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Commercial Lease and Change of Use in Korea: Can the Lease Be Terminated If Business Operations Are Not Permitted?
A tenant may sign a commercial lease intending to operate a restaurant, café, convenience store, academy, or other specific business, only to later discover that the premises cannot legally be used for that purpose. This may occur because the building’s registered use does not permit the intended business, the required change of use cannot be approved, or separate business licensing requirements cannot be satisfied. In such cases, the landlord is not automatically liable simply because the change of use is unsuccessful. Whether the tenant may terminate the lease, recover the security deposit, or claim damages depends on factors such as the agreed purpose of the lease, the reason the intended business cannot operate, any contractual allocation of responsibility for permits and change-of-use procedures, and the representations made by the landlord before the lease was signed. Contents When a Change of Use Is Required What to Check Before Signing a Commercial Lease Landlord Liability When a Change of Use Is Not Possible Lease Termination and Return of the Security Deposit Damages for Interior and Business Preparation Costs Recommended Commercial Lease Clauses Frequently Asked Questions Key Takeaways on Commercial Leases and Change of Use 1. When Is a Change of Use Required for Commercial Premises? If the current registered use of a building differs from the tenant’s intended use, it is necessary to determine whether a change-of-use procedure is required under the Korean Building Act. Article 19 of the Building Act requires a building whose use is changed to comply with the building standards applicable to the intended new use. Depending on the type of change, approval, reporting, or an application to amend the building register may be required. [Article 19 of the Building Act – Change of Use] However, a change of use under the Building Act and a business-specific license or registration are separate legal issues. Even if the registered building use can be changed, the premises may still fail to satisfy requirements applicable to a restaurant, academy, or other regulated business. A prospective tenant should therefore confirm not only the current use shown on the building register but also whether the intended business can legally operate at the premises. 2. What Should Be Checked Before Signing a Commercial Lease? Before signing a commercial lease, the tenant should verify the registered use of the premises, whether the intended business can operate there, and who will bear responsibility for any change of use or licensing process. 🔹Key Checks Before Signing a Commercial Lease Item What to Check Building Register Current registered use of the premises Intended Business The specific business to be operated Change of Use Whether the required change can legally be made Building Standards Parking, fire safety, structural, and other requirements Business Licenses Whether permits, registrations, or reports required for the business are available Lease Agreement Who is responsible for permits, change of use, and related costs Special Clauses What happens if the tenant cannot obtain the required approval or operate the intended business Where a tenant is leasing premises for a specific business, it is generally preferable to state that purpose expressly rather than describing the premises only as a “commercial unit” or “store.” The purpose stated in the agreement may become an important factor if a dispute later arises over whether the premises were suitable for the intended use. 3. Is the Landlord Liable If the Change of Use Is Not Possible? If the premises cannot be used for the purpose agreed under the lease, the landlord’s contractual obligation to enable the tenant to use and benefit from the premises may become an issue. Article 623 of the Korean Civil Act requires a landlord to deliver the leased property and maintain it in a condition necessary for the tenant’s use and enjoyment during the lease term. [Article 623 of the Civil Act – Obligations of the Lessor] In Supreme Court Decision 2021Da202309, dated April 29, 2021, the lease expressly stated that the premises would be used as a convenience store, but issues relating to the building’s registered use interfered with normal business operations. The Supreme Court held that the condition in which leased premises must be provided should be determined in light of the agreed purpose and terms of the lease, and that the landlord’s obligation to maintain the premises in a usable condition does not automatically disappear merely because the landlord was unaware of the relevant defect. [Supreme Court Decision 2021Da202309, April 29, 2021] However, the landlord is not automatically liable whenever a change of use is denied. Relevant factors may include: the business purpose stated in the lease; whether the landlord knew the tenant’s intended business; whether the landlord represented that the business could operate at the premises; whether the problem arises from the building itself; and whether responsibility for permits or change-of-use procedures was allocated to a particular party. The central issue is whether the premises were leased for a specifically agreed business purpose and why that purpose became impossible to achieve. 4. Can the Lease Be Terminated If the Change of Use Is Not Permitted? If the inability to change the building use prevents the tenant from carrying out the business contemplated by the lease, termination of the lease may be considered. Where the tenant has already taken possession and used the premises, however, Korean law may treat the issue as termination with prospective effect rather than cancellation that retroactively unwinds the entire contractual relationship. In Supreme Court Decision 93Da61321, dated November 22, 1994, the tenant had taken possession of the premises but could not achieve the purpose of the lease because a legal restriction prevented the necessary change of use. The Supreme Court considered the continuing nature of the lease relationship and addressed the matter as one of termination rather than retroactive cancellation. [Supreme Court Decision 93Da61321, November 22, 1994] If the lease is validly terminated, the tenant may also seek the return of the lease security deposit upon returning the premises. Disputes may nevertheless arise over unpaid rent, restoration costs, or other amounts the landlord claims should be deducted from the deposit. 