Disputes over Same-Category Businesses Within a Commercial Building: The Binding Force of Business-Type Restrictions and How Existing Merchants Can Respond

-Legal column by attorney Byun Gwan-hoon of Daeryun LLC

If, while running a shop, an identical type of business newly opens right next door or on the same floor, the existing merchant faces great bewilderment along with business losses. They protest to block the entry of a duplicate business type within the commercial building, but the new store owner often counters with reasons such as "I wasn't there when that building rule was made" or "there was no clause restricting business types in the lease contract." So must the existing merchant simply endure the encroachment on their commercial territory because there was no specific agreement or contract? To put the conclusion first, the law provides clear standards protecting the legitimate rights of existing tenants in such situations.

A business-type restriction agreement established during the sale of the commercial building goes beyond a private promise among merchants; it carries the property value of a kind of exclusive operating right granted to that store. According to Supreme Court precedents and others, those who purchased units in a commercial building are, absent special circumstances, deemed to have given implied consent to mutually accept and comply with business-type restriction obligations. In particular, since this is unified with and succeeds along with the store's rights, it applies without exception to a transferee who newly purchases a store or a new tenant who leases one. Therefore, even if the business-type restriction clause was omitted from the new lease contract, if the new occupant forcibly runs the same type of business, the existing merchant has the right to seek an injunction against the business through the court.

Moreover, even if the builder did not explicitly designate the business type of each individual store at the time of the initial sale, there remains a way for the existing merchant's rights to be protected. This is because, after occupancy, if the management body composed of all the commercial building owners enacts a business-type restriction management rule satisfying the resolution quorum stipulated by the Act on Ownership and Management of Condominium Buildings, this too has sufficient legal binding force. Since such a rule is connected to the owners' core property rights, in order to later lift or change the restriction, the strict agreement of the true owners holding each store—that is, the individual store owners—is essential. The effect of the commercial building rule does not disappear simply because a new tenant arbitrarily ignores it or the tenants tacitly overlook it among themselves.

In fact, among the cases I have handled, there was a case in which a merchant who had long operated a store sought and was recognized an injunction against a new occupant who arrived later and began operating the same type of business. At the time, the new occupant countered that they had not even occupied the building when the building's self-governing rule was made and had never signed in agreement to that rule, so its effect did not apply to them. However, the court ruled in favor of the existing merchant. It held that even without the builder's initial designation, a management rule enacted through lawful procedures and quorum has enforceability against the entire commercial building. It also specified that even a new occupant who did not participate in enacting the rule has an obligation to comply with the existing rule once they have entered the building, thereby recognizing the existing merchant's rights.

So how should a merchant facing such a situation respond? Rather than getting into emotional squabbles with the new store owner, they should mount a legal response based on objective grounds. First, it is important to secure documents proving that a business-type restriction agreement exists for the commercial building and its specific scope of protection, such as the commercial building management body's rules or the initial sale contract. After that, they can collect objective materials (on-site photos, receipts, lists of items sold, etc.) showing that the new store's items handled and manner of business substantially overlap with their own business type, and file for a provisional injunction against the business with the court. Furthermore, if there is already damage such as decreased sales due to the unlawful encroachment on their commercial territory, they can also pursue a claim for damages in parallel. Since encroachment on commercial territory is an important matter that directly leads to business losses, the wise approach is to respond systematically from the early stage of the matter with the assistance of a legal expert well-versed in the relevant legal principles, and thereby have one's legitimate rights protected.

Reporter Lee Dong-o (canon35@mt.co.kr)

[Read Full Article]
Disputes over Same-Category Businesses Within a Commercial Building: The Binding Force of Business-Type Restrictions and How Existing Merchants Can Respond (Go to)