Definition
Under the Korean Civil Act, a contract deposit (gyeyakgeum) is an upfront payment handed over when dealing real estate or valuable goods to solidify a deal. A cancellation deposit (haeyakgeum) is the legally designated cost paid to unilaterally back out of that contract if you change your mind—either by forfeiting the deposit or refunding double the amount. Unless specifically agreed otherwise, the upfront contract deposit is legally presumed to act as this cancellation deposit.
How Does a Deposit Become an Exit Ticket?
Have you ever paid a reservation fee when booking a popular restaurant or vacation rental? In real estate and other major transactions, a portion of the total price (customarily around 10%) is paid upfront as proof of the agreement and as a mechanism to unlock the deal under certain conditions. This is called a contract deposit.
Yet people sometimes have a change of heart after signing. Under the Korean Civil Act, unless stated otherwise, the upfront deposit is presumed to be a cancellation deposit. This opens a legal path for anyone who wants to walk away, provided they pay the corresponding economic price.
The rule is straightforward. If the buyer or tenant who paid the deposit wants to break the contract, they simply forfeit the deposit already paid. Conversely, if the seller or landlord wants to cancel, they must repay the deposit plus an equal amount out of pocket—refunding double the deposit to terminate the deal.
Until When Can You Change Your Mind?
Forfeiting or doubling the deposit does not mean you can walk away anytime you want. Korean law dictates that you can only cancel using the cancellation fee before either party (including yourself) initiates performance.
In legal terms, this milestone is called the commencement of performance. In Korean real estate, this typically means the moment an interim payment (jungdogeum) lands in the bank account. The moment even a fraction of the interim payment is transferred, neither party—not even the buyer who paid it—can unilaterally cancel the deal by forfeiting or doubling the deposit.
Therefore, once the interim payment is made, unilateral cancellation without mutual consent is off the table, no matter how many times the deposit you offer. From this point forward, you must pay the remaining balance and complete the transaction. Breaching the contract after this stage can lead to default and much heavier legal liability for damages.
A Closer Look: How Does It Differ from a Penalty Fee?
Many people confuse a cancellation deposit (haeyakgeum) with a penalty fee (wiyakgeum). While a cancellation fee buys the 'legal right to cancel,' a penalty fee refers to 'predetermined damages paid when one party breaches the deal.' The deposit only functions as liquidated damages if your contract includes a special clause stating that 'the deposit shall be considered a penalty fee upon breach.'
Another widespread myth is that you can get a full refund if you cancel within 24 hours of signing. In reality, a contract takes legal effect the moment it is signed or verbally agreed upon, and there is no universal 24-hour cooling-off period. Once a deposit is exchanged, cancellation rules apply even one minute later. You also cannot back out by paying only a portion of the deposit if you haven't paid the full sum yet; the cancellation baseline is the entire promised deposit. Note that while this applies to general civil contracts like real estate, certain consumer transactions (such as door-to-door or online sales) do have statutory cooling-off periods under specific consumer protection laws.
When entering big transactions like buying a house or car, review every term carefully before sending any money. Once transferred, that deposit becomes the strongest legal commitment to see the deal through.
Common misconceptions
You can get a full deposit refund if you cancel within 24 hours of signing.
Under the Korean Civil Act, general contracts (especially real estate deals) have no 24-hour refund rule. Contracts take effect immediately upon agreement. Once a deposit is paid, cancelling even minutes later requires forfeiting it or refunding double. However, specific consumer sales like e-commerce or door-to-door sales do grant statutory cooling-off rights under separate laws.
Where you meet it
Paying a 10 million KRW deposit (approx. $7,500) for a rental apartment, finding a better place the next day, and having to forfeit the entire 10 million KRW to walk away.
A homeowner who took a deposit decides to cancel before the interim payment because neighborhood property prices surged, formally paying double the deposit back to the buyer to terminate the contract.
In one sentence
A contract deposit seals a deal and doubles as a cancellation fee before interim payments begin: buyers cancel by forfeiting it, and sellers cancel by paying back double.