법무법인(유한) 율촌 | Yulchon LLC

The court has rendered many judgments citing rent reduction or contract termination for commercial leases due to Covid-19. In the midst of a number of judgments in favor of the lessees, Yulchon won all the way from the first trial to the Supreme Court representing the landlord (the“Defendant”) in a case involving the exercise of a right to rent reduction under the hotel lease contract, in which both parties are affiliates of conglomerates.

The lessee in this case (the “Plaintiff”) signed the lease agreement with the Defendant and has been running the hotel at issue from March 2018. As the outbreak of the pandemic resulted in a sharp drop in room operation rate and increase of operating loss of the hotel, the Plaintiff asserted the unpredictable event of Covid-19 caused the change in the economic situation and the minimum guaranteed rent of USD 5 million previously agreed should be reduced by half based on Article 628 of the Civil Act.  

Yulchon closely analyzed precedents and legal principles to reveal the specific factual requirements under Article 628 of the Civil Act and effectively argued that the Plaintiff’s claim shall be rejected on the grounds that the hotel industry is inherently subject to fluctuations caused by external factors, which was still applicable when they agreed upon the minimum guaranteed rent, the Plaintiff has expertise in the hotel industry, and the hotel’s financial position has also declined for reasons other than Covid-19.

This case has great significance both in legal principle and in practice, as it presents the requirements and concrete judgment criteria for applying Article 628 of the Civil Act in the circumstances of economic downturn and revenue losses in pandemic. The Defendant achieved economic and legal status that it wanted thanks to Yulchon’s effective and thorough defense.