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Photo = Yonhap news |
[Alpha Biz= Paul Lee] The court has ruled that Lotte Duty Free must be refunded the full amount of rent paid for duty-free shops, which were forced to close due to the government’s international flight consolidation policy during the COVID-19 pandemic. This decision has raised expectations for Shilla Duty Free and Shinsegae Duty Free, both of which are currently requesting rent reductions from Incheon International Airport Corporation (IIAC) amid financial difficulties.
According to legal sources on the 26th, the Supreme Court’s Second Division overturned a lower court ruling that partially favored Hotel Lotte and Busan Lotte Hotel in their lawsuit against Korea Airports Corporation (KAC) and sent the case back to the Seoul High Court for reconsideration.
In April 2020, the Ministry of Land, Infrastructure and Transport (MOLIT) centralized all international flights to Incheon International Airport, closing the international terminals at Gimpo and Gimhae Airports to contain the spread of COVID-19. As a result, Hotel Lotte and Busan Lotte Hotel, operators of duty-free shops at the affected airports, agreed with KAC to temporarily suspend duty-free operations until international flights resumed.
MOLIT had announced rent reductions, cutting rents by 50% from March to August 2020 and waiving them entirely from September onward. While KAC followed these directives, Hotel Lotte and Busan Lotte Hotel demanded a full rent waiver for March to August 2020. When KAC refused, the companies filed suit.
The first trial court ordered a 70% rent reduction for April to August 2020, while the appellate court ruled for a 50% reduction in March and 70% for April to August.
However, the Supreme Court found that the airport terminals were effectively closed due to the government’s policy from April to August 2020, making contract performance impossible and thus ruling that rent could not be charged for that period.
Shilla Duty Free and Shinsegae Duty Free, which have recently filed rent adjustment requests with IIAC for their duty-free shops at Incheon Airport’s Terminal 1 and 2, are encouraged by this ruling. Both seek a 40% reduction in rent for their cosmetics, perfume, liquor, and tobacco sections.
While some argue that the circumstances differ because Lotte’s shops were completely closed by government mandate, whereas Shilla and Shinsegae faced demand shortfalls, the latter companies maintain that the ongoing pandemic made accurate demand forecasting impossible when their duty-free contracts were awarded.
IIAC acknowledges that duty-free closures inevitably impact the airport’s revenue, so it cannot simply reject rent reduction requests. However, it is cautious about granting discounts due to concerns over fairness among other duty-free operators and potential backlash from Lotte, which lost bids in recent auctions.
Historically, IIAC granted a uniform 10% rent reduction for all duty-free shops during the 2009 global financial crisis but later faced a 37 billion KRW corporate tax reassessment by the National Tax Service, which classified the rent reduction as entertainment expenses. It took five years to reclaim this amount through litigation, making IIAC hesitant to offer rent concessions again.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
