Why office effective rent differs from face rent
An office proposal normally lists monthly rent, management fees, a refundable deposit, free-rent periods, and landlord contributions as separate terms. A KRW 10,000,000 face rent is therefore not the same as the economic rent carried through a three-year lease. Two free months in every contract year and a confirmed fit-out allowance can reduce effective rent materially, while management fees during free months and a delayed deposit refund can restore part of the cost.
This calculator builds a month-by-month contractual cash flow. It applies stepped rent every 12 months, identifies either upfront or annually repeated free-rent months, keeps the management-fee waiver separate, deducts a landlord allowance at commencement, and discounts the refundable deposit according to its timing. The result includes nominal effective monthly rent, effective rent per pyeong and square metre, all-in occupancy cost, and present-value levelized rent.
Who can use this calculator
- Finance and workplace teams normalising several Korean office proposals
- Tenants comparing a lower face rent with a larger free-rent package
- Advisers explaining repeated annual rent-free periods and stepped rent
- International teams reviewing a Korean LOI or term sheet in English
- Decision-makers who need both nominal and present-value occupancy metrics
Korea-specific planning boundary
This English page models a Korean office lease in KRW. It does not determine whether the Korean Commercial Building Lease Protection Act applies, whether a stepped-rent clause is enforceable, how VAT is recovered, or how a lease is recognised under an accounting standard. Replace every example input with the executed contract, landlord proposal, and company policy.
Normalise the proposal before calculating
Effective-rent comparison depends on consistent boundaries more than on a complicated formula. Do not compare one proposal quoted on leased area with another quoted on exclusive area. Do not mix tax-exclusive rent with a tax-inclusive management fee. Use one area, tax, timing, and currency convention across every candidate.
Lease area
Choose either leased area or exclusive area and use it consistently. The calculator converts 1 pyeong to 3.305785 m² for a secondary unit-cost view.
Base rent and escalation
Base monthly rent applies to months 1–12. Annual escalation compounds at months 13, 25, 37, and each later contract-year boundary.
Management fee
Define which common-area, building-service, cooling, heating, or operating charges are included. This version holds that monthly amount constant.
Landlord allowance
Enter only a confirmed cash or tenant-improvement contribution. The model assumes the full amount is paid or credited at lease commencement.
Deposit and refund delay
The deposit is assumed fully refundable. Enter the expected delay from lease expiry to actual refund so that tied-up cash has a present-value cost.
Annual discount rate
Use a company cost of funds or hurdle rate that is appropriate for the comparison. It is not a statutory rate or a market recommendation.
VAT is not added automatically
Enter rent, management fees, and allowances on the same tax-inclusive or tax-exclusive basis. The calculator neither adds Korean VAT nor determines input-VAT recovery. A mixed basis will distort the all-in result even when each source document is correct.
Upfront free rent versus annual recurring free rent
The phrase “two months free” does not identify which rent is waived. Timing matters when scheduled rent escalates and when the cash flow is discounted. Match the calculator mode to the wording in the lease or term sheet.
Comparison of upfront and annually repeated free-rent patterns in a 36-month lease| Pattern | Waived months with an input of 2 | Total free months | Typical wording to verify |
|---|
| Upfront consecutive | Months 1–2 | 2 | First two months from commencement |
| Repeated each contract year | Months 1–2, 13–14, and 25–26 | 6 | Two months in each contract year |
A partial final contract year still receives the first entered months under the annual mode. For example, an 18-month lease with two free months per contract year waives months 1, 2, 13, and 14. If the actual agreement excludes a short final year or names different calendar months, the current pattern is not an exact reproduction.
Formulas used by the calculator
1. Scheduled rent and waived rent
Month numbers start at one. Scheduled rent is rounded to the nearest KRW for each month before totals are added. Contract year one uses base rent, year two applies one escalation, and year three applies two compounded escalations.
Scheduled rent in month m
= Base rent × (1 + annual escalation)floor((m − 1) / 12)
Billed rent = Scheduled rent − Rent waived
2. Nominal effective rent
The landlord allowance is deducted once from billed rent. A very large allowance can therefore produce a mathematically negative effective rent. That result is preserved rather than clamped, but it does not prove that cash will be paid without conditions.
