"Will the Tenant Change Their Mind?"... Landlords Watching Closely

Worry Even When Buying a House...
Confirming Tenant's Move-Out Intent Before Purchasing Property
Actual Residence Blocked by Contract Renewal Request Rights

Worry Even When Selling a House...
Loan Taken with Condition of Property Disposal
Tenant Holds Out, Unable to Sell House on Time, Feeling Frustrated

[Asia Economy Reporters Yuri Kim and Onyu Lim] The enforcement of the Housing Lease Protection Act, which includes the right to request contract renewal and the cap on rent increases for Jeonse and monthly rent (hereinafter referred to as the "Lease 2 Laws"), is threatening even normal housing transactions. Those who temporarily own two houses under one household and have taken out loans on the condition of disposing of their existing homes are facing the risk of loan recall by financial institutions because they cannot sell their houses on time. Buyers, who signed contracts after confirming the existing tenants' intention to vacate for actual residence purposes, are increasingly complaining as tenants change their minds and decide to exercise their right to request contract renewal, leaving them with nowhere to go. This confusion arose as the trading rules, which had been adjusted autonomously between landlords and tenants, were completely overturned overnight.

Experts view the problem as significant because the Housing Lease Protection Act (HLP Act) is governed by the Civil Code, which regulates private contracts, meaning disputes ultimately need to be resolved through litigation between parties. Although the government has been trying to manage the situation by issuing explanatory guides after implementing the Lease 2 Laws, it cannot cover every case, and even if lawsuits are filed, uncertainty persists during the litigation period. This has led to continuous criticism due to unnecessary social conflicts.

◆ "Buyer’s Actual Residence? Ask the Tenant"

On the 21st, Kim Eun-hye, a member of the National Assembly’s Land, Infrastructure and Transport Committee from the People Power Party, revealed cases of damage caused by the amendment of the Housing Lease Protection Act.

A newlywed couple, Mr. A, living in an officetel in Yongin, Gyeonggi Province, signed a purchase contract in early August for a house whose Jeonse lease expires in December this year. At the time of the contract, they believed that if the buyer intended to reside in the house, the existing tenant’s right to request contract renewal could be rejected, and the tenant agreed and prepared to move out. However, on the 10th of this month, it was revealed through media reports that the government had issued an authoritative interpretation stating that tenants could exercise the right to request contract renewal even in such cases, causing the tenant to change their mind. Mr. A appealed, "I have already received part of the deposit back from the officetel where I currently live to prepare the apartment’s down payment, so if the tenant insists on staying, I will have nowhere to go."

Mr. B, in his 40s living in Songpa-gu, Seoul, signed an apartment purchase contract in mid-August to live with his parents. Before paying the deposit, he confirmed with the real estate agency that if the buyer intended to reside in the house, the existing tenant’s contract renewal request could be rejected. However, on the day of the contract, the tenant insisted, "I want to continue living on Jeonse," complicating the situation. Mr. B is now considering whether to file a lawsuit against the seller or the real estate agency if he cannot move in on the scheduled date. He said, "If the tenant does not leave, I will inevitably be left homeless."

◆ Temporary Two-Homeowners Cannot Sell Their Houses... Interpretations Vary by Case

Mr. C, in his late 30s living in Gyeonggi Province and married for four years, is a temporary two-homeowner who took out a mortgage loan based on an agreement to dispose of his existing home. The existing home was rented out on Jeonse, but after putting the house on the market, the tenant demanded contract renewal and is reluctant to show the house. Mr. C said, "If I cannot sell the house within the agreed period, I will suffer disadvantages such as loan recall, so I am so upset that I cannot sleep these days."

Ms. D, a woman in her 40s living in Bucheon City, is also a temporary two-homeowner who rented out her existing home for two years before trying to sell it. However, if the tenant exercises the right to request contract renewal, she will lose the tax exemption benefit for temporary two-homeowners and may even have to pay additional capital gains tax in regulated areas. Mr. E, in his 50s, must sell his existing home this year. Although the tenant had agreed to leave when the contract expired, they recently notified him of their intention to request contract renewal. Mr. E expressed frustration, saying, "I plead with the tenant every day to vacate, but the tenant only sends mocking messages about my situation."

◆ Cannot Buy or Sell Freely... Are Tenants the Gatekeepers of Transactions?

The problem is that the ongoing confusion following the amendment of the Lease Act is obstructing free sales transactions between parties. In fact, properties with tenants and those without show a difference in Jeonse prices of around 100 million won. Moreover, many cases have emerged where properties cannot be properly bought or sold without the tenant’s consent, further freezing an already sluggish market. Some analysts suggest that the shortage of Jeonse listings around the time of the Lease 2 Laws enforcement has driven up Jeonse prices, which in turn has supported apartment prices in major areas of Seoul.

According to the Seoul Real Estate Information Plaza, as of the 21st of this month, only 621 apartment sales contracts in Seoul have been reported (based on contract dates). The Seoul apartment sales market, which had surged with 15,587 cases in June and 10,654 in July, sharply declined to 4,589 in August and has only reached 621 so far this month. Although September is not over and contracts can be reported within 30 days after signing, considering the Chuseok holiday, the number may remain below 1,000, potentially breaking the previous low record of 1,163 cases in November 2008.

Experts expect this market confusion to continue for the time being. Yang Ji-young, director of R&C Research Institute, said, "The enforcement of the Lease 2 Laws has caused confusion not only in the Jeonse market but also in the sales market. Homeowners are suffering damages such as being unable to sell their houses at desired times due to tenants’ contract renewal rights." She criticized, "When introducing regulations, exceptions or considerations should have been made to prevent unforeseen damages."