Enforcement Decree Amendment Passed at Cabinet Meeting... Effective on the 15th
Up to 10% Penalty on Maximum Deposit for Non-Subscription to Guarantee Insurance
On August 1, 2020, in Yeouido, Seoul, members of real estate-related organizations such as the 617 Regulation Retroactive Application Victims' Group and the Lease Business Association Approval Committee held a rally opposing the government's real estate regulations, shouting slogans against the Three Lease Laws. [Image source=Yonhap News]
Starting from the 15th, if private rental housing operators do not subscribe to guarantee insurance for tenants' deposits, the registration of the rental housing may be canceled, and a fine of up to 10% of the deposit may be imposed. For foreign rental operators, who have been considered a blind spot in management, the government plans to block illicit operations by verifying nationality and length of stay.
On the 11th, the Ministry of Land, Infrastructure and Transport announced that the amendment to the Enforcement Decree of the Special Act on Private Rental Housing, which includes these provisions, was approved at the Cabinet meeting. The government had strengthened regulations by abolishing the apartment and short-term private rental business system and mandating guarantee insurance subscription for rental operators through the July 10, 2020 measures. The amended enforcement decree and enforcement rules, effective from the 15th, include more detailed provisions such as fines and explanation obligations.
First, the grounds for cancellation of registration due to non-subscription to rental deposit guarantee insurance have been specified. If the mayor, county governor, or district head requests three or more times and the rental operator does not subscribe to guarantee insurance, or if there is no valid reason for non-subscription but the obligation is not fulfilled, the registration may be canceled.
Additionally, depending on the period of non-subscription to guarantee insurance, fines will be imposed as follows: 5% of the deposit for up to 3 months, 7% for over 3 months up to 6 months, and 10% for over 6 months. The government initially planned to impose imprisonment of up to 2 years or fines up to 20 million KRW for non-subscription, but replaced these with fines due to concerns about excessive punishment.
The explanation obligation of rental operators will also be strengthened. When rental operators enter into or modify contracts with tenants, they must mandatorily explain the main contents of the guarantee terms. This is intended to enable tenants to recognize matters related to guarantee insurance and exercise their rightful rights.
Furthermore, a new item indicating "rental housing complexes with 100 or more households in the same complex" will be added to the standard lease contract, along with a provision allowing rent increases within 5% of the previous rent based on changes in housing-related indices. This measure aims to prevent cases where tenants, unaware that the usual rent increase rate based on the housing cost index is generally below 5% for complexes with 100 or more households, end up accepting the full 5% increase.
In addition, when foreigners apply for rental operator registration, they will be required to provide their foreign registration number, nationality, residence status, and length of stay to strengthen management. Also, as the area criteria for officetels where floor heating installation is permitted have been raised, the exclusive area for officetels eligible for rental registration will be expanded from 85㎡ to 120㎡.
As fines and explanation obligations become fully enforced, complaints from frontline rental operators are expected to increase. Many rental operators have already been complaining about reduced profitability due to ongoing regulations and benefit cuts. However, the Ministry of Land, Infrastructure and Transport stated, "This enforcement decree aims to enhance the effectiveness of guarantee subscription and strengthen tenants' rights," and added, "We will continue to identify areas for system improvement."
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