1. What legislation and/or regulatory bodies are
responsible for regulating the relationship between landlord
and tenant in South Korea?
Relevant legislation includes the Civil Code, the Act
on the Protection of Housing Leases (APHL), the Act on the
Protection of Commercial Building Leases (APCBL), the Rental
Housing Act (RHA), and the Act on the Regulation of
Standardized Contracts (ARSC). Lease agreements prepared by
landlords are considered standardized contracts under the ARSC.
Lease provisions in such standardized contracts that unfairly
prejudice lessees will be deemed null and void. Korean courts
have jurisdiction in all landlord-tenant disputes unless there
is an arbitration clause in the lease agreement.
2. What is the effect of a tenant's insolvency, and
what remedies are available to landlords?
There are three bankruptcy proceedings in Korea:
bankruptcy proceedings under the Bankruptcy Act; corporate
reorganization proceedings under the Corporate Reorganization
Act; and composition proceedings under the Composition Act.
Rent claims arising prior to the commencement of corporate
reorganization or composition proceedings will be repaid
pursuant to the reorganization plan or the composition plan
approved by the creditors' meeting and relevant court, in which
case the repaid amounts are usually much less than rent amounts
due. Rent claims arising prior to the commencement of
bankruptcy proceedings will be repaid from the proceeds of the
debtor's assets on a pro rata basis after the preferential
repayment of secured debts and other claims arising after the
commencement of the bankruptcy proceeding. If the tenant paid a
refundable key money deposit at the beginning of the lease
term, the landlord can deduct the unpaid rent for the period up
to the commencement of the bankruptcy, corporate reorganization
or composition proceedings from the key money deposit. Rent
claims arising after the commencement of bankruptcy, corporate
reorganization or composition proceedings are not subject to
such proceedings. Therefore, such rent claims can be collected
from the assets of the debtor in preference to unsecured claims
arising prior to the commencement of such proceedings and can
be deducted from the key money deposits if the relevant lease
agreement contains provisions permitting such deduction.
Further, if a bankruptcy proceeding commences for a tenant:
(i) the landlord may terminate the lease agreement by giving
six months notice; or (ii) the landlord may request the
administrator to determine whether he will terminate the lease
agreement. If the administrator fails to make such
determination within a reasonable time, the administrator will
be deemed to have terminated the lease agreement. In a
corporate reorganization proceeding, however, the landlord may
request the administrator to determine whether he will
terminate the lease agreement and if the administrator fails to
do so within 30 days, the administrator is deemed to not have
terminated the lease agreement.
3. How has recent statutory reform affected (or, how
will proposed future statutory reform affect) the lease renewal
The APCBL, which came into effect in November 2002, is
applicable to leases of commercial buildings for which the
amount of the key money deposit plus 100 times the monthly rent
is less than a certain amount. Under APCBL leases, the lessee
may request the lessor to renew the lease one to six months
before the lease expires, and the lessor may not refuse such a
request without a justifiable reason. However, lessees who have
failed to make three or more rent payments cannot make such a
request. Nor is the renewal right available to lessees who
sublease the leased property without the prior consent of the
lessor, or who materially breach the lease agreement. Also, the
renewed lease term including the original lease term cannot
exceed five years. The terms and conditions of the renewed
lease are the same as the original lease except for rent and
key money deposit, which the lessor may increase up to 12%.
4. How does human rights legislation affect the
There are no human rights laws that directly affect
the landlord/tenant relationship in Korea. However, there are
laws designed to protect tenants from abusive landlords.
Securitization of real estate assets
1. How significant is the real estate securitization
market in South Korea?
The real estate securitization market in Korea
consists of asset-backed securities (ABS) and real estate
investment trusts (REIT). The total amount of ABS issued in
2002 was W 40 trillion ($32 billion), but the amount of ABS for
real estate transactions was only W 613 billion, and the amount
of mortgage-backed securities (MBS) for claims secured by
mortgages was W 950 billion. Four REITs for Corporate
Restructuring (CR-REIT) were established in 2002, but general
REITs were not established due to limited tax benefits under
2. What have been the key real estate securitization
deals over the last 12 months?
