[Jeon Daegyu's 7 Trials and 8 Failures] Tenant Protection in Rehabilitation Proceedings

Jeon Dae-gyu, Chief Judge of Seoul Bankruptcy Court

"A real estate frenzy caused by policy failure." "Real estate panic buying." "Not a tax, but a penalty." These are the headlines in newspapers and news these days. New terms like Yeongkkeul (pulling together all possible funds, buying a house by mobilizing every available financial resource) and Momtech (expecting capital gains by living in the property) have emerged, reflecting how recent real estate issues have become a black hole in our society. Due to distrust in the government's real estate policies, prices of apartments and other real estate are soaring. As a result, jeonse (long-term lease) prices are also skyrocketing. The anxiety of tenants who are about to renew contracts or looking for jeonse is growing even more.

Because housing occupies a large portion of the lives of ordinary people, protecting tenants has long been a core value in our society. A representative example is tenant protection through the Housing Lease Protection Act. For leases without a fixed term or with a term less than two years, the period is considered to be two years, and even after the lease period ends, the lease relationship is deemed to continue until the tenant receives the return of the lease deposit. If the landlord does not notify the tenant of refusal to renew the lease within a certain period before the lease ends, the lease is considered renewed under the same conditions as the previous lease at the end of the period.

Recently, the "Three Housing Lease Acts" were enacted, which guarantee a minimum lease period of four years, impose a cap on jeonse and monthly rent, and require reporting of jeonse and monthly rent contracts. Similar protections are provided for commercial building tenants under the Commercial Building Lease Protection Act.

Even though tenants of houses or commercial buildings are protected by special laws for social policy reasons such as housing stability and economic stability, this protection can collapse if rehabilitation proceedings are initiated against the landlord. This is because the Debtor Rehabilitation and Bankruptcy Act grants the trustee (landlord) the right to choose whether to maintain or terminate a contract in the case of a bilateral contract with mutual non-performance. A lease contract is such a bilateral contract with mutual non-performance. Therefore, when rehabilitation proceedings begin against the landlord, the landlord (trustee) can choose to maintain or terminate the lease contract. While this aims to facilitate smooth rehabilitation proceedings, it can be a disaster for tenants.

When rehabilitation proceedings start, landlords want favorable lease contracts to continue and unfavorable ones to end. If the landlord deems maintaining the lease contract disadvantageous and terminates it, the tenant's housing stability and livelihood are threatened. As a result, the special provisions of the Housing Lease Protection Act or the Commercial Building Lease Protection Act, which were established to protect tenants, become ineffective due to the initiation of rehabilitation proceedings against the landlord. To prevent such problems for tenants, the Debtor Rehabilitation Act includes special provisions. For tenants who meet certain requirements, the landlord cannot terminate the lease contract. When rehabilitation proceedings are initiated against the landlord, if the tenant meets the opposition requirements under Article 3, Paragraph 1 of the Housing Lease Protection Act or the opposition requirements under Article 3 of the Commercial Building Lease Protection Act, the landlord cannot exercise the right of termination or cancellation.

Tenants who meet the opposition requirements under the Housing Lease Protection Act and the Commercial Building Lease Protection Act have rights equivalent to registered real rights. It is a fundamental legal principle that quasi-real rights cannot be arbitrarily extinguished simply because rehabilitation proceedings have been initiated against the landlord debtor. Recognizing the right of termination or cancellation for such lease contracts as bilateral contracts with mutual non-performance would cause significant harm to tenants. This serves as the last protective barrier for tenant protection.

According to these special provisions, if the tenant has taken possession of the house and completed resident registration (or move-in notification), or in the case of commercial buildings, taken possession and completed business registration before rehabilitation proceedings are initiated against the landlord, the landlord cannot terminate the lease contract. As a result, the lease contract between the landlord and tenant continues to exist. Tenants need to promptly secure such oppositional power after concluding the lease contract to prepare for the possibility of the landlord’s rehabilitation proceedings.