[Inside Chodong] Housing Lease Act: "The One Who Tied the Knot Must Untie It"

[Asia Economy Reporter Yoo In-ho] #Mr. A, who owns a 103.9㎡ (exclusive area) apartment in Sillim-dong, Gwanak-gu, Seoul, recently put his house on the market but was rejected by all potential buyers. The reason was that there is a tenant living under a jeonse (long-term lease) contract. Due to the enforcement of the Housing Lease Protection Act, which guarantees tenants' right to request contract renewal, prospective buyers are reluctant to purchase apartments with existing jeonse tenants.

#Mr. B, who is living under a jeonse contract in an apartment in Gaepo-dong, Gangnam-gu, Seoul, recently received a request from the landlord to vacate the property, citing the need for actual residence. When Mr. B asked the landlord about the reason for the sudden eviction demand, the landlord replied, "It's none of your business," and notified him to vacate the house before the contract expires in January next year.

Since the sudden enforcement of the Housing Lease Protection Act on July 31, more than two months have passed, causing significant ripples in the real estate market. The conflicts between landlords and tenants, which were a concern at the time of the law’s implementation, are intensifying. Both landlords and tenants are now facing difficult situations.

Moreover, as the autumn moving season approaches, conflicts between landlords and tenants are escalating. Cases are increasing where tenants initially say they will move out after the jeonse contract ends but then change their minds during the contract renewal request period, disrupting landlords’ moving or housing sale plans. Most conflicts arise when landlords, who cannot raise the jeonse deposit by more than 5%, try to move in themselves.

It has also become difficult to sell houses with existing jeonse tenants. If the current tenant exercises the right to request contract renewal before the house is sold, the new owner cannot live in the property, making them reluctant to purchase.

Landlords are rushing to sell their properties because tax burdens will increase from June next year. The comprehensive real estate tax rate for owners of three or more houses (two or more in regulated areas) is set at up to 6.0%. Capital gains tax rates for multi-homeowners in regulated areas will also be increased by more than 20 percentage points.

Given this situation, even actual buyers are reluctant to purchase houses with existing jeonse tenants. Since there is a high possibility they cannot move in immediately and must bear tax burdens, buying a house has become difficult. For example, until this year, a single homeowner who owned a house worth over 900 million KRW for more than 10 years could receive a deduction of up to 80% of the capital gains, but from next year, they must also have lived in the house for more than 10 years in addition to ownership.

On the Blue House (Cheongwadae) National Petition Board, petitions from landlords complaining of property rights violations are flooding in. When the Ministry of Land, Infrastructure and Transport interpreted that buyers purchasing homes for actual residence cannot move in unless the ownership transfer is completed six months before the contract expiration?the time when the tenant can exercise the contract renewal right?landlords and buyers expressed strong dissatisfaction. Petitions state, "Even if the new buyer intends to live in the house, if the tenant exercises the contract renewal right, the buyer cannot live there," and "New buyers who purchase homes cannot live in their own houses and may become gap investors in an instant."

Tenants are also voicing difficulties. Landlords are pressuring tenants by citing the ‘actual residence’ requirement as a reason to refuse contract renewal. The amended Housing Lease Protection Act grants tenants the right to request contract renewal once, while specifying eight reasons landlords can refuse renewal. The most frequent cause of conflict recently is ‘actual residence by the landlord or their direct lineal relatives.’

The problem is that the actual residence-related regulations do not include provisions regarding ‘proof.’ Even if tenants raise issues with the Housing Lease Dispute Mediation Committee or file lawsuits, it is difficult to prove the landlord’s actual residence claim.

The intensifying conflicts between landlords and tenants, which were a concern when the amended Housing Lease Protection Act was introduced, have become a situation no one can resolve. Landlords protest that it is an excessive infringement on property rights, while tenants argue that landlords are exploiting loopholes in the system, showing a confrontational relationship.

In this situation, the government is effectively standing by. Although it has proposed supplementary measures such as lowering the monthly rent (jeonse-to-monthly rent) conversion rate and expanding the Housing Lease Dispute Mediation Committee, these are not solutions to untangle the deeply knotted issues. ‘The one who tied the knot must untie it.’ The identity of the one who tied the knot is clear.