5. Can the Tenant Claim Interior and Business Preparation Costs as Damages? Where the landlord has breached a contractual obligation and the required elements for liability are satisfied, the tenant may consider claiming damages for losses such as interior construction costs. Article 390 of the Civil Act provides for damages where a party fails to perform its contractual obligations in accordance with the terms of the contract. [Article 390 of the Civil Act – Damages for Non-performance] Potential losses in a commercial lease dispute may include: interior construction costs; fixtures and equipment; demolition and restoration expenses; and expenses actually incurred in preparing permits or business registrations. However, not every expense incurred by the tenant will automatically be recoverable. The tenant must generally establish the connection between the landlord’s breach and the claimed loss, as well as the amount actually incurred. Construction agreements, tax invoices, bank transfer records, receipts, and similar documentation may therefore become important evidence. Claims for anticipated profits or lost business revenue generally require additional proof and should be considered separately from actual out-of-pocket expenses. 6. What Clauses Should Be Included in a Commercial Lease? Where the premises are being leased for a specific business, the lease should clearly address what happens if the required change of use or business license cannot be obtained. Relevant provisions may address: the specific business to be operated; whether a change of use is required; which party will handle the change-of-use procedure; allocation of related costs; the landlord’s obligation to provide documents or cooperation; termination rights if approvals are not obtained within a specified period; return of the deposit or other payments; and treatment of interior construction and restoration obligations. In particular, a general provision stating that “all permits and licenses are the tenant’s responsibility” may not adequately distinguish between regulatory issues relating to the tenant’s individual business and legal restrictions arising from the building itself. Where the ability to operate the intended business remains uncertain, the parties may consider expressly addressing termination and payment-return arrangements if the necessary approvals cannot be obtained. 7. Frequently Asked Questions Q1. If the lease says the premises will be used as a restaurant, must restaurant operations necessarily be permitted? The stated business purpose is an important factor, but it does not by itself determine liability. It is also necessary to consider whether the landlord knew the intended use, why the business cannot legally operate, and how the lease allocated responsibility for regulatory approvals. Q2. Is the landlord free from liability if the landlord did not know that the change of use was impossible? Not necessarily. A landlord’s lack of knowledge does not automatically eliminate the obligation to maintain the leased premises in a condition suitable for the agreed use. Whether damages may also be claimed requires a separate review of the requirements for contractual liability. Q3. What happens if neither the landlord nor the tenant is responsible for the inability to operate the business? If the contractual purpose becomes impossible to achieve for reasons attributable to neither party, Korean rules on risk allocation in bilateral contracts may become relevant. The result will depend on why the business became impossible and on the specific terms of the lease. Q4. What should a tenant do if interior construction has already been completed but the business license cannot be obtained? Before incurring additional expenses, the tenant should determine the exact reason the license cannot be issued and whether the problem can be corrected. The tenant should also preserve the building register, lease agreement, licensing documents, interior construction agreements, invoices, receipts, and communications with the landlord before assessing termination, deposit recovery, or damages. 8. Commercial Lease and Change of Use: Key Takeaways In a Korean commercial lease dispute involving a change of use, the registered use of the building is only one part of the analysis. The business purpose agreed between the landlord and tenant is also critical. If the parties entered into the lease for a specific business but a problem inherent in the building prevents that business from operating, issues such as lease termination, return of the security deposit, and damages may arise. However, the landlord is not automatically liable simply because a change of use cannot be completed. The lease agreement, special provisions, building register, reason for the licensing failure, representations made before signing, and records of actual expenditure should be reviewed together.
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Settlement in 12 Major Traffic Violation Cases: Criminal Settlement and Insurance Compensation Explained
1. Which Accidents Qualify as One of the 12 Major Traffic Violations? The "12 major traffic violations" do not simply refer to accidents where the driver is judged to be seriously at fault. Under the proviso to Article 3(2) of the Act on Special Cases Concerning the Settlement of Traffic Accidents, they refer specifically to accidents in which a person is injured as a result of violating one of twelve enumerated traffic rules. In an ordinary traffic accident, the driver may be exempt from criminal prosecution under the special provisions if the victim does not wish to press charges, or if the driver is covered by a qualifying comprehensive insurance policy. However, in accidents involving one of the 12 major violations, investigation and prosecution can proceed even if the victim does not wish to press charges, and holding comprehensive insurance alone does not necessarily end the criminal process. Article 3(1) of the Act on Special Cases Concerning the Settlement of Traffic Accidents provides that a person who causes injury through occupational negligence or gross negligence in a traffic accident may be punished by imprisonment for up to five years or a fine of up to KRW 20 million. The 12 Specific Categories of Major Violations Violation of traffic signals or instructions — whether the vehicle signal, a police officer's signal, or a no-passing/stop sign was violated Crossing the centerline — centerline crossing, or prohibited crossing, U-turns, or reversing Exceeding the speed limit by more than 20 km/h — the posted speed limit at the accident site versus the actual driving speed Improper overtaking or cutting in — whether the method, location, or timing of overtaking, or the prohibition on cutting in, was violated Improper railroad crossing procedure — whether the legally required stop-and-check procedure was followed Failure to protect pedestrians at a crosswalk — whether the pedestrian was crossing within the marked crosswalk Driving without a valid license — whether the license was suspended or revoked, or the driver lacked the license class required for the vehicle Driving under the influence of alcohol or drugs — blood alcohol level, whether normal driving was impaired, and the effect of any drugs Driving on the sidewalk — whether the vehicle entered or improperly crossed the sidewalk Failure to secure passengers before departure — whether doors were closed and other safety measures were taken before the vehicle moved Failure to exercise due care in a school zone — whether a child was injured within a designated school zone Failure to secure cargo — whether necessary measures were taken to prevent cargo from falling Formally falling within one of these categories does not automatically determine the outcome of a case. There must be a causal link between the specific violation and the victim's injury, which requires a detailed review of the actual signal status, the vehicles' positions, the point of impact, the speed limit, and the pedestrian's path of movement, among other factors. 