▲ The YouTube channel of a pharmacist couple in Jeju, which drew attention online due to a dispute over a premium (gwonrigeum)
Recently, the story of a YouTuber who took over a pharmacy in a building with a hospital after paying a premium of 360 million won, only for the hospital to close down two months later, has sparked controversy online.
Online, posts from self-employed individuals sharing similar experiences followed, along with comments such as "Are pharmacy premiums really that expensive?" and "Is there no legal protection for premiums?"
A premium, or *gwonrigeum*, is money received by an existing tenant from a new tenant in exchange for transferring business advantages.
Legally, the Commercial Building Lease Protection Act defines it as "money or other compensation paid to a landlord or tenant, in addition to the security deposit and rent, by a person who operates or intends to operate a business in a commercial building that is the subject of a lease, as consideration for the transfer or use of tangible or intangible assets of property value, such as business facilities, equipment, clients, credit, business know-how, or business advantages based on the location of the commercial building."
Simply put, separate from the rent of the commercial building, it is the amount received by the existing tenant (the assignor of the leasehold right) from the next tenant (the assignee of the leasehold right) in exchange for inheriting all the value accumulated by the existing tenant while doing business at that location.
Premiums are largely divided into three to four types, including "location premium" (badak-gwonrigeum), "facility premium" (siseol-gwonrigeum), and "operating premium" (yeongeop-gwonrigeum).
A location premium is paid in exchange for geographical advantages.
Since location is crucial in business, this is a payment for the location itself, and it is higher in subway station areas, long-established commercial districts, or places with high foot traffic.
Sometimes, a location premium is demanded by the building owner of a newly constructed building, rather than being transacted between tenants.
A facility premium is the amount paid for the interior design or various facilities installed by the existing tenant.
It acts as a purchase price for the existing interior and equipment.
If the value of the commercial property has increased due to the existing tenant's investment, it might seem logical to claim this cost from the landlord. However, because most commercial lease agreements contain a "restoration to original state" clause, it is difficult to demand this from the landlord.
Instead, it has become a custom for the next tenant to bear this cost under the name of a facility premium.
An operating premium corresponds to the compensation for inheriting intangible assets, such as business know-how or customer bases built by the existing tenant.
For example, if a store operated by an existing tenant has a lot of customers due to word-of-mouth, the next tenant can expect current profits to continue upon taking it over.
In return, they pay a corresponding amount to the existing tenant in the form of a premium.
In addition, there is a "permit premium" (heoga-gwonrigeum) paid for inheriting business permits or the status of an agency contract holder.
For instance, if it is difficult for competitors in the same industry to enter the market due to government licensing restrictions or a specific franchise's regional allocation policy, a premium is paid for this advantage.
Permit premiums are sometimes included in operating premiums.
It is easy to think that premiums only exist for certain commercial properties with good locations, nice interiors, or many customers.
However, overall, there are more cases where a premium is involved when leasing a commercial building than cases where there is none.
According to the Korea Real Estate Board, as of last year, the nationwide ratio of commercial properties with premiums (the proportion of commercial properties that receive premiums) was 54.6%.
By industry, accommodation and food services was the highest at 70.0%, followed by real estate and leasing (62.3%), and arts, sports, and recreation-related services (56.4%).
By region, Daejeon had the highest ratio of properties with premiums at 70.7%, followed by Gyeonggi at 69.6%, Gwangju at 67.3%, and Jeju at 60.8%.
Seoul recorded 54.8%.
In some areas, the premium accounts for the largest share of the initial investment cost for a commercial property.
According to a paper titled "The Concept and Types of Commercial Property Premiums: Focusing on the Determinants of Premiums by Type," published in the December last year issue of the *Journal of the Korea Real Estate Analysts Association*, a survey on commercial leases in Seoul showed that out of an average initial investment of 115 million won, the security deposit was 40.2 million won (37.8%) and the premium was 43.4 million won (35.0%), indicating that the premium was higher than the security deposit.
In the Korea Real Estate Board's statistics from last year, the average premium nationwide was calculated at 33.94 million won.
Seoul was the highest in the country at 49.38 million won.
However, this is only an average, and premiums in core commercial districts can reach billions of won.
