South Korea Commercial Lease Requirements: 10-Year Renewal, Key Money Protection, and Contract Standards

Governed primarily by the Commercial Building Lease Protection Act (effective 29 December 2001), commercial lease contracts in South Korea have distinct requirements compared to residential leases, including a shorter minimum term, an extended renewal period of up to 10 years, and comprehensive key money (gwolligeum) protections that persist even past the renewal period.

Minimum Lease Term

Contract Renewal Request Right: 10 Years

Overview

Note on Rent Increases: For leases within the 'Converted Deposit' threshold, rent increases are capped at 5% per year. For leases exceeding the threshold, the 5% cap does not apply; landlords may increase rent based on market rates and economic conditions. Converted Deposit = Deposit + (Monthly Rent × 100).

Example Timeline

For an initial 2-year contract:

• 2–4 years: 1st renewal ✅
• 4–6 years: 2nd renewal ✅
• 6–8 years: 3rd renewal ✅
• 8–10 years: 4th renewal ✅
• 10–12 years: ❌ (exceeds 10 years)

Refusal Grounds

1. 3 or more months of rent arrears
2. Obtaining the lease by fraud
3. Unauthorized subletting
4. Serious property damage
5. Demolition/reconstruction (only if plan disclosed at signing, safety hazard, or required by law)
6. Material breach after reasonable cure period

Key Money (Gwolligeum) Protection

Types of Key Money

| Tangible value of installed fixtures | Interior buildout, equipment, signage | | Location key money | Value derived from the location itself | Foot traffic, proximity to transit, commercial district |

Landlord's Duties

From 6 months before lease termination through the termination date:

1. Do not refuse an incoming tenant introduced by the outgoing tenant without just cause
2. Do not demand unreasonably high rent or deposit from the incoming tenant
3. Do not demand unreasonably high key money from the incoming tenant
4. Do not sign with another tenant to block key money recovery

Key Money After 10 Years

Per Supreme Court Case 2018Da242727, key money protection persists even after the 10-year renewal period expires. This is one of the most significant protections for commercial tenants and a critical consideration for landlords.

Damages for Interference

Liable amount = the lower of:

• The key money agreed with the prospective incoming tenant
• The market-rate key money at lease termination

Restoration Obligations

Tacit Renewal

• If landlord fails to give notice 6–1 month(s) before expiry → automatic renewal
• Tacitly renewed term = 1 year
• Tenant may terminate at any time → effective 3 months after notice

Best Practices for Landlords

1. Plan for the 10-year renewal window — Note that the 5% rent increase cap only applies if the Converted Deposit (Deposit + [Monthly Rent × 100]) is within regional thresholds (e.g., 900M KRW in Seoul).
2. Understand key money obligations fully — interference liability persists past 10 years
3. Define restoration scope explicitly — "remove all interior work" should be clearly stated
4. Include use-restriction clauses — specify permitted business types to prevent disputes
5. Issue non-renewal notices on time — 6 to 1 month before expiry

How Landager Helps

Landager helps you manage commercial lease timelines, track renewal deadlines, and document key money arrangements for complete compliance awareness.

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