Incheon Airport Corporation: ”Duty-free shop rent reduction adjustments not possible” (South Korea)

The Incheon Airport Corporation has reaffirmed that it will not accept the request from the Shilla Shinsegae Duty Free Shop to lower its rent.
The company also plans not to participate in the second round of rent reduction negotiations on the 28th.
Incheon Airport Corporation announced at a press conference on the 12th that it has decided not to accept the request for rent adjustments made by duty-free businesses.
In response, the Shilla Duty Free (Terminal 1) and Shinsegae Duty Free (Terminal 2) stated that they were accumulating losses in their main businesses, such as perfumes, cosmetics, alcohol, and tobacco.
From April to May, they filed for civil mediation seeking a 40% reduction in rent. The rents for each apartment were 8,987 won (approximately 9.69 million yen) and 9,020 won (approximately 9.63 million yen), but they reduced this by 40%.
The reason is that the duty-free market has been in a prolonged slump due to a decline in Chinese tourists and changes in consumer purchasing patterns, which has increased the burden of rent.
However, Incheon Airport Corporation attended the first adjustment meeting on June 30th and indicated that it would not accept the rent adjustment proposal.
He will not attend the adjustment hearing. He pointed out that Shilla and Shinsegae each offered rents that were 160% of the minimum acceptable amount and won the 10-year operating rights, and that he won the business rights with a high bid.
The company argues that the subsequent demand for a rent reduction is an attempt to avoid the purpose and fairness of the bidding and the company's management responsibility.
At the time of bidding, other businesses were bidding at around 100-130% of the minimum acceptable price.
In response, Hotel Shilla offered 168% and Shinsegae 161% of the original price to acquire the business rights, raising concerns within the industry that a "winner's curse" might occur.
Incheon Airport Corporation said, "Rent adjustments under the current contract are only possible in cases where there are changes in the airport's operating environment, such as the relocation, downsizing, expansion, establishment, or closure of a store."
"These changes are not grounds for rent adjustments, and changes in the market environment, such as a decline in Chinese tourists and changes in consumer purchasing patterns, are not reasons for rent adjustments," the agency said.
Incheon Airport Corporation received legal advice through a law firm, but was unable to comply with Articles 627 and 628 of the Act.
According to Articles 627 and 628 of the Civil Code, if the rented property is damaged through no fault of the lessee, the lessee can request a reduction in the amount of the debt.
In this situation, the lessor has an obligation to maintain the leased property so that the lessee can use it in accordance with the purpose of the contract. If the lessor agrees to reduce the rent in this situation, it may be considered a breach of trust or a violation of the Specified Economic Crimes Act.
The Incheon Airport Corporation explained that there are several risks, including the possibility of retaliation, fairness with other companies, the fairness of past bids, and negative impacts on future bids.
The Incheon Airport Corporation said, "Even though the corporation presented a reasonable price example at the time of bidding, the company secured the business rights by submitting a high bid.
It is a mistake to avoid responsibility for the high bid and ask the public corporation to resolve the issue when only two years have passed since the start of the 10-year contract period (July 2023 to June 2033).
He continued, "If the government accepts the rent reduction as requested by the tax-exempt business, it will significantly undermine the fairness of the contract procedures stipulated in the National Contract Act and will undermine the basic order of open competitive bidding.
"It will be lost," he emphasized.