[Exclusive] "Landlords Are Struggling Too..." Unable to File Eviction Lawsuits Despite 9 Months of Unpaid Rent, 'Boomerang' Concerns After March

Impact of September Commercial Lease Law Special Provisions
Reasoned Decrease in Eviction Lawsuits
Burden Shifted to Landlords
Tenants Only Experience Extended Repayment Period
Effectiveness Limited, Controversy Continues

On the 19th, stores inside large shopping malls in the Dongdaemun-gu Fashion Town in Seoul, suffering from the prolonged impact of COVID-19, were vacant. Due to the effects of COVID-19, Dongdaemun shopping districts, symbolized by fashion accessories, are also becoming empty. According to the Commercial Information Research Institute, the vacancy rate of medium to large-sized stores in the Dongdaemun commercial area was 10.8% in the second quarter of last year. The vacancy rate in the Dongdaemun commercial area has been continuously rising since the second quarter. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporters Chae-eun Koo and Moone Won] Mr. A, who owns a store in a distribution complex in Gyeonggi-do, has been unable to sleep for several days due to a tenant who has been behind on rent for seven consecutive months since September last year. This is because his only source of income is 800,000 KRW left after deducting loan principal and interest and management fees from the monthly rent of 3 million KRW, along with his children's allowance. Mr. A visited a lawyer to prepare for an eviction lawsuit but was told, "According to the revised Commercial Building Lease Protection Act special provisions, this is not a valid reason for contract termination, so the chances of winning are slim." Mr. A decided to send a certified letter first, wait another three months, and then proceed with the eviction lawsuit. He said, "Delaying the lawsuit doesn't solve the problem; the law is making things difficult for both landlords and tenants."

According to industry sources on the 13th, the revised 'Commercial Building Lease Protection Act' enacted in September last year has increased the worries of livelihood landlords. Under the special provisions, tenants cannot have their contracts terminated or renewal refused for six months (from September 29, 2020, to March 28, 2021) even if they are behind on rent. Previously, contract termination or refusal of renewal was possible if rent was overdue for three periods, but this requirement has been extended to a maximum of nine months. As a result, the number of eviction lawsuits to forcibly remove tenants has decreased, but side effects such as landlords putting buildings or stores up for auction due to inability to pay loan interest or significantly raising deposits are emerging. Although the intention is to ease the burden on tenants hit hard by COVID-19, critics argue that since the debt accrues overdue interest and only the repayment period is extended, the effectiveness is limited.

Many posts complaining about these issues appear on online cafes where landlords gather. For example, Mr. B, who owns a commercial building in Paju, Gyeonggi-do, has not received rent for four months from January to this month. If the arrears continue, the building could be auctioned off due to inability to pay loan interest, but the landlord has been unreachable since the beginning of the year.

According to data on the status of civil lawsuits (first trial) for building eviction and demolition cases obtained by Kim Eun-hye, a member of the National Assembly Land, Infrastructure and Transport Committee from the Supreme Court, the number of eviction lawsuits filed as of February was 2,119, a 32.7% decrease compared to 3,148 cases a year earlier. Monthly eviction lawsuits, which nearly reached 3,000 in July last year (2,925 cases), decreased to 2,858 in September, 2,531 in October, then dropped to 2,460 in January and 2,119 in February this year. After the law took effect in October, eviction lawsuits sharply declined, resulting in a total of 33,813 cases last year, a 4.9% decrease compared to 36,709 cases in 2019.

Experts agree with the intention to ease the burden on tenants hit hard by COVID-19 but point out that shifting all the burden onto landlords is excessive. Real estate attorney Um Jeong-sook said, "Many landlords are struggling because it is difficult to collect from livelihood landlords who cannot pay loan interest or corporate tenants," adding, "Although eviction lawsuits are only possible after nine months of arrears, collection lawsuits for delayed debts may sharply increase afterward." Professor Shim Kyo-eon of Konkuk University's Department of Real Estate said, "While the temporary introduction of this measure considering the COVID-19 crisis is understandable, landlords should not be forced to sacrifice unilaterally; incentives such as tax reductions should be provided to compensate for losses."

There is also criticism that tenants may not easily feel the benefits. This could backfire as it may lead to future deposit increases. Researcher Cho Hyun-taek of the Commercial Information Research Institute said, "Tenants usually pay deposits equivalent to 9 to 10 months' rent when moving in, so even if arrears are allowed for up to nine months, it is often deducted from the deposit later," adding, "Ultimately, this will only provide tenants with psychological stability."