Net rent = Total billed rent − Landlord allowance
Nominal effective monthly rent = Net rent ÷ Lease months
Incentive discount = (Rent waived + Allowance) ÷ Scheduled rent × 100
3. Present value and levelized rent
The annual effective discount rate is converted to an effective monthly rate. Billed rent and management fees are assumed paid at each month-end. The allowance is assumed received at time zero. The deposit is paid at time zero and refunded in full after the lease term plus the entered delay.
Monthly rate r = (1 + annual rate)1/12 − 1
Deposit PV cost = Deposit − Deposit ÷ (1 + r)term + delay
Levelized monthly cost = Present-value total ÷ Σ[1 ÷ (1 + r)m]
Worked example: a 36-month Korean office lease
The default scenario uses 100 pyeong, a 36-month term, KRW 10,000,000 base monthly rent, 3% annual escalation, and KRW 3,000,000 monthly management fees. It applies two free months in each contract year, keeps management fees payable during those months, deducts a KRW 20,000,000 landlord allowance, and assumes a KRW 100,000,000 deposit. The discount rate is 5% and the deposit is refunded one month after expiry.
Nominal and present-value results for the default 36-month office lease example| Metric | Result | Meaning |
|---|
| Total scheduled rent | KRW 370,908,000 | Rent before incentives after stepped escalation |
| Free rent | 6 months / KRW 61,818,000 | First two months of each contract year |
| Total billed rent | KRW 309,090,000 | Scheduled rent less free-rent savings |
| Net rent after allowance | KRW 289,090,000 | Billed rent less the KRW 20 million allowance |
| Nominal effective monthly rent | KRW 8,030,278 | Net rent spread across 36 months |
| Nominal effective rent per pyeong | KRW 80,303 | Monthly rate on the entered 100-pyeong basis |
| Incentive discount | 22.058839% | Free rent plus allowance divided by scheduled rent |
| Nominal all-in monthly cost | KRW 11,030,278 | Effective rent plus management fees |
| PV of rent | KRW 265,501,913 | Discounted billed rent less allowance at commencement |
| PV of management fees | KRW 100,263,818 | Discounted month-end management payments |
| Deposit PV cost | KRW 13,966,750 | Payment now less refund value at month 37 |
| PV occupancy cost | KRW 379,732,481 | Rent, management, and deposit timing combined |
| Levelized effective monthly rent | KRW 7,944,099 | PV rent converted to a level monthly amount |
| Levelized all-in monthly cost | KRW 11,361,999 | PV occupancy cost converted to a level monthly amount |
The incentives reduce scheduled rent by about 22.06%, but management fees remain payable in all 36 months. The refundable deposit is not a nominal expense, yet its one-month post-expiry delay adds a present- value cost. This is why the nominal all-in monthly figure and the levelized present-value all-in figure answer different questions.
How to use the result in a proposal comparison
- Set one comparison boundary. Use the same lease term, area definition, KRW basis, and VAT basis across every office candidate.
- Enter scheduled lease terms. Copy base rent, annual escalation, and management fees from the LOI, term sheet, or draft lease.
- Map free-rent timing. Choose one upfront block or a repeated allowance in every contract year, then confirm whether management fees are also waived.
- Separate allowance and deposit. Enter only a confirmed landlord contribution. Keep refundable principal and the expected refund delay in their own fields.
- Compare nominal metrics first. Record effective monthly rent, rent per pyeong, incentive discount, and nominal all-in monthly cost for each candidate.
- Use PV metrics for timing differences. When deposits, escalation, or free-rent timing differ, compare the levelized effective rent and levelized all-in monthly cost as well.
Practical interpretation scenarios
Higher face rent with more free months
Start with nominal effective rent rather than the headline quote. If the waiver is front-loaded, also inspect levelized rent because earlier savings generally carry more present value.
Identical free rent but different management terms
Toggle the management-fee waiver separately for each proposal. Effective rent can remain identical while nominal all-in cost and the contract-year cash requirement diverge.
Materially different deposits
Fully refundable principal stays outside nominal effective rent. Present-value all-in cost captures the economic difference between cash paid now and cash returned later.
