CONTENTS
- 1. Overview of the Case concerning Transfer of a Commercial Building and the Dispute over Return of the Lease Deposit
- - The Lower Court's Determination
- 2. Legal Basis for the Transferee of a Commercial Building Succeeding to the Lessor's Status
- - Succession to the Lessor's Status under the Commercial Building Lease Protection Act
- - Scope of Application of the Succession to the Lessor's Status
- - The Legal Nature of a Lease Deposit
- - The Scope of Security of a Lease Deposit
- 3. The Supreme Court's Determination on Overdue Rent and Deduction From the Deposit
- - The Party to Whom the Claims for Overdue Rent Belong
- - The Party to Whom the Claims for Management Fees Belong
- - Distinction Between Assignment of Claims and Succession to the Lessor's Status
- - Whether the Transferee May Deduct From the Deposit
- 4. The Significance and Legal Effect of the Judgment
- - Matters That Lessees and Building Transferees Should Verify
- 5. A Real Estate Attorney's Response to Lease Deposit Disputes and Legal Advisory
- - Assistance From a Real Estate Attorney
1. Overview of the Case concerning Transfer of a Commercial Building and the Dispute over Return of the Lease Deposit
This case is a dispute that arose over whether, after the owner of a commercial building changed through an auction procedure, the new owner could deduct from the lease deposit the overdue rent and management fees that had arisen during the period of the former lessor.
In 2010, the defendant concluded a commercial lease agreement with the co-owners of the building, paid a lease deposit of 25 million won, took delivery of the premises, and began using them.
The defendant subsequently renewed the lease agreement and continued to use the premises, but did not pay the rent and management fees as required, and accumulated arrears of approximately 34 million won in rent and management fees before the ownership of the building was transferred.
Meanwhile, an auction procedure for the partition of the co-owned property was conducted among the co-owners of the building, and the plaintiff acquired the building through the auction and obtained ownership in July 2014.
However, the defendant continued to fail to pay the rent and management fees even after the plaintiff acquired ownership of the building, and the plaintiff ultimately terminated the lease agreement on the ground of the rent arrears and then demanded delivery of the premises.
The plaintiff thereafter argued that not only the overdue rent that arose after the acquisition of ownership but also the overdue rent and management fees that arose during the period of the former lessor should be deducted from the lease deposit, and the defendant objected, giving rise to a dispute over the scope of the deposit to be returned.
The Lower Court's Determination
The lower court acknowledged that the plaintiff succeeded to the status of the former lessor upon acquiring ownership of the building through the auction.
However, it held that the claims for overdue rent that arose during the period of the former lessor must be regarded as claims belonging to the lessor at that time, and that there was no assertion or proof that the plaintiff had separately taken an assignment of those claims.
The lower court also found it difficult to recognize that there had been a separate manifestation of intent to deduct the existing overdue rent from the deposit.
Accordingly, the lower court held that the overdue rent and management fees that arose before the plaintiff succeeded to the lessor's status could not be deducted in the course of settling the deposit, and it consequently did not accept the plaintiff's argument.
2. Legal Basis for the Transferee of a Commercial Building Succeeding to the Lessor's Status
In commercial building leases, there are cases in which the owner of the building changes while the lease agreement remains in effect.
In such cases, depending on the extent to which the new owner succeeds to the rights and obligations of the former lessor, various legal relationships, such as the payment of rent, the return of the deposit, and the termination of the contract, may differ.
In particular, whether the existing lease relationship continues even where ownership is transferred not only through a sale of the building but also through an auction or inheritance is a matter directly connected to the protection of the lessee's rights.
In this case as well, whether the status of the former lessor was transferred to the new owner, and whether the succession to the lessor's status can be regarded as identical to the succession to individual claims, served as important criteria for the determination.
Succession to the Lessor's Status under the Commercial Building Lease Protection Act
Article 3, Paragraph 2 of the Commercial Building Lease Protection Act provides as follows.
The transferee of a leased building (including any other person who has succeeded to the right to lease it) shall be deemed to have succeeded to the status of the lessor.
This provision is intended to ensure that, where the lessee has lawfully acquired the power to assert against third parties, the existing lease relationship is maintained even if the owner of the building changes.
Accordingly, the lessee may assert the rights under the lease agreement against the new owner, and the new owner succeeds to the status of the former lessor and becomes a party to the lease relationship.