2. How Do Criminal Settlement and Insurance Settlement Differ? The civil settlement handled by an insurance company and the criminal settlement a driver seeks directly from the victim are two separate processes. Payment of insurance proceeds does not, by itself, complete a criminal settlement, and conversely, reaching a criminal settlement does not necessarily resolve every civil damages issue the insurance company is responsible for. A civil settlement is intended to compensate the victim for the property and emotional damage caused by the accident. A criminal settlement, by contrast, carries the important additional meaning that the victim expresses a wish not to see the driver criminally punished, alongside compensation for the harm suffered. However, paying a criminal settlement amount does not always mean that amount is treated as entirely separate from civil damages. How the legal relationship develops afterward can depend on how the settlement agreement characterizes the payment and its relationship to civil damages and insurance claims. For this reason, the following points should be clearly confirmed when drafting a criminal settlement agreement. The legal character of the amount being paid Its relationship to the damages the victim will receive from the insurance company Whether additional civil claims will be permitted The scope of the victim's expressed wish not to see the driver punished Whether an additional claim will be possible if aftereffects develop later 3. What Determines the Amount of a Settlement in a 12-Major-Violation Case? There is no fixed schedule of amounts set by law for settlements in 12-major-violation cases. Rather than a uniform calculation, the amount must be negotiated by weighing the severity of the injury, the gravity of the accident, the risk of criminal punishment, and the actual extent of recovery achieved. The Severity of the Victim's Injury Whether the case involves a serious injury is treated as an important aggravating factor in traffic-accident-injury cases. The Degree of Illegality and Fault in the Accident Cases involving two or more overlapping major-violation grounds, or reckless driving, may be assessed as cases of "heightened illegality." Aftereffects and Loss of Income If the victim has been unable to work for an extended period, or has suffered a reduction in working capacity, the resulting damages can extend well beyond medical costs. The Victim's Own Fault If the victim's own conduct — such as running a red light, speeding, failing to wear safety equipment, or an unpredictable jaywalking crossing — contributed to the accident or increased the damage, this can be reflected in the calculation of civil damages. Whether Comprehensive and Driver's Insurance Are in Place If the driver holds comprehensive auto insurance, a substantial portion of the civil damages can be covered through that insurance. However, because holding comprehensive insurance alone is unlikely to secure the special exemption from criminal punishment in a 12-major-violation case, the need for a separate criminal settlement can still arise. The Risk of Criminal Punishment The importance of reaching a settlement increases where circumstances such as the following are present. The victim suffered a serious injury There are multiple victims Drunk driving or driving without a license is also at issue A child was injured in a school zone Two or more major violations overlap The driver has a prior record of similar traffic offenses The victim is requesting severe punishment 4. Does Reaching a Settlement with the Victim Guarantee Avoiding Criminal Punishment? Article 3(2) of the Act on Special Cases Concerning the Settlement of Traffic Accidents bars prosecution against the victim's express wishes in an ordinary traffic accident, but this special provision does not apply to accidents involving one of the 12 major violations. Accordingly, even if the victim submits a statement declining to press charges, the police investigation and the prosecutor's charging decision can still proceed. That said, a settlement can still have a significant effect on the severity of the criminal punishment imposed. The traffic-crime sentencing guidelines that took effect on July 1, 2026 list the following as mitigating factors in cases involving traffic-related injury or death. The victim's expressed wish against punishment Substantial recovery of the harm caused Meaningful recovery of the damage Holding comprehensive auto insurance Genuine remorse No prior record of criminal punishment Conversely, factors such as serious injury, a major violation involving heightened illegality, a prior record of similar offenses, or pressuring the victim during settlement negotiations can work against the driver. It is important to acknowledge the circumstances of the accident, offer a sincere apology, check on the victim's treatment and recovery, and objectively identify what harm remains uncompensated by insurance. 5. How Should You Prepare for a Settlement After a 12-Major-Violation Accident? If a 12-major-violation accident has occurred, the first step is not to propose a settlement amount, but to first organize the type of accident and the scope of the harm. Confirming Whether the 12-Major-Violation Provision Applies It is necessary to confirm whether the specific violation identified by the police is consistent with the actual accident record. [Evidence to Secure] The original dashcam footage from your vehicle Dashcam footage from nearby vehicles CCTV footage from intersections or nearby businesses Photographs of the accident scene The traffic signal cycle chart Vehicle speed data Navigation driving records The police-prepared traffic accident investigation report Witness contact information and statements In particular, whether a signal violation, a crosswalk accident, or centerline crossing occurred can turn on the exact point of impact and the vehicles' paths immediately before the collision. Confirming the Severity of the Victim's Injury The number of weeks of diagnosed recovery time alone does not determine the settlement amount. The following materials should be reviewed together. Medical certificates and injury diagnosis reports Surgical records Admission and discharge confirmations Future treatment plans The likelihood of lasting aftereffects Records of lost work or reduced income The treatment costs and settlement amounts already paid by the insurer If there are multiple victims, each victim's degree of injury and insurance treatment should be assessed separately. Also, if the victim declines to be contacted but is nonetheless repeatedly called, or family members or the workplace are contacted, this can be treated as secondary harm. The sentencing guidelines also treat persistently pressuring a victim, or hinting at disadvantages to them, during settlement negotiations as an unfavorable sentencing factor — so if the victim does not wish to be contacted directly, conveying your position through legal counsel is worth considering. 