Supreme Court rules new owners inherit lease debts after contract ends

The Supreme Court ruled on April 9 that a commercial tenant's legal protection extends beyond the expiration of a lease contract until their security deposit is fully returned. Any new owner who purchases a building during this period automatically inherits the obligation to repay the tenant's deposit.

The ruling addresses a dispute involving a commercial tenant in a redevelopment zone who sought the return of their deposit and compensation for business losses, including blocked key money recovery, from a housing reconstruction association. The association had acquired ownership of the building after the original lease term had already expired.

In its decision on case 2023Da307116, the high court overturned part of the lower court's judgment and remanded the case, establishing that under Article 9, Paragraph 2 of the Commercial Building Lease Protection Act, the lease relationship is legally presumed to persist solely to guarantee the return of the deposit. This presumption ensures the tenant's possession rights remain as strongly protected after the contract ends as they were during the lease term.

The court further clarified that when a tenant with legal standing against third parties faces a property transfer, the new owner naturally succeeds to the landlord's status under Article 3 of the same act. This succession is mandatory by law; the buyer assumes the debt for the security deposit exclusively, while the seller is released from all liability and effectively exits the lease relationship.

The judgment specifies that the new owner inherits the full bundle of rights and duties attached to the property ownership, meaning the transfer of the building triggers an automatic assumption of the deposit repayment duty without need for separate agreement.