Aftermath of the Lease Act 2 Years Later... Most Compensation Claims Filed for Lease Contract Disputes

309 Cases in the First Half of the Year, Six Times More than in 2017

Lease Disputes Expected to Increase Around August

[Asia Economy Reporter Kim Min-young] Mr. A, who was living in a jeonse lease worth 400 million KRW, exercised his right to request a contract renewal for a two-year extension in July last year. However, the landlord refused, stating that his family, including his father, planned to live in the house, forcing Mr. A to terminate the contract in September and move out. It was later revealed that the landlord had signed a contract with a new tenant for 890 million KRW, proving that the reason for actual residence was false. Mr. A has currently applied for dispute mediation related to damages at the Housing Lease Dispute Mediation Committee.

Disputes over damages between landlords (lessors) and tenants (lessees) are expected to set a record high this year. Since the implementation of the “Lease 2 Laws,” which include the right to request contract renewal and the cap on jeonse and monthly rent, conflicts between landlords and tenants have intensified over interpretation and application, ironically causing more confusion in the jeonse and monthly rent market. The market is increasingly concerned that such disputes will rise further around the two-year mark of the law’s enforcement in August.

According to the Korea Legal Aid Corporation on the 13th, 309 damage-related disputes were filed with the Lease Dispute Mediation Committee from January to June this year, surpassing the total cases for 2020 (116 cases) and 2021 (278 cases) in just the first half. This is nearly six times the number of cases in 2017 (53 cases), before the Lease 2 Laws were enacted.

The main reason landlords cite to refuse tenants’ renewal requests is the “actual residence” clause stipulated in the Housing Lease Protection Act. However, cases where landlords refuse renewal citing actual residence but later rent to third parties or leave the property vacant for sale have been increasingly uncovered, leading tenants to demand damages.

Attorney Kim Ye-rim of Deoksu Law Firm said, “There is a growing number of cases where tenants, having been refused renewal and moved out, demand compensation for moving expenses and other damages when landlords neither reside in the property nor re-lease it to third parties or sell it without consent during the lease period. We expect damage-related disputes to increase around August, when the contract renewal request cycle expires.”

Since the implementation of the Lease 2 Laws in August 2020, disputes related to lease contract renewals and terminations have been rising annually. According to the Korea Legal Aid Corporation, 307 disputes related to lease contract renewals and terminations were filed with the Housing Lease Dispute Committee last year, nearly six times the 49 cases in 2019 and almost double the 154 cases in 2020. Especially, before the Lease 2 Laws, only about three cases per month were filed, but after the law’s full enforcement in August 2020, the monthly average surged to 22 cases. Up to June this year, 132 disputes related to contract renewals and terminations have been filed, and the number is expected to rise around August. Conflicts between landlords and tenants have sharply increased during the application of the new lease laws in practice.

Disputes over the return of housing deposits also continue unabated. In the first half of this year, 296 housing deposit return disputes were filed with the Korea Legal Aid Corporation. With 905 cases in 2020 and 683 in 2021, disputes over housing deposit returns remain a chronic source of conflict between landlords and tenants. Experts warn that conflicts over deposit returns may increase further as many households that requested contract renewals two years ago are now reaching contract expiration and need to receive their deposits back.

Attorney Kim Ye-rim said, “When landlords need to return deposits to tenants but cannot find new tenants due to market stagnation or cannot cover previous deposits because of falling jeonse prices, such disputes are likely to increase.”

The total number of housing lease disputes this year is also likely to exceed last year’s figures. The total number of dispute mediation applications related to leases was 1,536 in 2020, the year the Lease 2 Laws were fully enforced, and slightly increased to 1,635 in 2021. Considering that 924 cases have already been filed in the first half of this year and the possibility of increased disputes around August, it is widely expected that the number of lease disputes this year will surpass last year’s level.