The Act on Win-Win and Revitalization of Regional Commercial Zone (the “Commercial Zone Revitalization Act”) was promulgated into law on July 27, 2021 and will take effect as of April 28, 2022.  The Commercial Zone Revitalization Act aims to revive the local economy (e.g., street businesses and traditional markets) by (i) preventing the gentrification of regional commercial zones that result in the eviction of underprivileged tenants and (ii) revitalizing the commercial zones located in deteriorating old downtown areas. 

The details of the Commercial Zone Revitalization Act are as follows.
 

1.   Introduction of Regional Win-Win Area and Autonomous Commercial Zone Area

The Commercial Zone Revitalization Act allows that, if certain qualifications and conditions described below are met, commercial landlords and tenants can request the local government to designate a certain area as (i) a regional win-win area (“Regional Win-Win Area”) for the purpose of preventing gentrification or (ii) an autonomous commercial zone area (“Autonomous Commercial Zone Area”) for the purpose of revitalizing the deteriorating old downtown areas.  
 

1)   Regional Win-Win Area: Key Conditions and Qualifications for Requesting Designation 

• The Regional Win-Win Area must meet all of the following requirements:

1. At least 50% of the relevant area must consist of “commercial areas” as defined in the Act on the National Land Planning and Use (the “National Land Planning Act”).

2. A commercial zone comprised of a certain number (as determined by a Presidential Decree) or more of retail and wholesale stores and/or service stores must have been formed within such area.

3. At the time of the request, there must have been a sudden rent increase (or at least a concern that the area may be subjected to such increase) meeting certain standards determined by a Presidential Decree.

• In order for an area to be designated as a Regional Win-Win Area, a win-win agreement (a “Win-Win Agreement”) must be executed with consents from at least 2/3 of the commercial landlords and 2/3 of the commercial tenants in the relevant area.  

• The representative of a regional win-win consultative group may request the local government for the designation of a Regional Win-Win Area with consents from at least 2/3 of the commercial landlords, 2/3 of the commercial tenants and 2/3 of the landowners located within the said area.  
   

2)   Autonomous Commercial Zone Area: Key Conditions and Qualifications for Requesting Designation

• The Autonomous Commercial Zone Area must meet all of the following requirements:

1. At least 50% of the relevant area must consist of “commercial areas” as defined in the National Land Planning Act.

2. A commercial zone comprised of a certain number (as determined by a Presidential Decree) or more of retail and wholesale stores and/or service stores must have been formed within such area.

3. At the time of the request, there are decreases in at least two out of the following three items: (i) the number of businesses, (ii) the amount of revenues and (iii) the population.  The decreased amount must be above the threshold determined by a Presidential Decree. 

• In order for an area to be designated as an Autonomous Commercial Zone Area, a Win-Win Agreement must be executed with consents from at least 2/3 of the commercial landlords and 2/3 of the commercial tenants in the relevant area.  

• The representative of an autonomous commercial zone association may request the local government for the designation of an Autonomous Commercial Zone Area with consents from at least 2/3 of the commercial landlords, 2/3 of the commercial tenants and 2/3 of the landowners located within the said area.
   

2.   Benefits and Restrictions of Regional Win-Win Area and Autonomous Commercial Zone Area

If a certain area is designated as a Regional Win-Win Area or an Autonomous Commercial Zone Area, the following benefits or restrictions may be granted or imposed, respectively.

1)   Benefits

The central and local governments may provide the following benefits:

• Reduction of taxes or public imposts imposed pursuant to local government’s ordinances.

• Financing support for improvements and major repairs to the buildings.

• Financing support for facility installation and operation costs to the merchants. 

• Subsidies offered for R&D costs necessary for the revitalization of the area.  
   

2)   Restrictions

• Landlords may not demand increase of rent or security deposit above the maximum escalation rate (5/100 as of today) set forth under the Commercial Building Lease Protection Act and a Win-Win Agreement. 

• The local government may prohibit or restrict the operation of the following businesses in a Regional Win-Win Area:

1. Speculative activities.

2. Certain restaurants and bars as determined by a Presidential Decree.

3. Certain franchise stores with annual sales higher than the standard determined by a Presidential Decree.

4. Large-scale or quasi-large scale stores.

5. Other businesses that may harm the purpose of the designation as determined by the local government’s ordinances. 

• In order to operate a business that is restricted or prohibited within the Regional Win-Win Area, the business must register with the local government after completing (i) a prior consultation with a regional win-win consultative group regarding business adjustments and (ii) a comprehensive review by a regional commercial zone committee in accordance with a Presidential Decree. 

As the above-mentioned restrictions may apply in case of a designation, we advise businesses to check in advance whether the areas in which you currently operate or plan to operate have been or could be designated as a Regional Win-Win Area or Autonomous Commercial Zone Area.

Further, given that (i) the key requirements for designating Regional Win-Win or Autonomous Commercial Zone Areas will be set forth in a Presidential Decree, and (ii) the types of restricted or prohibited businesses and facilities within a Regional Win-Win Area can be determined by ordinances adopted by the local government, we also recommend closely monitoring the updates in relevant laws and regulations (including the Enforcement Decree and Enforcement Rules) and ordinances of the local government regarding the Commercial Zone Revitalization Act.