Tony Moly in Myeongdong Behind on Rent for 1 Year... Legal Battle with Landlord

COVID-19 Causes Commercial Area Decline... Landlord-Tenant Conflicts Rise
Contracts Fail Due to Multi-Million Won Key Money
Tenants Delay Lawsuits by Not Paying Rent... Tenant Power Abuse Controversy

[Image source=Yonhap News]

[Asia Economy Reporter Moon Jiwon] Cosmetics company 'Tony Moly' has been sued by a building owner after operating a store in the middle of Myeongdong Street, Jung-gu, Seoul, for one year without paying rent. The unpaid rent amounts to about 1.2 billion KRW.

It is unusual for a corporation with a famous brand to have unpaid rent for a year in Myeongdong, considered the "best commercial district in South Korea." Analysts say that the recent spread of the novel coronavirus (COVID-19) has severely depressed the Myeongdong commercial district, triggering a "monthly rent conflict" between building owners and tenants.

According to the industry on the 11th, Tony Moly headquarters decided last April to convert the Tony Moly cosmetics store near Myeongdong Art Theater into a directly managed store. Originally, it was operated by an individual franchisee, but due to worsening profitability and a three-month rent arrear, conflicts arose with the building owner, leading Tony Moly to decide to operate it directly.

The building is located on the main street with the highest foot traffic in Myeongdong. Tony Moly reportedly decided on the "direct management conversion" because if the individual franchisee simply vacated the store, it could cause significant damage in terms of "brand promotion."

Initially, the building owner and Tony Moly agreed to sign a new lease contract with a deposit of 1 billion KRW and a monthly rent of 95 million KRW, but they failed to finalize the contract due to disagreements over the "floor key money" amounting to several hundred million KRW. Floor key money is money exchanged as compensation for the location and commercial advantages of a store, meaning "seat price."

The problem is that despite the contract not being finalized, Tony Moly took over the building from the previous franchisee and continued operating the store. Building owner Mr. A told Asia Economy, "Tony Moly did not pay the deposit or any monthly rent for a year," and added, "We repeatedly asked them to leave, but they ignored us."

Mr. A filed a lawsuit demanding the return of about 1.2 billion KRW in rent for one year last year, but it is expected to take considerable time to receive rent settlement after the final judgment.

Tony Moly recently stirred controversy for a "muk-twi" (running away without paying) after closing the store at the end of March without notifying the building owner, as profitability declined due to the COVID-19 spread and the Myeongdong commercial district's slump.

On the surface, the conflict during the lease contract process is the cause of the problem, but the industry analyzes that the rapid recent decline of the Myeongdong commercial district has influenced the situation.

It is explained that existing franchisees who entered by paying high key money during the boom period are being pushed out because they cannot afford the monthly rent, and problems arise over key money or rent during the process of new tenants moving in.

If the commercial district were still active with many prospective tenants ready to pay several hundred million KRW in key money, there would be no reason for Tony Moly and the building owner to have a year-long conflict over key money and other conditions. In fact, Tony Moly's monthly sales reportedly dropped to several million KRW just before vacating the store, making it impossible to even cover labor costs.

A Tony Moly official explained, "Last April, the landlord suddenly demanded floor key money, so we could not finalize the lease contract. We continued negotiations afterward, but opinions did not converge," adding, "Since monthly rent and deposit were not decided, we could not make payments."

The official said, "Since a lawsuit with the landlord is ongoing, we will fulfill all civil responsibilities depending on the outcome," and added, "Even during the lawsuit, if an agreement is reached, we will properly pay the unfair profits equivalent to the overdue rent."

Regarding this, Mr. A said, "It is true that there was conflict over floor key money, but if they could not accept such conditions, they should have closed the store and left," and added, "Using floor key money as an excuse seems only to dilute their illegal occupation."

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