Long leases with different escalation
Review the contract-year table, not only the average. Repeated free-rent months after an escalation can waive more nominal rent than the same number of months placed only at commencement.
Contract review checklist
- Waived charges: confirm whether only base rent or also management, parking, and utilities are waived
- Waiver timing: confirm calendar months versus contract months from possession or commencement
- Allowance conditions: confirm payment date, invoices, evidence, credit method, and early-exit clawback
- Stepped rent: confirm effective dates, percentage versus fixed increases, and rounding
- Deposit refund: confirm deadline, restoration settlement, permissible offsets, and delay treatment
- Area basis: record leased area, exclusive area, common area, and efficiency consistently
- Tax basis: identify whether each rent, fee, and allowance amount includes Korean VAT
- Exit costs: analyse restoration, relocation, fit-out, and downtime separately
Legal, tax, and accounting cautions
The 5% figure is a review flag, not an automatic cap in this model
The current Commercial Building Lease Protection Act, effective May 12, 2026, addresses scope in Article 2 and rent or deposit increase claims in Article 11. Article 4 of the Enforcement Decree, effective July 1, 2026, states a 5% reference for an increase claim under Article 11(1). Whether a specific office is covered and whether a scheduled increase is an original stepped- rent agreement or a later increase claim requires separate legal review. The calculator allows scenarios above 5% and displays a caution; it does not decide validity or compliance.
Effective rent is not a lease-accounting balance
The present-value output is a proposal-comparison cash-flow metric. It does not calculate a lease liability, right-of-use asset, lease term, option exercise, incremental borrowing rate, leasehold improvement, or restoration provision under K-IFRS or another accounting framework.
No market rent or incentive recommendation is embedded
The default values are an editable illustration, not a 2026 average for Seoul, another region, a building class, or a landlord. Use quotes obtained on the same date and check qualitative factors such as access, resilience, security, expansion, and fit-out scope outside this cost model.
Frequently asked questions
Are management fees automatically free during rent-free months?
No. The default assumes only base rent is waived and management fees remain payable. Turn on the separate waiver only when the contract expressly supports it.
Does two months free per year mean only two months in total?
Not in the annual mode. A 36-month lease with two free months in every contract year produces six free months. Choose upfront mode when the lease gives only one two-month block at commencement.
How is a tenant-improvement allowance treated?
The model deducts a confirmed amount once at lease commencement. A later reimbursement, instalment, evidence condition, or early-termination clawback has different timing and may require a separate cash-flow adjustment.
Why is the refundable deposit excluded from nominal effective rent?
Fully refunded principal is not a nominal expense. The present-value all-in result still captures the difference between paying the deposit now and receiving it after the lease and any entered delay.
Why does rent per pyeong differ from the brochure?
Check whether the brochure uses leased area or exclusive area. The calculator divides by the area entered by the user, so a different area definition changes the unit cost. VAT and management-fee inclusion can also explain the difference.
Can annual escalation exceed 5% in the input?
Yes, for scenario modelling, but the calculator displays a legal-review caution. Confirm Korean statutory coverage and distinguish an original stepped-rent clause from a later rent-increase claim.
Can I compare two offices on the same screen?
This version analyses one proposal deeply. Run each candidate on the same area, term, tax, and discount basis, then compare nominal effective rent, rent per pyeong, nominal all-in monthly cost, and levelized all-in monthly cost.
Sources and update boundary
Present-value timing follows the general life-cycle-cost framework in NIST Handbook 135e2022, published April 13, 2022 and updated November 29, 2022. Korean law references were checked through the official National Law Information OPEN API on August 2, 2026. The Act record is law ID 009276, MST 279651, effective May 12, 2026. The Enforcement Decree record is law ID 009361, MST 287139, effective July 1, 2026. No market rent, official discount rate, statutory free-rent period, VAT recovery, or accounting treatment is hard-coded.
Convert the office proposal into comparable monthly economics
Enter the lease term, scheduled rent, escalation, free-rent pattern, management fees, landlord allowance, deposit, and refund timing. Save the contract-year table and use the same assumptions for every office before negotiating the headline rent or incentive package.
Before signing, verify waived charges, payment conditions, tax basis, legal coverage, restoration obligations, and accounting treatment in the contract and with qualified advisers.