Special Act on Private Rental Housing Amendment to Take Effect on the 14th
Tenants Exempt from Joining Even if Bearing Deposit Fee
Debt Ratio Increase Also Under Review... HUG Service Contract Issued
Starting from the 14th, if a tenant subscribes to a Jeonse deposit return guarantee with the condition that the rental business operator bears the commission fee, the rental business operator is exempt from subscribing to guarantee insurance. Small-scale leases with a deposit of 50 million KRW or less (based on Seoul standards) are also exempt from subscribing to guarantee insurance.
The Ministry of Land, Infrastructure and Transport announced on the 7th that the amendment to the "Special Act on Private Rental Housing," which includes these provisions, was approved at the Cabinet meeting held on the same day. The amended law is scheduled to be promulgated on the 14th.
Guarantee insurance is a product where the guarantee company is responsible for returning the deposit to the tenant if the rental business operator fails to return the deposit. Since contracts signed after the 18th of last month, all rental business operators are required to subscribe to guarantee insurance.
This amendment supplements some issues arising from the implementation of the system. According to the amendment, if the tenant subscribes to the Jeonse deposit return guarantee operated by the Housing and Urban Guarantee Corporation (HUG) or others, and the rental business operator pays the full commission fee, the rental business operator is exempt from subscribing to separate guarantee insurance. This is a measure to resolve the issue of duplicate subscriptions by tenants and rental business operators.
Also, if the deposit is below the highest priority repayment amount under the Housing Lease Protection Act, the rental business operator is not required to subscribe to guarantee insurance. Currently, the highest priority repayment amounts are 50 million KRW in Seoul, 43 million KRW in the metropolitan area’s overconcentration control zones, and 23 million KRW in metropolitan cities. However, even for small deposits, in the case of multi-family houses, if the landlord goes bankrupt, the full deposit may not be returned, so the tenant's consent to 'non-subscription of guarantee' must be obtained. When the rental business operator signs a lease contract with public housing operators such as the Korea Land and Housing Corporation (LH), and the relevant operator has subscribed to the guarantee, the subscription is also exempted.
From January 15 next year, sanctions against rental business operators who have not subscribed to guarantee insurance will change from the current "imprisonment of up to 2 years or a fine of up to 20 million KRW" to "a fine of up to 10% of the deposit per violation." The maximum fine is 30 million KRW. In addition, mayors, county governors, and district heads will be able to verify whether rental business operators have subscribed to guarantee insurance and, if non-subscription is confirmed, can revoke the rental business registration ex officio.
The government is also reportedly considering raising the "debt ratio," which serves as the standard for subscribing to guarantee insurance. This is because there have been continuous complaints that business operators who cannot subscribe to guarantee insurance due to a high debt ratio may have their registration revoked ex officio next year. Currently, if the sum of senior secured claims and deposits exceeds the housing price and the debt ratio exceeds 100%, subscription is rejected. HUG recently commissioned an external research project to raise the debt ratio to a more realistic level.
However, since allowing business operators with a high debt ratio to subscribe to guarantee insurance would increase the burden on guarantee institutions, a drastic policy change is not expected to be easy. A Ministry of Land, Infrastructure and Transport official said, "We are discussing the upper limit of the debt ratio, but nothing has been finalized yet."
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