Office Leasing Guidelines
   
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The following is the most frequently asked questions in renting office space
  in Seoul by expatriate firms and diplomatic missions.
  Hopefully the below brief description of lease practices in Seoul would be helpful for your finding
  a proper space.
   
 
  There can be three basic types of lease for all kinds of realty properties in Korea.
  The primary conception of lease in Korea is Chonse, while the other two, deposit-plus-monthly rent lease
  and rent-advance lease without deposit, are variations of Chonse.
  A few other name could be used for Chonse, like key money lease, total deposit lease, exclusive deposit lease.
  Chonse is traditional conception of Korean lease by paying huge deposit to landlords without any monthly rent.
  The interest of Chonse amount is deemed as monthly rent or income to landlords.
  The Chonse price per pyung(=3.3 ㎡) varies between W 2,500,000-W 10,000,000, depending on locations
  and quality of buildings. The total amount of Chonse, without bearing any interest, shall be refunded upon expiration
  or termination of lease.
   
  In Chonse lease, it is highly advisable that tenants should go through relevant legal protection procedures in
  cooperation with the landlords since the amount of Chonse is usually very high. In terms of tenants protection,
  there is no proper specific regulations or laws in the case of commercial properties. About half of Korean tenants
  take this Chonse lease while it is rather seldom for expatriate firms. On the part of tenants this Chonse system is
  more economical in the long run, but the high amount of Chonse would be burdensome and affect the cash flow
  of initial period of business operation. However, these days, some expatriate tenants take this Chonse because
  of its economic gains or landlord's persistence to Chonse.
 
 
  When the high of amount of Chonse is too burdensome for tenants, in many cases it is compromisable between
  landlords and tenants by paying 10 - 50% of Chonse as deposit(also refundable) and paying interest of remaining
  portion of Chonse as monthly rent. This compromised average deposit per pyung differs from W 250,000 in Kangnam
  to W800,000 in CBD for prime office space while monthly rent to be paid ranges W25,000 and W90,000 per pyung
  respectively in Kangnam and CBD. The core issue of this conversion is the rate of interest to be applied for remaining
  portion of Chonse, which can be argumentative sometimes. The rate differs widely from 9% p.a. (per annum) in prime
  building of CBD to 18% p.a. in Tehran Road of Kangnam. This large gap is kind of unanswerable real estate market logic.
  The ordinary amount of deposit these days is equivalent to 10 - 12 months' rent.
   
 
  The typical lease is one year, renewable upon mutual agreement and readjustment of all relating rental charges.
  These years 2 or 3 years lease are accepted by landlords without much hassle. Leases longer than 4 years
  or shorter than one year are quite rare because of landlords' reluctance. However, for temporary office seekers,
  small furnished units between 5 - 20 pyung are available for short term lease in a few business centers of Seoul.
  Monthly rentals are relatively higher than regular office space, but deposit is equivalent to one month rent only.
 
 
  Rent( referring Chonse, deposit, monthly rent, utilities ) is readjusted annually. Even under the longer period lease,
  landlords are entitled to review the rent annually. Legally (Civil Code 628) rent can be reviewed less than one
  year period. However, landlords seldom exercise this right.
   
  The time of annual readjustment is usually end of year or spring time of year. The ratio of increase scarcely
  exceeds more than 10%, which is partly linked to the prevailing rate of inflation as well as market level.
  There used to government guidelines of 5% per year for increase, which is meaningless under hectic market
  situations. CPI is more or less about 5% during last 10 years (between 1987 - 1997), however, when rent of
  Kangnam has plunged about 35% during the IMF bailouts.
  Some embassies are paying rent 2 or 3 years' rent in advanced without any deposit to freeze the rent during
  the lease period.
   
 
  Monthly rent refers specifically to the charge for the accommodation only and is usually charged separately from the
  additional charges. Airconditioning, heating, cleaning, security, maintenance are classified as utilities and management
  cost, which shall be at the account of tenants, ranging W 20,000 - W 30,000 per pyung.
 
 
  Efficiency ratio means net usable size over gross size to rent that usually includes common area space.
  The common area generally includes lobby, corridors, staircase, elevator, parking, other areas that should be shared
  by all the tenants of the building. The average efficiency ratio in CBD is about 60% and in Kangnam about 55%.
  Since 1990, the ratio is diminishing every year to the extreme degree of 40% because of huge underground parking
  and increasing portion of common area in new buildings these years.
   
 
  Even if the lease is made between two large corporation, it is deemed very private matter. So usually an indivisual tenancy
  agreement is signed which varies in detail between landlords. The lease text itself is very disputable between the Korean
  landlords and foreign tenants mainly because of different conception of lease practices. Lease text is a symbol of acute
  confrontation of interest between both parties. However, compromised amendment to lease agreement is possible
  through negotiation.
   
 
  Since the revision of Aliens' Land Acquisition Law in 1994, most of expatriate firms in Korea were allowed to purchase
  real estate property for their business purposes, such as residential properties for staffs, commercial for office and retail
  for shop outlets, industrial for manufacturing factory. Only a few business classified as entertaining or harmful for public
  morals were prohibited to own realty. But as of June 1998, the market is completely open to alien investors.
  Red tapes in foreign ownership have diminished drastically these years to boost investment environments to the degree
  that the realty can be purchased by a simpler report to relevant authority, regardless the legal status of purchasers.
  The typical sales price by strata title for office space ranges W6,000,000 - W12,000,000 per pyung, Size of one floor runs
  from 150 pyung to 600 pyung. (1 pyung equals to 3.3㎡)
 
 
  Basically landlords provide new coat of painting, clean floor and repair of fittings such as lighting and partition. However,
  expatriates firms tend to renovate and refurnish the space to their own tastes, which normally cost for (medium high quality)
  W1,500,000 ~ W1,800,000 per pyung for interior redecoration and furnishing. At the end of the lease the property must
  be reinstated to the conditions it was at the beginning with the exception of fair wear and tear. When tenants neglect this
  obligation, these costs could be deducted from deposit before it is returned by the landlord.
   
 
  It depends on the market situation, but usually quality buildings are reluctant to rent less than 100 pyung in gross.
  Particularly under the hectic market, to get small size in quality building is extremely difficult. In the case of Kangnam
  office, they used to rent on floor bases of which size is between 200 - 450 pyung.
  Now they are much more flexible since financial crunch in 1997. However, should it be a B class office or officetel
  (office plus apartment), it is not difficult to find small size for 2 - 3 persons in the size of 25 - 30 pyung.
   
 
  Regular office space above 3rd level doesn't have rental difference between floors, which is legally registered as an office.
  However, 1st and 2nd floor have different rental to the point of 2.5 times of normal office rent since 1st and 2nd floors are
  officially registered for bank, retail or showroom, which is based on the perception that lower floors provide easy access
  for customers.
 
 
  Upon payment of full deposit leases are legally binding. However, change of ownership or legal custody on the premises
  can jeopardize the lease in terms of commercial properties in Korea unless the tenants have protective mortgage or
  relevant protection court procedures on the property or at least lease registration by law. As to extension of lease upon
  expiration it is common for tenants to be granted the option to renew their leases at a readjusted rental. However, the option
  is a conditional option executable upon mutual agreement of yearly rental readjustment. However, in most cases the option
  is as safeguard since landlords seldom risk losing current tenants in their premises by asking higher rent than normal market.
   
 
  It is possible to terminate the lease at the request of tenants, but it varies from case to case. Sometimes tenants should pay
  a couple of months rent as liquidate damage after serving a specified period by lease or they should wait until the premises
  is re- rented to collect the deposit or Chonse amount.