not exceeding 6 months (Subparagraph 6 of Article 39(1) of the Licensed Real Estate Agents Act).
· A deduction certificate that a licensed real estate agent has received after subscribing to a surety insurance or a mutual aid society to provide for accidents regarding brokerage
√ Any licensed real estate agent who fails to provide an explanation as to the matters in liability for damages or issue a copy of a relationship certificate or an electronic document of a relationship certificate will be subject to an administrative fine not exceeding KRW 1 million (Subparagraph 5 of Article 51(3) of the Licensed Real Estate Agents Act).
√ In addition, where a licensed real estate agent commences his/her business without taking any measures to ensure liability to compensate for damages, the registration authority may revoke the registration of establishment of the relevant brokerage office (Subparagraph 8 of Article 38(2) of the Licensed Real Estate Agents Act).
Once the requisites for counteraction are satisfied and a certificate of a fixed date on the lease agreement is obtained, a preferential payment right is created.
Fulfilling the requisites for counteraction
- Concept
· “Counterforce” refers to a legal power that allows a lessee to claim the terms and conditions of a lease to a third party, or a transferee, or a person that succeeded the right to lease of the commercial building, or another interested party in the leased commercial building (Article 3(1) of the Commercial Building Lease Protection Act).
- Requisites that give rise to counterforce
· Even if a lessee has not registered his/her lease, if he/she has been ① delivered with the building, and ② files an application for business registration, a counterforce will be created on the following date (Article 3(1) of the Commercial Building Lease Protection Act).
- Effect
· A lessee of a commercial building with the counterforce may claim the continued existence of lease right against the new owner of the commercial building (transferee or successful bidder), even if the building is transferred to another person, or sold by auction or public auction (Article 3(2) of the Commercial Building Lease Protection Act).
※ Provisions on counterforce, etc. (Article 3 of the Commercial Building Lease Protection Act) will be applied to leases with deposits that exceed the set amount for each region pursuant to Article 2(1) of the Commercial Building Lease Protection Act (Article 2(3) of the Commercial Building Lease Protection Act).
Preferential payment right
- Concept
· “Preferential payment right” refers to the right of a lessee where he/she is entitled to reimbursement of security deposit in preference to posterior creditors or other creditors from the realized amount of leasehold building (including the site owned by the landlord) at the time of auction under the Civil Execution Act or public auction under the National Tax Collection Act (Refer to Article 5(2) of the Commercial Building Lease Protection Act).
- Requisites for obtaining preferential payment right
· A lessee ① equipped with requisites for counteraction (delivery of building and application for business registration) ② who has obtained a certificate of a fixed date on the lease contract from the competent head of tax office has a preferential payment right (Article 5(2) of the Commercial Building Lease Protection Act).
Protection of opportunity to collect premiums
Concept of the premium
- The “premium” refers to a price, such as money, paid to a lessor or a lessee, other than deposits and rents, as a price for transfer or use of tangible or intangible property value, including business facilities, equipment, customers, credit, business know-how and business benefits generated from the location of a commercial building, which is paid by a person who conducts or who intends to conduct a business in a commercial building, the subject matter of the lease (Article 10-3(1) of the Commercial Building Lease Protection Act).
- A “premium contract” refers to a contract which requests any person who intends to be a new lessee to pay the above premium to a lessee (Article 10-3(2) of the Commercial Building Lease Protection Act).
Protection of opportunity to collect premiums
- No lessor must obstruct any lessee from receiving any premium pursuant to a premium contract from a person arranged by the lessee to become a new lessee, by committing any of the following acts from 3 months prior to the expiry of the lease period until the end of the lease. However, this shall not apply where any of the grounds set forth in Article 10(1) of the Commercial Building Lease Protection Act exists (Article 10-4(1) and (2) of the Commercial Building Lease Protection Act).
· Requesting a person arranged by the lessee to become a new lessee to pay premiums or receiving premiums from a person arranged by the lessee to become a new lessee
· Preventing a person arranged by the lessee to become a new lessee from paying a premium to the lessee
· Requesting a person arranged by the lessee to become a new lessee to pay remarkably large amounts of rent and deposit, compared with the tax on a commercial building, public charges, rents and deposits of surrounding commercial buildings, and other charges
· Refusing to conclude a lease contract with a person arranged by the lessee to become a new lessee without any of the following justifiable grounds
√ Where a person arranged by the lessee to become a new lessee cannot afford to pay deposits or rents
√ Where a person arranged by the lessee to become a new lessee is likely to violate the duty as a lessee or any substantial ground exists which makes it difficult to maintain the lease
√ Where the subject matter of the lease is a commercial building and has not been used for profit making for at least 18 months
√ Where a new lessee selected by the lessor has concluded a premium contract with the lessee and paid the premium
Lessor’s liability for damages
- Where a lessor engages in the above prohibited acts in relation to the collection of premiums incurring any loss to a lessee, he/she shall be liable to compensate for such loss (Former part of Article 10-4(3) of the Commercial Building Lease Protection Act).
- Claim for damages to a lessor will expire by completion of prescription if it is not exercised within 3 years from the date when the lease expires (Article 10-4(4) of the Commercial Building Lease Protection Act).
Lessee’s duty to provide information
- A lessee has to provide information to the lessor, to the best of his/her knowledge, on the financial capacity of the person arranged by the lessee to become a new lessee, such person’s willingness and ability to pay deposits and rents and to perform duties as a lessee (Article 10-4(5) of the Commercial Building Lease Protection Act).
Exemption from application of premiums
- The provisions under Article 10-4 the Commercial Building Lease Protection Act will apply to any of the following commercial building leases (Article 10-5 of the Commercial Building Lease Protection Act)
· Where a commercial building, the subject matter of the lease, is a part of a large store or quasi-large store as prescribed in Article 2 of the Distribution Industry Development Act (excluding traditional markets)
· Where a commercial building, the subject matter of the lease, is a state property as prescribed in the State Properties Act or public property pursuant to the Public Property and Commodity Management Act