Introduction of 'Fair Rent' for Commercial Buildings... Will It Help Landlord-Tenant Disputes?

Tenant Can Request Fair Rent Calculation from Dispute Mediation Committee
Ministry of Land Signs MOU with Appraisers Association... Appraisers Appointed
No Mandatory Force, Effectiveness in Question... Role in Conflict Resolution Support

In the future, commercial tenants will be able to request the government agency Dispute Mediation Committee to calculate a ‘fair rent’ when proceeding with mediation procedures due to rent conflicts with landlords or when curious about appropriate rent before renewing a lease.

As rent disputes between landlords and tenants have significantly increased due to COVID-19 since last year, the government introduced the fair rent system as a standard for negotiation. However, there are criticisms that it lacks enforceability and thus effectiveness.

On the 19th, the Ministry of Land, Infrastructure and Transport announced that it will pilot the introduction of a fair and objective fair rent through appraisal to facilitate smooth agreements in rent disputes between landlords and tenants. To this end, the Ministry signed a ‘Business Agreement for Calculating Fair Rent for Commercial Lease’ with the Korea Association of Property Appraisers at 11 a.m. on the same day.

The Ministry appointed 37 appraisers recommended by the association as advisory appraisers. The Dispute Mediation Committee will make the final decision on the fair rent, which will be used as a basis for mediation between landlords and tenants, based on key information about the commercial district where the building is located and the analysis of the advisory appraisers.

To establish the system in its early stages, it will first operate from the 29th at six locations among the 18 nationwide Dispute Mediation Committees, including Suwon and Goyang in Gyeonggi-do, Daejeon, Daegu, Busan, and Gwangju. The Ministry plans to expand the system nationwide after evaluating the status of securing advisory appraisers and operational performance.

Landlords or tenants can request the selection of fair rent when applying for mediation at the Dispute Mediation Committee due to rent conflicts. Tenants can also apply for a free fair rent calculation with the landlord’s consent even if they do not apply for mediation.

The fair rent system is part of support measures for small business owners affected by COVID-19. Kim Su-sang, Director of the Housing and Land Office at the Ministry, said, "It is expected that the possibility of rent adjustment between landlords and tenants at the Dispute Mediation Committee will increase."

However, since it is not mandatory, some opinions suggest its effect will be limited. The parties involved are not bound by the calculated fair rent, and landlords may refuse tenants’ requests for fair rent calculation.

At the end of last year, there were opinions in the National Assembly that appropriate rent should be legally limited to support tenants struggling due to COVID-19, but the fair rent system is more voluntary than that. A Ministry official explained, "There are limitations due to lack of enforceability, but since legislation requires social consensus, the significance lies in the government supporting smoother negotiations during the mediation process."