6. Frequently Asked Questions (FAQ) Q1. Is there a fixed settlement amount per week of diagnosed recovery time in 12-major-violation cases? There is no legal standard requiring a fixed amount per week of diagnosed recovery. The number of weeks is only one of several factors used to assess injury severity — surgery, length of hospitalization, aftereffects, the victim's occupation and income, the fault ratio, the insurance compensation already paid, and the risk of criminal punishment are all considered together. Q2. Do I still need a criminal settlement even if I have comprehensive auto insurance? In 12-major-violation cases, holding comprehensive insurance alone may not conclude the criminal process, so the need for a separate criminal settlement can still arise. That said, a criminal settlement is not always required in every case. It is necessary to comprehensively review whether the injury is minor, whether the harm has already been sufficiently recovered through insurance, whether the victim wants the driver punished, and whether the driver has a record of similar offenses. Q3. What should I do if the victim demands an excessive settlement amount? Rather than immediately accepting the demanded amount or reacting emotionally by refusing it, the basis for the figure should be reviewed. It is worth first examining the treatment costs and damages already paid by insurance, the severity of the injury, the likelihood of lasting aftereffects, the actual loss of income, and the likely criminal disposition in comparable cases. 7. Points to Keep in Mind There is no fixed market rate or standard formula tied to weeks of diagnosed recovery for settlements in 12-major-violation cases. The severity of the victim's injury, the likelihood of lasting aftereffects, the fault ratio, the insurance treatment history, the type of major violation involved, and the driver's prior record are the key factors that determine both the scope of settlement and the criminal outcome — and because the specific wording of the settlement agreement can determine whether the criminal settlement amount is treated as civil damages, or whether future claims are limited, the scope of the settlement should be confirmed before any payment is made or any signature given. Because a 12-major-violation accident requires reviewing the accident record, medical materials, and insurance treatment history together to determine the right course of action, anyone facing a police investigation or a settlement negotiation with a victim should first consult an attorney experienced in this area to review which major-violation category applies and the legal effect of the settlement agreement.
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Generative AI and Personal Data: What Businesses Should Check Before Uploading Customer Information or Contracts
Businesses are increasingly using generative AI to review contracts, summarize meetings, respond to customer inquiries, and draft documents. However, when contracts or other materials entered into an AI service contain personal data relating to customers or employees, the issue extends beyond operational efficiency. It may raise concerns regarding personal data processing, confidentiality, and the management of internal business information. Businesses should therefore understand how an AI service stores and uses input data and establish internal rules that reflect how generative AI is actually used within the organization. How Is Information Entered into Generative AI Processed? From the user’s perspective, generative AI appears to involve simply entering a question and receiving a response. In practice, however, prompts and uploaded files are transmitted to the service provider’s systems. Depending on the service policy and account type, they may be retained as conversation records or system logs and may also be used to improve the service. Before entering business materials, companies should check: ▪️ Whether input data may be used to train the AI model ▪️ How long conversations and uploaded files are retained ▪️ Whether conversations and uploaded materials can be deleted ▪️ In which country and on which servers the data is processed ▪️ What access permissions are granted when the AI is connected to external applications or internal systems Using a paid or enterprise account does not automatically resolve every data protection issue. The relevant contractual terms and actual data-processing arrangements must also be reviewed. Is Information No Longer Personal Data Once the Name Is Removed? Removing a customer’s name or contact information from a contract does not necessarily mean that the remaining information is no longer personal data. Personal data includes not only information that directly identifies an individual, such as a name, but also information that may identify a person when combined with other readily available information. Even after a name has been removed, an individual may still be identifiable through a combination of information such as: ▪️ The company name and a specific job title ▪️ The contract date and transaction amount ▪️ The employee’s department and performance evaluation ▪️ Detailed consultation history and family relationships ▪️ A case number and the location of a dispute A company name alone is generally information about a legal entity. However, when combined with a specific position, transaction details, or other contextual information, it may make an individual employee or representative identifiable. Businesses should therefore remove information that is unnecessary for the intended task rather than deleting names alone. Actual names, contact details, company names, and similar identifiers may also need to be replaced with fictional or generic information. Does Entering Customer Information Automatically Violate Korea’s Personal Information Protection Act? Entering customer information into a generative AI service does not automatically constitute a violation of Korea’s Personal Information Protection Act, commonly referred to as the PIPA. However, a business may generally use personal data only within the scope of the original purpose of collection and an appropriate legal basis. It is therefore necessary to assess whether the intended