According to a social media account run by a real estate agency specializing in commercial properties to promote listings, the monthly rent for a store with a size of 90 to 165 square meters (30 to 50 pyeong) on Myeongdong Jungang-ro in Seoul ranges from 150 million to 200 million won, with the premium ranging from 500 million to 1 billion won.
Just as with location, the difference in premiums depending on the type of business is also significant.
While premiums for neighborhood hair salons or snack bars are generally in the range of several million to tens of millions of won, those for cafes or franchise stores are higher.
According to industry insiders, the premium for a "munjeon pharmacy" (a pharmacy located right in front of a hospital) ranges from hundreds of millions to billions of won.
Among them, pharmacies are classified as businesses with high premiums, and in particular, "munjeon pharmacies" tend to have relatively higher premiums because stable sales are guaranteed.
While some reacted with surprise to the fact that the premium in the Jeju pharmacy case was as high as 360 million won, an expert stated that from an industry perspective, it is not an exceptionally large amount.
Kim Jae-yun, the managing partner of Law Firm J&K, which specializes in pharmacy and commercial lease disputes, said, "In prime locations in downtown Seoul, the premium alone for a pharmacy spot can reach 2.5 billion to 3 billion won."
An active pharmacist also shared, "With competition in the pharmacy market intensifying recently, there is a trend of trying to secure locations that generate sales even if it means paying a premium. As a result, premiums seem to be rising further."
Although premiums have been a long-standing custom, they only came under the framework of the law in 2015.
This happened as the government revised the Commercial Building Lease Protection Act, which includes provisions to protect the leasehold rights and premiums of self-employed individuals, legally guaranteeing opportunities to recover premiums after a series of damage cases where existing tenants could not recover their premiums because landlords refused new tenants or interfered with the lease.
Before that, landlords unilaterally held a superior position, and cases where tenants lost hundreds of millions of won in premiums occurred frequently.
The legal definition of a premium was also established at this time.
Through successive revisions, tenants can now request contract renewals for up to 10 years, including the initial lease, unless there is a specific reason for refusal.
Furthermore, if a landlord demands a premium from a new tenant, prevents a new tenant from paying a premium to the existing tenant, or refuses to sign a contract with a new tenant without a justifiable reason, the tenant can claim damages.
However, despite the revision of the law, disputes between landlords and tenants over premiums are still commonly seen.
In online communities for self-employed individuals, one can easily find posts seeking legal advice, with users stating that they could not recover their security deposit or premium because the building went up for auction, or that they were unable to receive their premium because they could not find a new tenant due to the landlord's excessive rent increase demands.
Conflicts between tenants over premiums are also very common.
A significant number of these cases involve demands for the return of the premium after it is discovered too late that sales were inflated to get a higher premium, or that the commercial district analysis differed from what was previously disclosed.
Lee Il-hyung, a pharmacist and managing attorney at Law Office Lio, said, "These days, such cases seem to have increased slightly. Since competition among pharmacies is also fierce, these incidents happen occasionally."
Attorney Kim Jae-yun added that there are also cases where tenants move in trusting the commercial district but are kicked out without being guaranteed the 10-year contract period because the entire area undergoes redevelopment, or cases where a property is handed over to the next tenant while hiding defects such as building leaks.
Attorney Kim advised, "When signing a pharmacy contract, a special agreement is usually included in the contract stating that the premium will be returned if the hospital relocates within a year. If there is no such special agreement, there is a risk that the assignee must bear the consequences of whatever happens after the contract is signed."
Attorney Lee said, "Many people sign contracts relying solely on the real estate agent's contract, but caution is required. It is best to have it reviewed by a lawyer, but even if that is not possible, you must check it more thoroughly."
There are also arguments that the real estate agent who brokered the contract should be held responsible when a premium dispute arises between commercial tenants.
However, if the real estate agent was not aware of the situation beforehand, there may be limits to holding them responsible.
An official from the Korea Association of Realtors said, "If a real estate agent brokered the contract despite knowing in advance that the new tenant could suffer financial loss, they should bear moral responsibility, but if they did not know, it is difficult to hold them responsible for that."
(Photo: YouTube capture, Yonhap News)
※ Please note: This article was translated by AI and may contain errors.