Former owner who sold study hall for tens of millions in key money, then opened nearby study cafe, ordered to shut down

A court has ordered a former study hall owner to shut down a study cafe he opened nearby after selling the original business for tens of millions of won in key money, ruling that the two operations are the same type of business and direct competitors.

According to legal sources, the 17th Civil Division of the Suwon District Court, presided over by Chief Judge Lee Min-su, ruled partly in favor of plaintiff A on Tuesday in a lawsuit filed against the seller, B, seeking enforcement of a non-compete obligation. The court ordered B to immediately cease operating the study cafe.

B had been running a study hall and a tutoring center in Suwon when, in August 2024, he signed a commercial lease key-money contract transferring the study hall to A for 45 million won ($31,900). A paid the full deposit and balance, took over the existing business name, retained the staff and inherited the sales records. No explicit non-compete clause was included in the contract.

The dispute arose in May 2025, when B opened a study cafe just 110 meters away from the original study hall — only eight months after A had begun operating the business. As customers began leaving A's study hall for B's new study cafe, A filed a lawsuit arguing that B had violated the non-compete obligation imposed on business sellers under Article 41 of the Commercial Act. A sought an order to close the study cafe, a 10-year ban on similar businesses in the area, 4.71 million won in renovation costs and 10 million won in damages.

B pushed back, arguing that the contract was titled a key-money agreement rather than a business transfer, and that a study hall and a study cafe are not the same type of business, meaning no non-compete obligation applied.

B's side noted that the two businesses carry different industry codes under business registration and that study halls are exempt from value-added tax while study cafes are subject to general taxation. B also said the price gap was significant — study halls charged around 100,000 to 140,000 won per month, while managed study cafes charged 430,000 to 540,000 won.

The court sided with A. It found that even though the contract was labeled a key-money agreement, its substance — transferring all the organically linked assets and operational value of the study hall in exchange for key money — constituted a "business transfer" under Article 41 of the Commercial Act.

"A study hall and a study cafe are essentially the same in that both provide consumers with a learning space," the court said, adding that the documented migration of customers from the study hall to the study cafe after A began operating was itself evidence of a competitive relationship. Differences in VAT treatment and industry codes reflected distinctions under tax law only and were not relevant to the determination, the court said.

The court ordered B to cease operations and barred B from running — or allowing a third party to run — a study hall, study cafe or any similar business in Suwon and neighboring cities and counties for 10 years through 2034. It also ordered B to pay a daily penalty of 300,000 won for each day of non-compliance after the ruling takes effect.

However, the court rejected A's claim for 4.71 million won in study hall renovation and desk-replacement costs, finding that the expenses were more likely ordinary operating costs arising from the aging of existing facilities rather than losses caused by B's conduct. The court awarded 7 million won in damages for the mental distress caused by the non-compete violation.