Supreme Court Rules Triple Rent Hike May Violate Right to Recover Premium, Mandates Careful Review

The Supreme Court has ruled that if a landlord demands a rent level triple that of the previous rate from a new prospective tenant, causing the lease negotiation to fall through and the premium contract between tenants to be canceled, this may constitute demanding "significantly high rent." Therefore, the court advised that it must be closely examined whether the landlord interfered with the opportunity to recover the store premium.

The Supreme Court's First Division (presiding Justice Cheon Dae-yup) overturned the lower court's ruling regarding the counterclaim for damages in a lawsuit filed by a landlord, A, against a tenant, B, seeking the handover of a building and damages (counterclaim), and sent the case back to the Busan District Court last month.

Tenant B had been operating a pharmacy in a commercial building owned by landlord A under a lease agreement with a deposit of 100 million won and a monthly rent of 6 million won.

In 2023, A requested that the monthly rent be raised to 24 million won, but when an agreement could not be reached, A notified B of the refusal to renew the lease.

B then entered into a premium contract worth 2.2 billion won with C, who wished to lease the space as a new tenant.

However, as landlord A proposed a deposit of 500 million won and a monthly rent of 20 million won to C, the lease negotiation fell through, and the premium contract between B and C was consequently canceled.

Subsequently, A filed a lawsuit against B seeking the return of the building on the grounds of lease termination, while B filed a counterclaim claiming that A had interfered with the recovery of the store premium.

The core issue was whether A's demand for higher rent could be regarded as "demanding significantly high rent and deposits" under the Commercial Building Lease Protection Act, thereby constituting an act that obstructed the opportunity to recover the premium.

Article 10-4 of the Commercial Building Lease Protection Act (Protection of Opportunity to Recover Premium, etc.) stipulates that a landlord must not obstruct a tenant from receiving a premium from a new tenant prior to the expiration of the lease.

Acts that interfere with the opportunity to recover a premium include "demanding rent and deposits that are significantly high compared to taxes and public charges, rent and deposits of surrounding commercial buildings, and other burdens."

The first and second instance courts judged that, given that the pharmacy falls under the category of a so-called "prescription pharmacy" near a hospital and its average monthly revenue from dispensing medicines reached 100 million won (as of 2023), it was difficult to deem the rent demanded by the landlord as significantly high.

The Supreme Court reached a different conclusion.

The Supreme Court presented a standard stating that when determining whether rent is "significantly high" under the Commercial Building Lease Protection Act, in addition to taxes, public charges, and the rent and deposits of surrounding commercial buildings specified in the statute, courts must also consider "the difference in rent and deposits between the existing tenant and the rent and deposits demanded by the landlord from the prospective new tenant, the market price and appropriate rent of the commercial building, and business practices and economic conditions."

The court further ruled, "If there is room to view that the rent demanded by the landlord is significantly high compared to the existing rent, rather than immediately dismissing the tenant's claim on the ground that the appropriate rent has not been verified, it is desirable to determine whether the requested amount is significantly high through appraisal or other means."

In this case, the Supreme Court pointed out that the rent demanded by the landlord from the new tenant reached approximately 333 percent of the previous rent, and the converted deposit reached 357 percent, adding, "There is a high possibility that such a difference in rent and deposits can be considered significantly high."

The court explained, "The landlord left virtually no room for negotiation, thereby leading B or C to give up on concluding the contract," and noted, "This may constitute an act that circumvents the legislative intent of the Commercial Building Lease Protection Act, which aims to protect tenants by ensuring they can recover the tangible and intangible property values formed through their business operations."

The Supreme Court stated, "The lower court needs to examine the appropriate rent and deposit, and then determine whether the requirements for generating a claim for damages have been met," and remanded the case to the lower court for a new trial.

(Photo: Yonhap News)
※ Please note: This article was translated by AI and may contain errors.