If a person who leased a commercial building for business did not get the deposit back after the lease term ended and a redevelopment project then began, the Supreme Court has ruled that the redevelopment association, as the new owner of the building, must return the deposit.
The Supreme Court's Third Division (Presiding Justice Lee Heung-gu) on the 9th partially overturned a lower court ruling that had rejected a lawsuit filed by a person identified as A seeking the return of a lease deposit from a dwelling redevelopment and maintenance association in Seocho District, Seoul, and sent the case back to the Seoul Central District Court.
In June 2017, A signed a lease with the owner, identified as B, for a commercial building in a redevelopment zone in Seocho District. The deposit was 20 million won, the monthly rent was 1.8 million won, and the key money was 10 million won. The lease term ran through Dec. 2021. A sold waffles and coffee there. The lease included a special clause stating, "Upon approval of the redevelopment complex project and relocation, the tenant will receive the deposit and immediately deliver up the store."
Afterward, B lowered the monthly rent to 1.5 million won in Feb. 2019 and to 1 million won in Apr. 2020. A and B executed a new lease in Mar. 2020, with the lease term running through Dec. 2021. It included a special clause that if the redevelopment association issued a fixed relocation notice, A would receive the deposit and leave the commercial unit immediately even before the lease term ended.
To begin demolition work, the redevelopment association set the relocation period for June–Nov. 2021 and in April of the same year notified association members and tenants to relocate.
However, A refused to deliver the store and did not comply with the relocation request. In Oct. 2021, C, who managed the store lease, asked A to provide an account to which the deposit could be returned, but A did not respond. The redevelopment association completed a forcible execution to take the store through the court in Apr. 2022.
After that, A filed a lawsuit against the redevelopment association seeking the return of the lease deposit and damages for key money and business losses. The issue was whether, in a commercial lease with opposability, if the building was transferred after the lease term expired but before the deposit was returned, the transferee bears the debt to return the deposit.
The trial and appellate courts dismissed A's claims, finding that the redevelopment association, which acquired ownership of the commercial building after the lease ended by expiration of term, did not succeed to the landlord's status.
The Supreme Court, however, held that "the transferee (the redevelopment association) is responsible for returning the deposit." If one acquires a commercial building by transfer, the entirety of the landlord's rights and obligations is succeeded along with ownership.
Article 9(2) of the Act on the Protection of Commercial Building Leases provides that "even if the lease has ended, the lease relationship is deemed to continue until the tenant receives the deposit back." On that basis, the Supreme Court found that when real estate is transferred while the deposit has not been returned, the landlord's status in the state of a terminated lease is naturally succeeded by the transferee.
The Supreme Court dismissed the claims for damages alleging that "the association interfered with the recovery of key money" and that it "must compensate for business profits that would have been earned had operations continued." It found that the lower court was correct to dismiss the claims on the ground that the lease itself ended in Dec. 2021 upon expiration of term.