AI use is related to the original processing purpose and whether additional consent or another legal basis is required. The relationship between the business and the AI service provider must also be reviewed. The applicable legal framework may differ depending on whether the provider processes data solely on the company’s instructions or also uses the input data for its own purposes, such as model training or service improvement. Depending on the actual arrangement, the use of the service may involve outsourced processing, third-party provision, or other forms of data processing. If personal data is transferred to servers or service providers located outside Korea, the requirements governing overseas transfers must also be considered. The applicable rules cannot be determined solely from the fact that customer information was entered into an AI service. Businesses should review the actual contractual structure and data flow, including: ▪️ The legal basis for using personal data in the relevant AI task ▪️ The purposes for which the service provider uses input data ▪️ Whether the data is used for training or service improvement ▪️ The data-retention period and deletion procedures ▪️ The server locations and countries to which data is transferred ▪️ The involvement of subprocessors or downstream service providers ▪️ How input data is handled after the service contract ends Contracts and Consultation Records Raise More Than Personal Data Issues Contracts and customer consultation records may contain confidential business information in addition to personal data. Examples include: ▪️ Transaction terms and supply prices ▪️ Sales strategies and business plans ▪️ Technical materials and development information ▪️ Confidentiality obligations agreed with customers or business partners ▪️ Strategies for litigation, investigations, or other disputes ▪️ Non-public financial information and internal decision-making materials Entering such information into an external generative AI service may raise issues under the PIPA, but it may also create risks involving contractual confidentiality obligations, trade secret protection, customer security agreements, and internal company policies. A corporate generative AI policy should therefore cover not only personal data but also trade secrets, contractual information, technical materials, and dispute-related documents. Internal Rules Businesses Should Establish for Generative AI Use When employees are left to decide individually how generative AI should be used, the company may be unable to identify what information has been entered into which external service. Rather than issuing a general instruction not to enter personal data, businesses should establish practical and specific rules that employees can follow in their day-to-day work. 1. Approved Services and Accounts The company should designate the generative AI services and account types that employees are permitted to use. Employees should also be prohibited from entering business materials through personal accounts or unapproved services. 2. Prohibited Input Data The company should clearly define the information that must not be entered into generative AI services. This may include resident registration numbers, bank account information, health information, other sensitive or high-risk personal data, trade secrets, non-public contractual terms, and materials relating to litigation or criminal investigations. 3. Approval Procedures for High-Risk Documents High-risk materials, such as contracts, human resources documents, and customer consultation records, may be made subject to prior review or approval by the responsible department. 4. Standards for Removing or Replacing Identifying Information Businesses should establish standards for removing or replacing information that could identify an individual or a transaction party, including names, contact details, company names, and transaction amounts. Rather than uploading an entire contract, employees should extract only the clauses required for the relevant task. Actual customer information may also be replaced with fictional names or sample data. 5. Conversation History and Model-Training Settings The company should determine whether the service allows input data to be excluded from model training, whether conversation history can be disabled, and how deletion features operate. 6. Internal Reporting and Incident Response Employees should be required to report promptly if personal data or confidential business information is entered into an AI service by mistake. The company should also establish procedures for deleting records, disabling external integrations, requesting deletion from the service provider, and taking any other necessary measures. What Should a Business Do If Customer Information Has Already Been Entered? If an employee mistakenly enters customer information or an internal document into a generative AI service, the company should first stop any further sharing or use of the resulting output. The following matters should then be reviewed: ▪️ Which account and AI service were used ▪️ What personal data or confidential information was entered ▪️ Whether the conversation and uploaded files can be deleted ▪️ Whether the service was connected to any external applications ▪️ Whether the information may have been used for training or service improvement ▪️ Whether a third party may have gained access to the information Where necessary, the company should delete the conversation history and uploaded files, revoke external access permissions, and request that the service provider stop processing or delete the relevant information. Whether the incident requires a personal data breach report or notification to affected individuals should be determined by considering the type and volume of information involved, the possibility of third-party access, whether the data has been deleted, and the potential harm to the individuals concerned. Effective Generative AI Use Requires Governance, Not Just Prohibition Generative AI can improve efficiency in contract review, document drafting, and customer communications. However, when its use is left entirely to individual employees, a business may have little control over where customer information and internal documents are transmitted or how they are subsequently used. Businesses should establish specific rules regarding approved services, prohibited data, the removal or replacement of identifying information, approval procedures for high-risk documents, and incident response. Decent Law Firm advises businesses on the legal use of generative AI, including compliance with Korean personal data protection requirements, review of service terms and data-processing agreements, overseas data transfers, trade secret protection, and the preparation of internal AI-use policies. This content is provided for general informational purposes only and does not constitute legal advice regarding any specific matter or business.