In late 2002, Macquarie Bank and Schroder Asian
Properties acquired three major commercial buildings in Seoul
through an ABS special purpose company (SPC) from another ABS
SPC. The total purchase price was W 237 billion.
3. To what degree of detail (if at all) are the
parties obliged to disclose the lease terms on a formal
registry (eg the land registry)?
Under the Value Added Tax Act, any company that
operates a real estate leasing business must report certain
terms of lease agreements, such as the area of the leased
property, key money deposit amount, monthly rent amount, the
name of the lessee etc with the relevant tax authorities every
Pursuant to the VAT Act and the APCBL, if a company leases
its business premises and registers its business, it must
report to relevant authorities the following terms of the lease
agreement: (i) names of the lessor and lessee; (ii) lease term;
(iii) the location and area of the leased property; and (iv)
rent. In the case of a registered lease, the lease term, rent,
key money deposit and the lessor's consent to a transfer of the
lease or the sublease must be registered in the relevant real
4. How important a role do the rating agencies play
in securitization transactions?
Rating agencies do not play a major role in real
property securitization transactions in Korea. For the issuance
of ABS based on real property or the establishment of a CR-REIT
company, securities such as the ABS are issued based on the
targeted property itself (not on the credit rating of the
ex-owner of the property).
1. How prevalent is property outsourcing in South
Historically, commercial property in Korea has been
owned by a handful of the largest Korean conglomerates that had
real estate subsidiaries to service their property needs. This
changed with the 1997 Asian economic crisis, which forced
conglomerates to rationalize their real estate holdings. There
was, therefore, no property outsourcing market in Korea until
the implementation of the Act on Asset-Backed Securitization
(ABS Act) in July 1998. During the last five years, some
companies sold real estate to ABS SPCs and there have been
several sale-lease back transactions. However, property
outsourcing in Korea is still in its infancy, and very few
properties have been outsourced to date.
2. What are the relative benefits of private finance
initiatives (PFIs) and public-private partnerships
PFIs and PPPs are not used in Korea.
3. What lessons have been learnt from both private
sector and public sector property outsourcing schemes in terms
of performance, service provision, financial benefits,
Because outsourcing in Korea is undeveloped, it is
premature to comment.
4. To what extent should the service provider extend
services to cover back offices systems such as IT and human
IT and HR services are not covered by service
providers. In all building acquisitions to date by ABS SPCs and
REITs, the service providers who have entered into management
agreements with such SPCs provide the following services: (i)
repair, maintenance and management of the building facilities;
(ii) management of energy (electricity, heat etc) used in the
building; (iii) building security; (iv) parking lot
maintenance; (v) concierge services; and (vi) other
5. What has been the effect of Enron and the
accounting scandals on corporate considering off-balance sheet
The Enron scandal has had an effect on general
accounting practices in Korea, but it is too soon to say
whether such scandals have had any effect on property
6. What is the future of property outsourcing for
the private sector?
The Korean real estate market has changed dramatically
in the past several years, going from one of the most closed to
one of the most open markets in the world. As noted, however,
property outsourcing is just beginning in Korea. As more
companies begin to recognize its benefits, the outsourcing
market is expected to enjoy significant growth.
Financing of real estate transactions
1. What are the most recent methods by which
purchasers finance high value real estate transactions in South
Most recent high value properties were acquired
through ABS SPCs. In such transactions, the ABS SPC issues a
bond secured by a mortgage established on the real property to
investors and/or borrows operating funds from financial
In addition, after the REIT Act was enacted in 2001 (which
contained the CR-REIT structure), the acquisition of property
by CR-REITs became a useful temporary alternative. CR-REITs
will be phased out as they were designed to assist companies in
restructuring following the economic crisis.
2. To what extent does stamp duty (or the equivalent
in your jurisdiction) affect the cost and method of financing
real estate transactions?
