When a Korean commercial landlord offers to return part of the deposit in exchange for higher monthly rent, that rent has a legal ceiling. Article 12 of the Commercial Building Lease Protection Act says that when all or part of the deposit is converted into monthly rent, the rent may not exceed the converted amount multiplied by the lower of two rates, and Enforcement Decree Article 5 sets those rates at 12% a year and 4.5 times the Bank of Korea base rate. The Bank of Korea base rate history shows the last change on 27 August 2026 to 3.00%; 3.00% × 4.5 = 13.5%, so 12% is currently the lower rate. Converting a 50 million won deposit allows up to 500,000 won more a month (our sum). Enter the area, deposit, rent, amount converted and base rate to see the ceiling.
1. Ceiling = amount converted × (the lower of 12% a year and base rate × 4.5) ÷ 12 — Act Art. 12, Decree Art. 5.
2. At a 3.00% base rate, 12% is lower than 13.5% — converting 50 million won allows up to 500,000 won a month (our sum). At a 2.50% base rate it would have been 11.25%, or 468,750 won a month.
3. Only for shops within the area threshold (900 million won in Seoul etc.) — Art. 12 is not among the provisions that Art. 2(3) extends to leases above the threshold (our reading).
Calculator
Updates as you type. Converted deposit = deposit + rent × 100 (Act Art. 2(2), Decree Art. 2(2)(3)). The 3.00% default is the Bank of Korea change of 27 August 2026 (checked 11 November 2026) — enter the rate at the time of conversion. The monthly ceiling drops fractions of a won (our sum). Above the area threshold we treat Art. 12 as not applying and leave the ceiling blank (our reading).
The provisions
| Provision | What the text says | Notes (our reading) |
|---|---|---|
| Act Art. 12 | When all or part of the deposit is converted into monthly rent, the rent may not exceed the converted amount multiplied by the lower of: 1. a rate set by Presidential Decree considering bank lending rates and local economic conditions; 2. the base rate announced by the Bank of Korea multiplied by a factor set by Presidential Decree. | An annual rate, so divided by 12 for a monthly figure (our sum) |
| Decree Art. 5(1) | The rate under Act Art. 12 item 1 is 12% a year ("1 hal 2 pun"). | — |
| Decree Art. 5(2) | The factor under Act Art. 12 item 2 is 4.5 times. | Wholly amended 30 December 2013 |
| Act Art. 2(3) | Notwithstanding the proviso to paragraph 1, Art. 3, Art. 10(1), (2) and the main text of (3), Arts. 10-2 to 10-9, Art. 11-2 and Art. 19 also apply to leases above the deposit amount under that proviso. | Art. 12 is not on the list — shops above the threshold fall outside it (our reading) |
| Act Art. 13(1) | Arts. 10, 10-2, 10-8, 10-9 (…), 11 and 12 apply to sublease relationships between sublessor and subtenant. | The same ceiling when you sublet the shop |
| Act Art. 15 | An agreement that breaches this Act and is unfavourable to the tenant has no effect. | Rent agreed above the ceiling may be disputed for the excess (our reading) |
Which rate is lower — by base rate
The 12% is fixed; base rate × 4.5 moves with the base rate. Since 12 ÷ 4.5 = 2.666…, a base rate below about 2.67% makes the base-rate side lower, and anything above makes 12% lower (our sum). The last five changes on the Bank of Korea base rate history give this.
| Change date (Bank of Korea) | Base rate × 4.5 | Art. 12 rate (our sum) |
|---|---|---|
| 27 August 2026 — 3.00% | 13.5% | 12% (12% is lower) |
| 16 July 2026 — 2.75% | 12.375% | 12% |
| 29 May 2025 — 2.50% | 11.25% | 11.25% (base-rate side is lower) |
| 25 February 2025 — 2.75% | 12.375% | 12% |
| 28 November 2024 — 3.00% | 13.5% | 12% |
So a conversion between 29 May 2025 and 15 July 2026 was capped at 11.25%, and before and after that at 12% (our sum). Art. 12 item 2 refers only to "the base rate announced by the Bank of Korea" without naming a date — the calculator asks for the rate at the time of conversion (our reading).