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Korea’s AI Basic Act Six Months On: Disclosure and Labeling Duties for Generative AI Businesses
Korea’s AI Basic Act took effect on January 22, 2026. Under the Act, businesses that provide generative AI products or services are subject to transparency obligations. Compliance, however, does not end with adding a notice to a service screen. The applicable legal risks depend on the AI model used, the information entered by users, where that information is transferred, and how the generated output is used. Advance Disclosure and Output Labeling Are Separate Obligations Article 31 of the AI Basic Act divides transparency obligations into two categories. First, an AI business operator intending to provide a product or service based on generative AI must inform users of that fact in advance. Second, when generative AI or an AI-powered service produces content, the business must indicate that the output was generated using AI. For example, a chatbot or AI document-generation service may need to disclose its use of generative AI through its terms of service or user interface before the service is used. Separately, text, images, audio, or video generated by the service may require an AI-generated content label. Synthetic audio, images, and video that could easily be mistaken for real content require particularly clear disclosure. In practical terms: Before use: disclose that the product or service uses generative AI. After generation: indicate that the resulting content was generated using AI. AI-Generated Content Does Not Always Require a Visible Watermark The required label does not necessarily have to be a visible watermark. The Enforcement Decree permits both: ▪️ Human-readable labeling ▪️ Machine-readable labeling Where only a machine-readable method is used, users must still be informed at least once, through text, audio, or another accessible method, that the content was generated using AI. All or part of the disclosure and labeling requirements may not apply where: ▪️ The service name or interface already makes the use of AI obvious ▪️ The AI is used exclusively for the operator’s internal business purposes ▪️ A separately issued government notice recognizes an exception The internal-use exception should be applied carefully. Materials initially generated for internal use may fall outside the exception once they are included in advertisements, customer reports, consultation materials, or other externally distributed content. Businesses should therefore distinguish between outputs that remain within the service and outputs that can be downloaded, shared, or provided to customers. Businesses Using External AI APIs May Also Be Covered A business does not need to develop its own AI model to fall within the scope of the AI Basic Act. The Act also covers businesses that use AI developed by another provider to offer AI products or services. A company may therefore qualify as an AI business operator where it connects an external large language model through an API and provides services such as: ▪️ AI chatbots ▪️ Image-generation tools ▪️ Document drafting or summarization ▪️ Automated customer consultation The key question is not who developed the underlying model. What matters is whether the company uses AI to provide a product or service to users. Businesses using third-party APIs should therefore review whether they are subject to advance disclosure and AI-output labeling obligations. Disclosure Compliance Is Only One Part of the Legal Review Generative AI services commonly send user inputs to an external AI model and return generated outputs to the user. This process may raise data protection and copyright issues that are legally separate from the labeling requirements under the AI Basic Act. 1. Personal Data Entered into AI Services Where customers or employees enter names, consultation records, contracts, photographs, or internal documents into an external AI service, the business should verify: ▪️ Whether input data is stored or used for model training ▪️ The location and country of the servers processing the data ▪️ Applicable retention periods and deletion procedures ▪️ Whether the arrangement constitutes outsourcing, third-party provision, or overseas transfer ▪️ Whether the data is retransmitted to plug-ins or other external services The legal classification should be based on the actual data flow rather than the name of the agreement with the AI provider. A privacy policy should accurately reflect how personal data is collected, transferred, retained, and deleted throughout the AI service structure. 2. Copyright in AI-Generated Outputs A business does not automatically acquire exclusive copyright merely because an image, document, video, or source code was generated using AI. Relevant considerations include: ▪️ The degree of human creative involvement ▪️ Whether the source materials were lawfully used ▪️ Whether the AI provider’s terms permit commercial use ▪️ Whether the output is substantially similar to existing protected works AI-generated content may also infringe third-party copyrights, image rights, or other intellectual property rights. Businesses using generated outputs for advertising, websites, software, games, or commercial publications should retain records of the model used, prompts, initial outputs, and subsequent human edits. AI Used to Evaluate Individuals May Qualify as High-Impact AI Not every generative AI service is classified as high-impact AI. However, additional review may be required where AI is used beyond basic drafting or guidance and affects a person’s rights, opportunities, or access to essential services. Relevant examples include AI used in: ▪️ Recruitment and applicant evaluation ▪️ Lending, credit scoring, and insurance assessment ▪️ Medical diagnosis or treatment-related decision-making ▪️ Student admission, selection, or performance evaluation For instance, an AI tool that summarizes a résumé may present a different level of legal risk from one that calculates an applicant’s probability of being hired. The assessment depends on how the AI output is used in the actual decision-making process. Where a system qualifies as high-impact AI, the operator may need to implement: ▪️ Risk-management measures ▪️ Procedures for explaining major decision-making criteria ▪️ User-protection procedures ▪️ Human management and oversight ▪️ Preparation and retention of relevant records Documents to Review Before Launching a Generative AI Service Legal review should not begin by drafting a disclaimer in isolation. A business should first map: ▪️ The AI model being used ▪️ The information entered by users ▪️ The data-transfer route ▪️ How generated outputs are used ▪️ Where human review takes place The following documents should then be aligned with the actual service structure. AI Disclosure and Labeling Notices Separate advance disclosure before use from labeling of generated outputs. Terms of Service Define the permitted use of AI outputs and procedures for handling errors, rights infringement, and user complaints. Privacy Policy Reflect the actual collection, processing, storage, overseas transfer, and deletion of personal data involving external AI providers. AI Supply Agreements and API Terms Review provisions concerning data use, cybersecurity incidents, intellectual property, service interruptions, and liability allocation. Internal AI Use Policy Establish restrictions and approval procedures for entering customer data, contracts, source code, and confidential business information into AI tools. Legal Review Based on the Actual AI Service Structure Under Korea’s AI Basic Act, generative AI transparency obligations are divided into advance disclosure before use and labeling of AI-generated outputs. In practice, however, legal risk extends beyond how a notice is displayed. Businesses should also review the use of external AI models, personal data processing and overseas transfers, rights in generated content, potential classification as high-impact AI, and the allocation of liability with AI vendors. Decent Law Firm’s Corporate Practice Group advises AI and technology companies based on their actual service functions and data flows. Our review covers the applicability of the AI Basic Act, disclosure and labeling design, privacy and copyright issues, external AI model agreements, and the legal documentation required for launching and operating AI services in Korea. This content is provided for general informational purposes only and does not constitute legal advice for any individual matter.
