Court Recognizes 40% Liability for Real Estate Agent Who Failed to Explain 'Kkangtong Jeonse'

[Asia Economy Reporter Choi Seok-jin, Legal Affairs Specialist] A court ruling has recognized the liability of a licensed real estate agent who failed to properly inform tenants about the mortgage rights or senior lease rights registered on a building while mediating a jeonse (long-term lease) contract, resulting in tenants being unable to recover their jeonse deposit through the building's auction.

According to the legal community on the 6th, Judge Ban Jeong-woo of Civil Division 87 at the Seoul Central District Court recently ruled in a damages claim lawsuit filed by tenant A against real estate agent B and Seoul Guarantee Insurance, ordering "B and Seoul Guarantee Insurance to jointly pay A 40 million won," partially ruling in favor of the plaintiff.

The 40 million won corresponds to 40% of the 100 million won jeonse deposit that A was unable to recover.

In August 2015, A rented a room in a building located in Guro-gu, Seoul, paying a deposit of 100 million won for a two-year lease.

The building, which has 70 rooms, already had a mortgage with a maximum claim amount totaling 2.22 billion won registered at the time A signed the contract, and the total lease deposits of tenants with priority rights who had obtained confirmed dates before A amounted to 2.9281 billion won. However, real estate agent B did not explain these facts to A.

The building was put up for auction in January 2018, but since the approximately 4.9 billion won sale proceeds were first distributed to the mortgage creditors and senior leaseholders, A did not receive a single won.

Consequently, A filed a lawsuit claiming, "B did not inform me of these risks at the time of the contract, causing me damages."

In court, B argued, "It was difficult to accurately understand the situation because the building owner did not provide related documents."

However, the court held that "the agent violated the duty to mediate in good faith" and found B liable to compensate A for the damages suffered.

The court pointed out, "Since the confirmation and explanation document for the mediation object did not mention the deposits of senior leaseholders or the possibility of small-amount tenants occurring prior to the plaintiff, false information was conveyed to the plaintiff."

It added, "Had the plaintiff known this, there is a sufficient possibility that the contract would not have been concluded."

However, the court limited B's liability to 40%, stating that A also bore responsibility for neglecting to investigate the market price or rights related to the building.

Neither party appealed, so this ruling became final as is.