The amendment to the Act on the Development and Management of Logistics Facilities (the “Logistics Facilities Act”) allows a developer of a logistics complex development project (“Logistics Development Project”) to carry out such a project through a development trust arrangement by entering into a trust agreement with a real estate trust company (“Development Trust Arrangement”). 

The amendment was promulgated on June 10, 2022 and is scheduled to take effect as of December 11, 2022.

With the rise of the e-commerce space and the COVID-induced structural changes in distribution systems, we have witnessed a considerable number of Logistics Development Projects in areas neighboring metropolitan cities experience various challenges in securing land ownership, licenses and permits and financing over the past five years, including construction costs.  Developers have hence raised the need for the government to introduce and allow for the Development Trust Arrangement for the purpose of facilitating project financing and ensuring stable and timely implementation of Logistics Development Projects.  The amendment to the Logistics Facilities Act will allow the developers, subject to certain conditions, to carry out their Logistics Development Projects through a Development Trust Arrangement.

Key notables of the Development Trust Arrangement for a Logistics Development Project set forth under Article 31 of the amended Logistics Facilities Act are as follows:
 

• Requirements and Effects of Logistics Development Project Through Development Trust Arrangement

The following requirements must be satisfied in order to carry out a Logistic Development Project through a Development Trust Arrangement:

(1) A developer must be (i) a corporation established pursuant to the  the Korean Commercial Code or the Korean Civil Code or other special acts, (ii) a landowner of the project site or (iii) an association established by such a landowner for the development of a logistics complex;
(2) A developer must have entered into a trust agreement with a real estate trust company duly established pursuant to the Financial Investment Services and Capital Markets Act (the “FSCMA”) to develop a logistics complex as set forth by the relevant Presidential Decree; and
(3) A developer must have obtained approval from the relevant authority.

Upon satisfaction of all of the above requirements/qualifications, a real estate trust company that entered into a trust agreement with the developer (i) will comprehensively succeed the rights and obligations of the developer and, subsequently, (ii) may proceed to carry out the relevant Logistics Development Project.
 

• Execution of Trust Agreement with Real Estate Trust Company

The amended Logistics Facilities Act delegates the matters to be included in a trust agreement and specific execution procedures in connection with such trust agreement to the relevant Presidential Decree.  As the proposed amendment to the Enforcement Decree of the Logistics Facilities Act is yet to be promulgated, it would be advisable to continuously monitor the contents of the amendment to be proposed. 
 

As a result of various challenges in securing land ownership, licenses and permits and financing for the Logistic Development Projects carried out on parcels of land near metropolitan areas, developers have called for the adoption of the Development Trust Arrangement to ensure stable and timely implementation of Logistic Development Projects akin to other types of developments under different regulations.  However, there was a dispute as to whether the Logistics Development Projects could be carried out through a Development Trust Arrangement because of a lack of relevant provisions in the Logistics Facilities Act specifically allowing the development of a logistics complex through the Development Trust Arrangement.

The significance of the proposed amendment to the Logistics Facilities Act lies in that the amendment specifically introduces and stipulates a provision allowing developers to carry out Logistic Development Projects through the Development Trust Arrangement, which will allow stable and timely execution of Logistic Development Projects.  As a consequence, the Development Trust Arrangement is expected to be widely used for Logistics Development Projects and to considerably ameliorate the struggles currently experienced by developers.