Starfield and Lotte Mall Also Cannot Refuse Contract Renewal or Change Terms Without Notice

Fair Trade Commission Establishes Standard Transaction Contracts for Complex Shopping Malls, Outlets, and Duty-Free Shops

[Sejong=Asia Economy Reporter Joo Sang-don] In the future, operators of complex shopping malls such as Starfield and Lotte Mall will also be required to notify suppliers at least 60 days before the contract expiration if they refuse contract renewal or change transaction conditions, just like department stores and large supermarkets.

The Fair Trade Commission (FTC) announced on the 14th that it has established a standard transaction contract for complex shopping malls, outlets, and duty-free shops accordingly.

Until now, standard transaction contracts in the distribution sector have been operated in five industries: department stores, large supermarkets, TV home shopping, convenience stores, and online shopping malls. The newly prepared standard contract for complex shopping malls, outlets, and duty-free shops includes provisions on prior notification of transaction conditions, contract renewal procedures, and types of prohibited unfair practices.

Recently, complex shopping malls, outlets, and duty-free shops have continuously grown compared to department stores and large supermarkets, whose growth has stagnated, increasing their importance. Cases of suppliers complaining about unfair practices have also been rising. New store openings by distribution companies are mainly centered on complex shopping malls and outlets such as Starfield and Lotte Mall, and duty-free shops have grown by more than 20% annually over the past five years.

First, complex shopping malls, outlets, and duty-free shops must notify suppliers of the criteria and procedures for determining and changing major transaction conditions at the time of contract signing. The standard contract stipulates that distributors must establish criteria in advance for returns, determination and changes of sales commission rates, contract renewals, etc., and notify suppliers at the time of contract signing. Major transaction conditions include returns, dispatch of promotional staff, sales promotion events, determination and changes of commission rates and rent, and contract renewals.

Other costs such as advertising and logistics fees must also be specified in the contract. Costs not stipulated in the contract cannot be charged to suppliers, and if suppliers are to bear such costs, the criteria must be notified in advance. This is intended to prevent cases where distributors circumvent sales commission increases by unilaterally requesting suppliers to bear facility usage fees or advertising costs without prior consultation and excessively charging for facility usage fees.

The standard contract also guarantees procedural rights related to contract renewal and supply prices for suppliers. Suppliers can inquire whether they are subject to contract renewal, and distributors must notify in writing within 14 days whether the supplier is subject to renewal. If the distributor intends to refuse renewal or change transaction conditions at the contract expiration, they must notify at least 60 days before expiration. If notification is not made within the deadline, the contract is automatically renewed under the same conditions. However, the notification period for refusal in the store lease sector is set at 30 days.

Additionally, if the reason for refusal of contract renewal is unfair or based on a misunderstanding of facts, suppliers can file objections with the distributor. The distributor must start negotiations with the supplier within 14 days of the objection. If the distributor does not initiate negotiations or no agreement is reached within 30 days of the supplier's request, dispute mediation can be applied for.

The contract clarifies grounds for termination and includes a grace period for termination. Immediate termination is limited to cases such as dishonored bills or checks, commencement of bankruptcy proceedings, and discontinuation of major traded items. For violations of important contract terms, a grace period of at least 30 days is given with written notice to request correction, and termination can only occur if the supplier fails to comply.

Costs related to basic facility construction such as store flooring, lighting, and walls are principally borne by the distributor. Also, if the distributor causes the store tenant to carry out interior construction, the distributor must bear the costs.

For complex shopping malls and outlets, additional provisions require that criteria for determining and changing rental deposits and rent be announced on their website or notified in writing to store tenants before contract signing.

If sales significantly decrease without the fault of the store tenant, a procedure to request rent reduction is established. The distributor must start negotiations with the tenant within 14 days of the rent reduction request. If the distributor does not initiate negotiations or expresses intent to suspend negotiations, the tenant can apply for mediation at the dispute mediation council.

Expected costs related to management fees and facility usage fees must be notified in advance to prevent distributors from charging excessive management fees without prior consultation. Also, in case of early contract termination, landlords must notify six months in advance and tenants one month in advance in writing. Penalties for early termination are limited to damages caused by early termination and cannot exceed three months' rent and management fees.

The standard contract for duty-free shops specifies payment dates. For direct purchase, payment is due 60 days from the date of product receipt, and delayed payments must include interest according to FTC notices. For special purchase and lease, payment deadlines for product sales proceeds are within 40 days from the sales closing date.

Reasons for returns are strictly limited. Even if suppliers voluntarily request returns, returns are generally prohibited if social norms make it difficult to trust the voluntariness, such as difficulties selling through other distribution channels. However, exceptions are made for special circumstances such as returns allowed under brand policies for imported luxury brands.

For overseas luxury brands, the standard contract can be modified and applied. Since duty-free shops cannot be considered to determine transaction conditions for overseas luxury brands, realistically, local overseas luxury brand contract forms are used rather than domestic standard contracts, and the need for protection is not significant.

An FTC official said, "In the second half of the year, incentives such as additional points will be given to businesses that adopt and use the standard contract in the fair trade agreement evaluation. We will monitor the introduction and utilization of the standard contract through anonymous reporting centers and distribution ombudsmen and reflect this in ex officio investigations."

This content was produced with the assistance of AI translation services.