SOUTH KOREA Law and Practice Contributed by: Hyeon Kang, Tae Kyoon Kim, Seungil Hong and Sung-Ho Moon, Bae, Kim & Lee LLC
6. Commercial Leases 6.1 Types of Arrangements Allowing the Use of Real Estate for a Limited Period of Time Arrangements for the occupancy and use of real estate include a lease on real estate, an ease - ment on land, and a superficies on land. 6.2 Types of Commercial Leases There are two main types of commercial leases: • a gross lease typically used for offices – a tenant is not responsible for the payment of any amounts other than rent; and • a net lease typically used for retail stores – a tenant pays, in whole or in part, the cost of possession and maintenance with respect to the real estate, in addition to rent. 6.3 Regulation of Rents or Lease Terms Under the Civil Code Rents and lease terms are basically freely nego - tiable. However, under the Civil Code, certain terms may not be contractually agreed upon to the extent that they are unfavourable to a tenant. For example, in the event that the agreed rent becomes inadequate due to an increase in tax - es, public charges or other claims, the landlord is entitled by law to request an increase in future rent. However, the tenant’s right to request a reduction in rent in case of a change in economic circumstances may not be waived or excluded by contractual agreement. As another example, in the event that a tenant installs a fixture in or on the leased building for its benefit with the landlord’s consent, the tenant is entitled by law to request the landlord to purchase the fixture upon termination of the lease and such right of the tenant may not be waived or excluded by contractual agreement.
• PFV – Special Tax Treatment Control Act and KCC. The implications of the Corporate Transparency Act may extend to US contributors investing off - shore, including those investing directly or indi - rectly in Korean real estate. Their compliance obligations regarding disclosure, reporting and enhanced due diligence for anti-money launder - ing purposes may potentially affect their strate - gic decisions regarding the ownership structure, investment timeline, and deal structuring. Given that US contributors may be required to disclose the beneficial ownership of the Korean target they are investing in under the CTA, it would be important for Korean sponsors to recognise that such information concerning their identity and ownership could potentially be reported to US authorities. Korean counterparts may also need to provide their co-operation so that US con - tributors can provide the information required to fulfil their disclosure obligations under the Cor - porate Transparency Act. 5.6 Annual Entity Maintenance and Accounting Compliance The main items in annual maintenance costs for special investment vehicles are the fees paid to the asset management companies, custodians and business trustees. As an example, for REITs, annual fees paid to asset management compa - nies are typically within 0.2% to 0.4% of the total property purchase price, while annual fees paid to custodians and business trustees typically add up to 0.04% of the total property purchase price. Fees paid by other special investment vehicles do not vary significantly. The annual accounting compliance cost for special invest - ment vehicles is typically around KRW10 million or lower, although this may vary slightly depend - ing on the asset size and the accounting period.
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