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Refusing "Imuidonghaeng" (Voluntary Accompaniment) in Korea: Legal Requirements and How to Respond
A Korean police officer asking you to come to the police station "voluntarily" — known as imuidonghaeng (임의동행), or voluntary accompaniment — is a routine part of policing in Korea. But because it happens without a warrant, there is a lot of confusion about when it is lawful, and whether you can actually say no. The National Human Rights Commission of Korea has previously ruled that when police request voluntary accompaniment without informing the person that they have the right to refuse, this violates the constitutional right to personal liberty. This article explains the legal basis for voluntary accompaniment, the conditions that make it lawful, and what the courts have said about it. The Legal Basis The legal basis for voluntary accompaniment comes from two sources. Article 3 of the Act on the Performance of Duties by Police Officers allows an officer to question someone whose behavior is suspicious or who is reasonably suspected of a crime, and — if necessary — to request that the person come to a nearby police station. Importantly, this is only a "request." Paragraph 2 of the same article is written on the premise that the person may decline. The same article also contains several procedural safeguards: • Paragraph 5: If a person is brought in, the officer must notify the person's family or an acquaintance of the officer's identity, the location, and the purpose of the accompaniment — or give the person the chance to make that call themselves — and must inform them of their right to legal counsel. • Paragraph 6: A person cannot be kept at a police station for more than 6 hours as a result of voluntary accompaniment. • Paragraph 7: The person cannot be physically detained except under procedures set out in the Criminal Procedure Act, and cannot be forced to answer questions against their will. Article 199, Paragraph 1 of the Criminal Procedure Act establishes the principle that investigations should rely on voluntary methods, and that compulsory measures are only permitted where specifically authorized by law, and only to the minimum extent necessary. Even when investigators use the form of "voluntary" accompaniment, this principle still applies in substance. Category Legal Basis Can You Refuse? Stop-and-question (bulsimgeommun) Police Duties Act, Art. 3(1) No legal obligation to answer Voluntary accompaniment Police Duties Act, Art. 3(2); Criminal Procedure Act, Art. 199(1) Yes, in principle Arrest / detention Criminal Procedure Act, Art. 200-2 and following Cannot refuse if a warrant or statutory grounds exist Source: Act on the Performance of Duties by Police Officers; Criminal Procedure Act What the Courts Have Said The Supreme Court of Korea has set out the conditions under which voluntary accompaniment is considered lawful: "[Voluntary accompaniment to an investigative agency] is recognized as lawful only where it is objectively and clearly proven that the accompaniment took place based solely on the suspect's own free will — such as where the investigator informed the suspect, before the accompaniment, that they could refuse, or where the suspect was free to leave the accompaniment process or the location at any time." — Supreme Court, Judgment of July 6, 2006, Case No. 2005Do6810 In other words, if a person was not told they could refuse before being brought in, or could not realistically have left once there, the accompaniment may not be considered lawful — even if it was labeled "voluntary." In that case, the admissibility of any statements or evidence obtained afterward can also become a live issue. That said, refusing verbally and physically resisting are treated as legally distinct matters. In cases where a person responded to a lawful stop-and-question or accompaniment request with physical resistance or by fleeing, the resistance itself has been separately recognized as obstruction of official duties in some cases. Whether a refusal was expressed in a lawful manner depends heavily on the specific facts. Practical Issues to Consider The following points are worth keeping in mind if you are asked to accompany police voluntarily: • Whether the legal requirements were met: Whether you were told you could refuse, and whether you were genuinely free to leave, can determine whether the entire procedure was lawful. • How you express refusal: State your refusal clearly and, where possible, keep a record of the situation (for example, by recording audio). This can reduce disputes later. • The distinction between refusal and resistance: Verbal refusal and physical resistance are evaluated very differently under the law. A procedural response is far safer than an emotional one. • Your rights even if you do go along: Even if you agree to accompany police, the 6-hour limit and your right to legal counsel still apply. The specific outcome will always depend on the facts of the individual case and how the police handled the situation. About Decent Law Firm Because voluntary accompaniment happens before formal arrest or detention, how it is handled at this stage can affect the direction of the entire investigation that follows. The Criminal Defense Team at Decent Law Firm has experience advising on cases from the stage of stop-and-question and voluntary accompaniment through to trial. If you have been asked to accompany police, or if you believe the accompaniment was not lawfully conducted, we recommend reviewing your initial response before answering any questions. Decent Law Firm operates a 24-hour system in which a lawyer can respond and travel to the location directly, including at night.