Under the Stamp Tax Act, a stamp tax is levied on a
person who prepares a document certifying the establishment,
transfer or change of rights to property including loan
agreements. However, the maximum amount of the Stamp Tax is
only W 350,000.
However, other major taxes are imposed upon the acquisition
and holding of real property in Korea, including: (i)
acquisition tax generally of 2.2% of the tax base of the
property (which can go up to 6.6 % depending on the use and
location of the property); (ii) registration tax of 3.6% of the
tax base of the property (which can go up to 10.8 % depending
on the use and location of the property); (iii) property tax
(for the owner of a building) of 0.5% to 7% of the tax base of
the property; (iv) aggregate land tax (for the owner of the
land) of 0.3 to 2% of the tax base of the property; and (v)
urban planning tax of 0.2% of the tax base of the property.
3. To what degree of detail are the parties obliged
to disclose the terms of financing on a formal registry (eg the
Parties are generally not required to disclose
financing terms on land or other formal registries in Korea.
There are, however, reporting requirements with respect to
mortgages, ABS Plans and REITs.
4. Is there any debate as to who holds the legal
title to a mortgaged property?
No. Mortgagors hold legal title to mortgaged
1. What are the various forms of property ownership
in South Korea?
Under Korean law, buildings and land are owned
separately. Thus, real estate registries for buildings are
maintained separately from those for land. The only ownership
right recognized in Korea is complete ownership, similar to
what is known as "fee simple absolute" under Anglo-American
law. There is no concept of a "future interest" in Korea.
Joint ownership of real property is expressed in the real
estate registry as a percentage of ownership of the entire
property. Each joint owner may freely transfer its ownership
share to a third party without the other joint owners' consent.
Each joint owner is entitled to use the real property in
proportion to its share, and each joint owner may take actions
to preserve the entire real property regardless of its
2. Other than the general principles of contract law
governing agreement between vendor and purchaser, what other
statutory governance, regulations or guidelines exist to
protect the parties to a property transaction?
First, acquisition of real property is effected by the
registration of such acquisition in the real estate registry.
Also, under the Act on Special Measures for the Registration of
Real Estate, anyone who applies for ownership transfer
registration must submit a contract with the approval seal of
the relevant local government to the registry office.
Second, there are some restrictions on land transactions. If
the land is located in an area requiring a permit, the
underlying transaction agreement is effective only after the
required permit is obtained pursuant to the Act on the Planning
and Utilization of National Land. Under the Alien Land
Acquisition Act, a foreigner (including a foreign-invested
company with foreign equity of 50% or more, or in which
foreigners control the board of directors) who purchases real
property is required to report the acquisition with the
relevant local government within 60 days after the execution of
the relevant agreement. However, if the land is located in a
"military facilities protection area" or "cultural relics
protection area", prior approval is required.
3. Is the practice of the vendor wanting to take
advantage of development uplift prevalent in your jurisdiction?
How do lawyers usually achieve this?
Vendors in Korea sometimes takes advantage of
development uplift. In some cases, the vendor of the targeted
land enters into a development agreement with the developer or
the purchaser, pursuant to which the purchaser pays the vendor
a certain percentage of development uplift as part of the
4. How significant is e-conveyancing in your
jurisdiction? What rules and regulations govern the
E-conveyancing of real property is not used in
5. How has the legislation and recent case law in
your jurisdiction addressed the issue of adverse
In Korea, there is a concept similar to "adverse
possession" in Anglo-American law. If a person has for 20 years
peaceably and openly possessed real property with the intent to
own it, he can acquire legal ownership of the real property
upon registration thereof.
In determining whether the possessor had the intent to own
the real property, recent case law has clarified that the
possessor could not acquire ownership if he possessed the
property without reasonable grounds to do so.
Bae, Kim & Lee
Hankook Tire Bldg. 647-15,
Tel: +82 2 3404 0000
Fax: +82 2 3404 0001