Korea's Supreme Court ruled that redevelopment associations are obligated to return lease deposits to former commercial tenants if the deposits were not refunded before the building was transferred, even after the lease contract had ended.
The Third Division of the Supreme Court (presiding Justice Lee Hong-gu) on Thursday overturned a lower court ruling that had dismissed a deposit return claim filed by a tenant, identified as A, against the Banpo Jugong 1 Complex Zones 1, 2, and 4 Housing Redevelopment Association. The case was remanded to the Seoul Central District Court. The Supreme Court upheld the lower court's dismissal of the damages claim.
A, who operated a waffle and coffee franchise in the redevelopment zone in Seocho-gu, Seoul, received a relocation notice in 2021 but did not vacate the premises until being forcibly evicted in April 2022. The redevelopment association completed the ownership transfer registration for the commercial building around January 2022 after receiving approval for its management and disposition plan.
A filed a lawsuit claiming 20 million won in lease deposit, 10 million won in key money, and 5.76 million won in lost business profits, arguing that the association had succeeded to the position of the former landlord and prevented the tenant from using the premises.
The key issue was whether a redevelopment association that acquired ownership for the purpose of demolishing a building could be considered a landlord like the original building owner.
Both the first and second instance courts rejected A's claims. They ruled that the lease contract had lawfully terminated on the relocation deadline notified by the association according to special provisions, dismissing both the deposit return and damages claims. The courts also determined that the lease termination extinguished the tenant's right to assert tenancy under the Commercial Building Lease Protection Act.
The Supreme Court reversed the lower court ruling. It held that under the Commercial Building Lease Protection Act, when the leased property is transferred while the lease relationship is deemed to continue until the tenant receives the deposit back even after the lease term ends, the association as the transferee succeeds to the landlord's position in the terminated lease. Accordingly, the court ruled that the association assumes the deposit return obligation with discharge of the original debtor. This means the responsibility for returning the deposit lies with the association.
"If the lease deposit was not returned to the tenant at the time of transfer, the transferee automatically succeeds to the position of landlord in the terminated lease and assumes the deposit return obligation with discharge of the original debtor," the Supreme Court stated. "This reaffirms the purpose of Article 9, Paragraph 2 of the Commercial Building Lease Protection Act and existing legal principles, which substantially guarantee the tenant's right to claim deposit return by deeming the lease relationship to continue until the deposit is returned."
However, regarding the dismissal of the damages claim, the court ruled that while the premise that the association did not succeed to the landlord's position was incorrect, the conclusion stands because interference with key money recovery was not established.