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M&A Legal Due Diligence Costs and Scope in Korea: A Practical Guide
The cost of M&A legal due diligence is not simply a lawyer’s fee. It depends on the size of the transaction, the complexity of the target company, and the scope of the review itself. For foreign companies and investors entering the Korean market, understanding how legal due diligence works is critical because the findings can directly affect pricing, indemnity structures, and even whether the transaction proceeds at all. What Is Legal Due Diligence in an M&A Transaction? Legal due diligence (LDD) is the process of identifying and reviewing the legal risks of a target company before completing an acquisition or investment. In Korea, legal due diligence is typically conducted after the signing of an LOI (Letter of Intent) and before the execution of the SPA (Share Purchase Agreement). Key review areas usually include: Material contracts and commercial arrangements Litigation and disputes Employment and labor issues Regulatory compliance Intellectual property rights Corporate governance and shareholder structure Licenses and permits Subsidiaries and overseas entities The purpose is not simply to “find problems,” but to assess legal exposure that may transfer to the buyer after closing. The results of due diligence often directly influence: Purchase price adjustments Representations & warranties (R&W) Indemnification clauses Escrow arrangements Closing conditions Deal restructuring decisions What Determines M&A Legal Due Diligence Costs? There is no fixed pricing standard for legal due diligence in Korea. Costs are generally determined by several combined factors. 1. Transaction Size Larger transactions typically involve: Broader review scope Higher legal exposure Increased reporting requirements More intensive negotiation support Cross-border transactions and strategic acquisitions usually require deeper review compared to early-stage investments. 2. Complexity of the Target Company Costs increase when the target company has: Multiple subsidiaries Overseas entities Large numbers of commercial contracts Regulated business operations Complex shareholder arrangements Convertible securities, SAFE, or stock option structures Industries such as fintech, crypto, healthcare, SaaS, and platform businesses often require additional regulatory analysis. 3. Scope of Due Diligence The scope of review is one of the biggest cost variables. • Full Scope Due Diligence A full-scope review examines the overall legal condition of the company in detail. This is commonly used in: Strategic acquisitions Large-scale M&A deals Transactions involving operational integration (PMI) While more expensive and time-consuming, it can significantly reduce post-closing legal risks. • Red Flag Due Diligence A red-flag review focuses only on major legal risks that could materially affect the transaction. This approach is often used by: Financial investors Venture capital firms Early-stage investors Buyers operating under tight timelines It is generally faster and less expensive, but risks outside the agreed review scope may remain unidentified. How Are Legal Due Diligence Fees Structured? In practice, Korean law firms usually structure due diligence fees in one of three ways. Hourly Billing Fees are calculated based on: Time spent Hourly rates of lawyers involved This model is commonly used when the review scope may change during the transaction. Fixed Fee A fixed fee is agreed upon based on: Defined review scope Estimated timeline Expected workload This structure offers budget predictability but may require additional fees if the scope expands later. Hybrid Structure Many mid-to-large transactions use a hybrid model: Base scope under a fixed fee Additional work billed hourly This approach balances flexibility with cost predictability. Data Room Preparation Also Affects Costs The quality of document organization can significantly impact due diligence efficiency. Well-structured VDRs (Virtual Data Rooms) reduce: Review time Additional document requests Follow-up interviews Reporting delays Poorly organized materials often increase both costs and transaction risks. Importantly, legal advisors can only assess documents actually provided to them. Missing or incomplete disclosures may limit the scope of legal responsibility and the reliability of the review itself. Why Due Diligence Findings Matter Legal due diligence findings can materially change the transaction structure. Purchase Price Adjustments Material legal risks may justify: Lower valuations Deferred payments Escrow retention Representation & Warranty Negotiations Discovered risks are often reflected in: Disclosure schedules Liability caps Survival periods Basket thresholds Specific indemnities Deal Restructuring or Termination Serious legal issues may lead to: Changes in acquisition structure Asset deals instead of share deals Conditional closing arrangements Transaction termination Proper Scope Design Is Critical One of the most common problems in M&A transactions is starting due diligence without clearly defining the review scope. When the scope is unclear: Costs become unpredictable Timelines expand Review items continue increasing Negotiations become inefficient A properly structured process usually follows this order: Define review scope Discuss fees and timeline Execute engagement agreement Open VDR and begin review Deliver due diligence report Reflect findings in SPA negotiations Legal due diligence should not be evaluated solely based on price. The more important question is whether the legal team can accurately identify transaction-critical risks and translate them into practical deal protections. Decent Law Firm advises domestic and international clients on M&A transactions, startup investments, cross-border acquisitions, and regulatory risk analysis in Korea. If you are considering an acquisition or investment in Korea and would like to discuss an appropriate due diligence scope and fee structure, our corporate advisory team would be happy to assist.
