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Newsletter | December 2013
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REAL ESTATE |
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Amendment to Commercial Lease Protection Act |
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Effective as of August 13, 2013, the Commercial Lease Protection Act (the “CLPA”) has been amended to grant all commercial lessees the right to demand renewal of its lease up to a maximum aggregate term of 5 years (the “Statutory Renewal Right”). |
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Prior to the recent amendments to the CLPA (the “Amendments”), the CLPA did not apply to large commercial lessees (i.e., commercial lessees who had paid a security deposit greater than KRW 300 million in case of the Seoul Metropolitan area). Under the Amendments, however, all commercial lessees, regardless of their size, are entitled to the Statutory Renewal Right; provided, that at the time of the lease renewal, the lessor and the lessee each have the right to request an adjustment to the rent and security deposit amount based on the then prevailing conditions, including market rental rates, taxes and assessments applicable to commercial properties. |
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Prior to the Amendments, the demolition or re-construction of a commercial building constituted a valid basis for a lessor to refuse a renewal demand from a lessee. Under the Amendments, however, a demolition or re-construction constitutes a valid basis to refuse a renewal demand only if such demolition or re-construction (i) is necessary to prevent safety-related accidents or is undertaken pursuant to other applicable laws or (ii) was notified to the lessee at the time the original lease agreement was executed. |
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Finally, the Amendments also make it easier for commercial lessees obtain financing by allowing financial institutions that receive a security interest in a commercial lessee’s right to reclaim the security deposit at the end of the lease term to also succeed to the lessee’s priority in the security deposit. |
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