Scope of Application of the Succession to the Lessor's Status
Article 3, Paragraph 2 of the Commercial Building Lease Protection Act does not distinguish on what ground the ownership of the building was transferred.
Therefore, it may apply not only to an ordinary sale agreement but also to a transfer of ownership resulting from inheritance, an auction, or a procedure for the partition of co-owned property.
In practice, the grounds on which the owner of a building changes are varied, but if the lessee has the lawful power to assert against third parties, the new owner succeeds to the status of the lessor.
This is also connected to the purpose of the Commercial Building Lease Protection Act, which is to guarantee the stability of the lessee's residence and business.
The Legal Nature of a Lease Deposit
Article 618 of the Civil Act (Lease)
A lease becomes effective when one party agrees to allow the other party to use and take profits from an object, and the other party agrees to pay rent therefor.
A lease deposit is money that the lessee delivers to the lessor under a lease agreement, and it has the character of securing the performance of obligations arising in the lease relationship.
The fact that a lease deposit has been paid does not mean that ownership of the deposit is definitively vested in the lessor.
When the lease relationship terminates, the lessor bears an obligation to return the deposit to the lessee, and the lessee may claim the return of the deposit once the lessee has performed all obligations arising in the lease relationship.
Therefore, a lease deposit may be regarded as money that serves as the basis for settling the rights and obligations of the parties in the course of the continuation and termination of the lease relationship.
The Scope of Security of a Lease Deposit
The Civil Act does not expressly provide as to which obligations a lease deposit secures.
However, the precedents have maintained a consistent position regarding the legal nature of a lease deposit.
Supreme Court, Decision of September 28, 2005, 2005 Da 8323, 8330
"A lease deposit secures all obligations of the lessee under the lease that arise from the termination of the lease agreement until the object is surrendered to the lessor."
According to this, a lease deposit does not secure only the rent obligation.
Obligations for management fees arising in the lease relationship, obligations for damages relating to the duty to restore to the original state, and various obligations arising before the return of the object may also be secured by the deposit.
In the above decision, the Supreme Court also held that, where an obligation of the lessee exists, it is deducted from the deposit absent special circumstances, without a separate manifestation of intent to set off.
Therefore, whether a given obligation is secured by the deposit at the time of termination of the lease is an important criterion in determining the scope of the deposit to be returned.
3. The Supreme Court's Determination on Overdue Rent and Deduction From the Deposit
The Supreme Court held that the succession to the lessor's status and the question of the vesting of claims for overdue rent cannot be regarded as identical.
Even if the new owner succeeds to the status of the lessor under Article 3, Paragraph 2 of the Commercial Building Lease Protection Act, the claims for overdue rent and management fees that arose before the transfer of ownership are not, as a matter of course, transferred together with that status.
However, the Supreme Court held that the question of the vesting of claims for overdue rent and the question of settling the lease deposit must be distinguished.
The Party to Whom the Claims for Overdue Rent Belong
The Supreme Court held that the claims for overdue rent that arose before the transfer of ownership belong, in principle, to the lessor at that time.
From the Supreme Court, Decision of March 22, 2017, 2016 Da 218874
"Overdue rent or management fees that had already arisen before the ownership of a leased building was transferred are not, in principle, transferred to the transferee absent a separate procedure for the assignment of claims, and only the lessor may claim them from the lessee."
The lessor who allowed the lessee to use and take profits from the building during the relevant period is the party to whom the rent claims belong, and the Court held that the rent claims that had already arisen cannot be regarded as automatically transferred merely because the owner of the building subsequently changed.
The Party to Whom the Claims for Management Fees Belong
The claims for management fees were also assessed under the same standard as the claims for overdue rent.
Management fees are costs that arise in the course of the lessee's use of the building, and they constitute claims belonging to the lessor who allowed the lessee to use the object during the relevant period.
The Supreme Court found that the claims for management fees that arose before the transfer of ownership are likewise not transferred to the new owner absent a separate assignment of claims.
Distinction Between Assignment of Claims and Succession to the Lessor's Status
The Supreme Court distinguished between the succession to the lessor's status and the succession to the claims for overdue rent.
From the Supreme Court, Decision of March 22, 2017, 2016 Da 218874
"Overdue rent or management fees that had already arisen before the ownership of a leased building was transferred are not, in principle, transferred to the transferee absent a separate procedure for the assignment of claims, and only the lessor may claim them from the lessee."
