CONTENTS
- 1. The Certified Administrative Agents Act Litigation, the Detailed Background?
- - The Certified Administrative Agents Act Litigation, the Relevant Statutes and Precedents?
- 2. The Certified Administrative Agents Act Litigation, the Lower Courts' Determination?
- 3. The Certified Administrative Agents Act Litigation, the Supreme Court's Determination?
- 4. The Certified Administrative Agents Act Litigation, Daeryun's Strategy?
1. The Certified Administrative Agents Act Litigation, the Detailed Background?
The plaintiff who brought this litigation was A, a licensed real estate agent.
In 2020, A brokered a lease agreement for a local daycare center.
In the course of this, A prepared a key money (premium) contract between the former tenant and the new tenant and received 2.5 million won by way of a fee.
Key money (premium) refers to money that a new tenant pays to the landlord apart from the security deposit and the monthly rent.
It can be understood as money that a new tenant provides in exchange for receiving intangible asset value, such as the premium of the commercial unit's location or business know-how, from the landlord.
The Commercial Building Lease Protection Act also treats such key money (premium) transactions as lawful.
The problem is that the party permitted to broker ‘key money (premium)’ is a certified administrative agent, not a licensed real estate agent.
Accordingly, A was sent to trial on charges of violating the Certified Administrative Agents Act.
The Certified Administrative Agents Act Litigation, the Relevant Statutes and Precedents?
◈ Relevant Statutes
Certified Administrative Agents Act, Article 2 (Scope of Work)
(1) A certified administrative agent shall, upon delegation by another person, perform the following work; provided, that the agent may not perform work restricted under other statutes.
1. Preparation of documents to be submitted to administrative agencies
2. Preparation of documents concerning rights and obligations or the certification of facts
Certified Administrative Agents Act, Article 3 (Prohibitions Applicable to Persons Who Are Not Certified Administrative Agents)
(1) A person who is not a certified administrative agent may not engage, as a business, in the work under Article 2, except where permitted under other statutes.
(2) A person who is not a certified administrative agent may not use the title of certified administrative agent or any similar title.
Certified Administrative Agents Act, Article 36 (Penalty Provisions)
(1) A person who falls under any of the following shall be punished by imprisonment for not more than three years or by a fine not exceeding 30 million won.
1. A person who, in violation of Article 3 (1), has engaged as a business in the work under each subparagraph of Article 2 (1)
Licensed Real Estate Agents Act, Article 3 (Scope of Objects of Brokerage)
The objects of brokerage under this Act are as follows:
1. Land
2. Buildings and other fixtures attached to land
3. Other property rights and objects prescribed by Presidential Decree
◈ Relevant Precedents
“Tangible property such as the business facilities and fixtures of a commercial building, or intangible asset value such as clientele, goodwill, business know-how, or the business advantage attributable to the location of the premises, cannot be regarded as an object of brokerage prescribed in Article 3 of the same Act or Article 2 of the Enforcement Decree of the same Act. Accordingly, brokering the receipt of so-called ‘key money (premium)’ and the like for the transfer of such tangible and intangible asset value does not constitute a brokerage act governed by the former Real Estate Brokerage Act, and therefore the cap on brokerage fees prescribed by the same Act likewise does not apply to a brokerage act concerning such an object of transaction.” (See Supreme Court, Decision of September 22, 2006, 2005 Do 6054, among others)
2. The Certified Administrative Agents Act Litigation, the Lower Courts' Determination?
First, the court of first instance found that A was guilty and suspended the sentencing of a fine of 1 million won.
The court found that the contract in this case constituted a ‘key money (premium) contract’ arising from the transfer of the business rights in the daycare center.
For this reason, the court explained that A's act of brokering the key money (premium) contract and preparing the key money (premium) contract was equivalent to preparing a ‘document concerning rights and obligations or the certification of facts’ as prescribed by the Certified Administrative Agents Act.
The court added that A had titled this key money (premium) contract a ‘consulting contract,’ and that A appeared to have taken this measure out of awareness that an issue of violating the Certified Administrative Agents Act could arise for A as well.
A appealed, but the determination of the appellate court was the same.
The appellate court likewise stated, as the reason for its judgment, that the contract in this case was a transfer of the business rights in the daycare center and a key money (premium) contract arising therefrom, and that it was a clear fact that a key money (premium) contract is not an object of brokerage under the Licensed Real Estate Agents Act.
3. The Certified Administrative Agents Act Litigation, the Supreme Court's Determination?
The Supreme Court also reached the same determination as the lower courts.
The Supreme Court explained that the lower judgment was not erroneous in violating the rules of logic and experience or in misapprehending the legal principles concerning, among other things, the crime of violating the Certified Administrative Agents Act.
It then stated that A's final appeal was dismissed.
4. The Certified Administrative Agents Act Litigation, Daeryun's Strategy?
Immediately after the Supreme Court's decision was handed down, the real estate brokerage market was stirred.
This is because, until now, licensed real estate agents had in most field practice also handled the brokerage of commercial key money (premium).
However, now that such conduct has been clearly defined as unlawful, changes appear likely in the work of licensed real estate agents and certified administrative agents.
In the meantime, the Korea Association of Realtors objected to the Supreme Court's decision and even filed a constitutional complaint with the Constitutional Court.
It remains to be seen what decision the Constitutional Court will make on this matter.
Daeryun Law Firm LLP operates a Construction and Real Estate Group composed of attorneys experienced in various real estate disputes, including construction, leases, and ownership.
It provides legal services across a range of matters, from administrative regulation surrounding construction and real estate to related criminal litigation.
If you have any inquiries regarding real estate, you are welcome to reach out to Daeryun Law Firm LLP at any time.
