SOUTH KOREA Law and Practice Contributed by: Junghwan Lee, Dong Seok Woo, Jun Woo Cho and Jee In Kim, Lee & Ko
es where a landlord seeks a rent adjustment based on economic changes. A tenant under the Commercial Building Lease Protection Act has the right to request renewal of the lease for a total period of up to ten years, and the landlord may not refuse such a request unless it has a justifiable reason. 6.4 Typical Terms of a Lease • Length of Lease Term: The lease term varies depending on the agreement between the parties. In the case of commercial leases, the initial term is often around five years. • Maintenance and Repair: In principle, the land - lord is obligated to maintain and repair the leased property in a condition suitable for the tenant’s use. The landlord is responsible for repairs to the walls, ceilings, common areas, HVAC systems, and other facilities installed by the landlord. The tenant is responsible for repairs where damage is attributa - ble to the tenant’s wilful misconduct or negligence, as well as for facilities installed by the tenant. • Rent Payments: Rent is typically paid monthly in advance. 6.5 Rent Variation Parties typically agree on a mechanism for annual rent adjustments, either at a fixed rate or by reference to an index such as the consumer price index. 6.6 Determination of New Rent Parties determine the new rent by mutual agree - ment after negotiation. In addition, as described in 6.3 Regulation of Rents or Lease Terms , changes in economic circumstances may result in an increase or decrease in rent, subject to certain limitations. 6.7 Payment of VAT A 10% VAT is payable on rent under a commercial lease, and such VAT is borne by the tenant. Where a security deposit is provided, the interest income that could be earned on such deposit is deemed to con - stitute rent and is subject to 10% VAT. In such cases, it is customary for the landlord to bear such VAT. 6.8 Costs Payable by a Tenant at the Start of a Lease It is common for the tenant to pay the agreed security deposit upon commencement of the lease term. The
security deposit is provided to secure all obligations of the tenant under the lease, including the payment of rent. Upon expiration or termination of the lease term, the security deposit is returned to the tenant. 6.9 Payment of Maintenance and Repair The tenant typically pays the agreed maintenance fee, which includes the costs incurred for the maintenance and repair of common areas. Accordingly, while the landlord carries out the maintenance and repair of common areas, the associated costs are borne by the tenant in proportion to the size of the leased area. 6.10 Payment of Utilities and Telecommunications The tenant pays utilities and telecommunications costs in proportion to the size of the leased area. 6.11 Payment of Property Taxes The landlord, as the owner of the leased property, is legally responsible for property taxes. It is typical for the parties to agree that such taxes are borne by the landlord. 6.12 Insurance Issues The landlord, as the owner of the leased property, typically maintains insurance policies covering prop - erty all risk, machinery risk, gas accident liability, and general liability. The party responsible for bearing the insurance premiums is determined by agreement between the landlord and the tenant. In many cases, such premiums are borne by the landlord. No tenant is known to have recovered losses related to COVID-19 under business interruption insurance policies. 6.13 Restrictions on the Use of Real Estate In general, a tenant’s use of the lease property is not restricted by law or regulation. However, such use may be limited by provisions of the lease, or by regu - lations applicable to certain areas. Typical limitations included in a lease agreement include the following: installing signage outside the permitted areas; storing hazardous materials such as explosives; and using the leased property for residential purposes or for any purpose other than the agreed use under the lease.
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