Four sums — our examples
| Example (ours) | Result | Notes (our sum) |
|---|---|---|
| Seoul, deposit 100 million won, rent 3 million won, 50 million converted, base rate 3.00% | Up to 500,000 won a month → deposit 50 million, rent 3.5 million won | Converted 400 million ≤ 900 million · 50 million × 12% ÷ 12 |
| Same lease, base rate 2.50% | Rate 11.25% → 468,750 won a month | 50 million × 11.25% ÷ 12 |
| Busan, deposit 30 million, rent 1.5 million, 20 million converted, base rate 3.00% | Up to 200,000 won a month → rent 1.7 million won | Converted 180 million ≤ 690 million |
| Seoul, deposit 300 million, rent 7 million, 100 million converted | Converted deposit 1 billion won → outside Art. 12 | 300 million + 7 million × 100 = 1 billion > 900 million — agreed freely (our reading) |
Comparing the converted deposit before and after the first example shows something neat. Before: 100 million + 3 million × 100 = 400 million won; after: 50 million + 3.5 million × 100 = 400 million won — the same. At 12% a year the rent rises by one hundredth of the amount converted (12% ÷ 12 = 1%), and the conversion multiplies rent by 100, so the added rent exactly offsets the smaller deposit (our sum). Below 12% the converted deposit falls slightly — the second example gives 50 million + 3,468,750 × 100 = 396,875,000 won.
A different rule from the increase cap (Art. 11)
A claim to raise rent or deposit is governed separately by Art. 11. Art. 11(1) says an increase may not exceed the rate set by Presidential Decree, and Art. 11(2) bars a claim for an increase within 1 year of the lease or an agreed increase. That Decree provision, Art. 4, says the claim may not exceed 5/100 of the rent or deposit at the time of the claim (current text, checked 11 November 2026). Art. 12 is the rate for converting deposit into rent, a different provision. If the same renewal both converts part of the deposit and raises the rent, both provisions are in play, and the text does not say how to combine them (our reading). The increase cap sum is in the commercial converted deposit and 5% increase calculator.
Homes follow a separate rate in the Housing Lease Protection Act — see the jeonse to monthly rent converter.
Checklist
- ☐ Deposit + rent × 100 within the area threshold (900 million won in Seoul etc.)
- ☐ The Bank of Korea base rate on the conversion date — base rate history page
- ☐ The lower of base rate × 4.5 and 12%
- ☐ Whether the rent asked exceeds the amount converted × that rate ÷ 12
- ☐ A sublease gets the same ceiling (Art. 13(1))
- ☐ Write a new contract with the changed deposit and rent, and recheck the fixed date
Questions that remain
What if the first contract sets a low deposit and high rent from the start?
Art. 12 speaks only of "converting all or part of the deposit into monthly rent". The text does not say whether the rate also binds the deposit-rent mix of a first contract, and we did not read case law or rulings on it.
What if I already agreed to rent above the ceiling?
Art. 15 says an agreement that breaches the Act and is unfavourable to the tenant has no effect. We did not read the procedure or cases for recovering the excess, so for a dispute go through the Commercial Building Lease Dispute Mediation Committee or legal advice.
What about converting rent into deposit (the other way)?
Art. 12 covers only the deposit-to-rent direction. The text gives no rate for the reverse.
Sources
- Korea Law Information Center — Commercial Building Lease Protection Act Arts. 2, 11, 12, 13 and 15 — source (current text, in force 12 May 2026, Act No. 21083; checked 11 November 2026). Scope and the list of provisions applying above the threshold, rent adjustment and the 1-year bar, the conversion rate, sublease, mandatory provisions.
- Korea Law Information Center — Enforcement Decree Arts. 2, 4 and 5 — source (current text, in force 1 July 2026, Presidential Decree No. 36423; checked 11 November 2026). Area thresholds (900, 690, 540 and 370 million won), monthly rent and the factor of 100, the 5/100 cap on an increase claim, 12% a year and 4.5 times.
- Bank of Korea — base rate history — list (checked 11 November 2026). 3.00% from 27 Aug 2026, 2.75% from 16 Jul 2026, 2.50% from 29 May 2025, 2.75% from 25 Feb 2025, 3.00% from 28 Nov 2024.
- Not read. Case law or rulings on whether Art. 12 binds a first contract, cases on recovering rent paid above the ceiling, the extent of the overcrowding control zone (Annex 1 of the Seoul Metropolitan Area Readjustment Planning Act Decree — set out in the converted deposit calculator), and how to combine Arts. 11 and 12.
- What we added. Reading the base rate "at the time of conversion", treating shops above the threshold as outside Art. 12, dropping fractions of a won, the unchanged converted deposit sum, the examples, and the notes column.
Where to check further
- Bank of Korea base rate history — the rate on your conversion date.
- Commercial Building Lease Dispute Mediation Committee — disputes over conversion and increases.
- Korea Legal Aid Corporation — advice on agreements above the ceiling.
Written on 11 November 2026. The provisions are quoted from the source; the reading and the sums are ours.
