Commercial Building Lease Protection Act | Analysis of a Supreme Court Ruling That a Notice Terminating a Commercial Lease Given One Day Before the Expiration Date Is Also Valid

The plaintiff who filed the lawsuit relating to the Commercial Building Lease Protection Act was the lessee, A.

In 2018, A entered into a lease agreement with B.

The lease term was two years, from December 31, 2018, to December 30, 2020, with a deposit of 30 million won and monthly rent of 1.8 million won.

Time passed, and the end of December 2020 arrived.

On December 29, 2020, one day before the expiration of the lease term, A conveyed to B the position that A "had no intention of renewing the contract."

After completing the registration of the lease right, A delivered the premises to B at the end of January of the following year.

B, however, did not return the deposit, arguing that, because A had said nothing until one month before the expiration of the contract, the contract should be regarded as having been renewed by implication.

A accordingly filed a lawsuit for the return of the lease deposit.

The determination of the lower courts on the dispute surrounding the Commercial Building Lease Protection Act was as follows.

First, the courts of first and second instance found that the effect of an implied renewal had arisen and ruled in B's favor.

Their reasoning was that A had not given advance notice of an intention to terminate the contract by one month before the expiration of the lease term, and that it was therefore reasonable to regard the contract as having been renewed.

However, the courts noted that, under Article 10(5) of the Commercial Building Lease Protection Act, even where a contract has been renewed by implication, the lessee may give notice of termination of the contract at any time, and such notice takes effect three months after the date on which the lessor receives it. On that basis, the courts determined that the contract between A and B should be regarded as having been terminated at the end of March 2021.

The courts then explained that it was proper for A to recover the deposit less the amount corresponding to three months' rent and management fees.

Both sides appealed, dissatisfied with this outcome, but the determination of the second-instance court was the same.

A indicated that A could not accept the appellate decision either and proceeded to file a final appeal.

The Supreme Court's determination was different.

The central issue in this lawsuit was whether the contract between A and B could be regarded as an "implied renewal."

The Supreme Court determined that, because A had expressed an intention to refuse renewal before the expiration date of the contract, the contract between the two should be regarded as having ended on December 30, 2020, as originally agreed.

The reasons given by the Supreme Court were as follows.

Article 10(1) of the Commercial Building Lease Protection Act provides that "where the lessee requests a renewal of the contract during the period from six months to one month before the expiration of the lease term, the lessor may not refuse it without justifiable grounds." The Court held that this provision merely recognizes the lessee's right to request renewal of the contract and does not limit the period within which the lessee may give notice of refusal of renewal.

The Court also explained that Article 10(4) of the same Act provides that "where the lessor does not give notice of refusal of renewal or notice of a change of terms within the prescribed period, the lease shall be deemed to have been renewed on the same terms as the previous lease," and that, even under this provision, there is no restriction on the period within which the lessee may give notice of refusal of renewal in relation to an "implied renewal."

In other words, the Supreme Court's determination was that there is no time limit on when a lessee who has leased a commercial building may express an intention to refuse renewal.

For housing, however, the situation is different.

The Housing Lease Protection Act (a Korean tenant-protection statute granting rights such as opposability and priority repayment, with no direct common-law equivalent) provides that, if the lessee does not give the lessor notice of refusal of renewal by two months before the expiration of the lease term, the contract is renewed by implication.

By contrast, the Commercial Building Lease Protection Act places no limit on the period within which the lessee may give notice of refusal of renewal. The Supreme Court's final conclusion was therefore that the determination treating the lease agreement in this case as having been renewed by implication is contrary to the textual interpretation of the statute.

Accordingly, finding that the lower judgment, which had calculated the deposit on the basis that the term of the contract between A and B ran until March 2021, was in error, the Court remanded the case to the lower court.