The lower court held that there was no material from which to find that the plaintiff had taken an assignment of the claims for overdue rent from the former lessors.
The Supreme Court likewise found that the claims for overdue rent and management fees that arose before the transfer of ownership are not transferred to the new owner absent a separate procedure for the assignment of claims.
Accordingly, the Court held that the plaintiff could not directly claim, as the plaintiff's own claims, the claims for overdue rent that arose during the period of the former lessor.
Whether the Transferee May Deduct From the Deposit
The Supreme Court assessed the question of the vesting of claims for overdue rent and the question of deduction from the lease deposit separately.
From the Supreme Court, Decision of March 22, 2017, 2016 Da 218874
“Under a lease agreement, a lease deposit secures all obligations of the lessee under the lease that arise from the termination of the lease agreement until the object is surrendered to the lessor.”
"Where the transferee of a leased building has acquired ownership of the building and the lease relationship subsequently terminates so that the lease deposit must be returned to the lessee, any overdue rent or management fees that arose before the transferee succeeded to the lessor's status are, absent special circumstances, deducted from the lease deposit as a matter of course."
The lower court held that the overdue rent and management fees that arose during the period of the former lessor could not be deducted from the deposit.
The Supreme Court, however, found that, insofar as a lease deposit secures all obligations of the lessee, the overdue rent and management fees that arose before the transfer of ownership are also subject to deduction in the course of settling the deposit.
4. The Significance and Legal Effect of the Judgment
This judgment is significant in that it distinguished, where the owner of a commercial building has changed, between the succession to the lessor's status and the question of the vesting of claims for overdue rent.
In particular, the Supreme Court found that, while the claims for overdue rent that arose during the period of the former lessor are not automatically transferred to the new owner, the overdue rent and management fees in question may be deducted at the stage of returning the deposit after termination of the lease.
Accordingly, lessees, building purchasers, and successful auction bidders need to examine the legal relationships before and after the termination of the lease relationship separately.
Matters That Lessees and Building Transferees Should Verify
A lessee should verify that the issue of existing arrears is not resolved merely because the owner of the building has changed.
Because overdue rent and management fees that arose before the transfer of ownership may also be deducted in the course of settling the deposit, the lessee should examine the actual amount of the deposit that can be returned.
When purchasing a building or acquiring it through an auction, one should verify the lessee's history of arrears.
Because the actual scope of the deposit to be returned may vary depending on the amount of deductible obligations, it is necessary to examine the status of arrears together with the amount of the lease deposit.
One should also verify whether the claims for overdue rent that arose during the period of the former lessor have been separately assigned.
Because the scope of the rights that the new owner may directly exercise may vary depending on whether the claims have been assigned, it is necessary to examine the related contractual relationships as well.
5. A Real Estate Attorney's Response to Lease Deposit Disputes and Legal Advisory
Where the owner of a commercial building changes through a sale or an auction, the lease relationship must also be examined.
In particular, the issue of returning a lease deposit may involve the consideration of various factors, such as the time at which the overdue rent arose, whether there has been a succession to the lessor's status, and the scope of security of the deposit.
Therefore, where a dispute over the return of a deposit arises after a change in the ownership of a building, it is necessary to comprehensively examine the circumstances under which the lease agreement was concluded, the history of arrears, and the details of the deposit settlement.
Assistance From a Real Estate Attorney
▶ Analyzing the legal relationships concerning whether there has been a succession to the lessor's status arising in the course of a sale or auction of the building, and concerning the obligation to return the lease deposit
▶ Conducting a legal review of the vesting of claims for overdue rent and management fees that arose before the transfer of ownership, and of whether the claims have been assigned
▶ Responding to and representing clients in lease-related civil litigation generally, including claims for the return of a lease deposit, building delivery, and claims for the return of unjust enrichment
▶ Organizing the rights relationships among the lessor, the lessee, the building purchaser, and the successful auction bidder, and establishing strategies for deposit settlement negotiations and dispute response
Daeryun, the ninth-largest law firm in the Republic of Korea (based on 2025 value-added tax filings with the National Tax Service), provides comprehensive legal services for commercial lease disputes, lease deposit return disputes, building delivery disputes, and real estate-related litigation, drawing on its extensive experience in real estate, construction, and civil litigation.
If you need a legal review regarding the return of a deposit or the deduction of overdue rent arising after a change in the ownership of a building, you are welcome to review specific directions for response through a 🔗real estate attorney legal consultation reservation.
