[Jeonse Living ABC] Unable to Join Guarantee Insurance Due to Exceeding Guarantee Limit... Response to 'Jeonse Right Registration'

Editor's NoteThe so-called ‘Villa Kings’ have caused a surge in jeonse fraud victims, increasing tenants' anxiety. However, the jeonse system remains one of the main lease contracts in Korea. Asia Economy delivers practical legal knowledge and information that tenants should realistically know while living under jeonse through a series titled ‘Jeonse Living ABC’ with attorney Koo Min-su (NH Investment & Securities Real Estate Asset Management).

#Tenant Mr. A has been losing sleep since signing a jeonse contract last year for a newly built small villa in Seoul with a deposit of 300 million KRW. He was refused enrollment in the Jeonse Deposit Return Guarantee Insurance by the Housing & Urban Guarantee Corporation (HUG) because the jeonse deposit exceeded a certain percentage of the official land price of the property. Mr. A lamented, “I didn’t know that exceeding the guarantee limit would prevent me from joining the guarantee insurance,” and asked, “What should I do if I can’t get back my jeonse deposit, which is almost my entire fortune?”

Attorney Koo Min-su advises that in such cases, registering a ‘jeonse right’ can be an alternative to the guarantee insurance that helps return the jeonse deposit at the end of the lease contract. While registering the jeonse right requires the landlord’s consent at the time of contract signing, it grants the tenant the authority to initiate a voluntary auction if the landlord fails to return the deposit, similar to a mortgage right. This allows for a swift auction process at the end of the lease without the landlord’s consent or litigation.

Using Jeonse Rights to Quickly Apply for Voluntary Auction and Obtain Winning Bid

There is an actual case where a tenant successfully defended their rights by applying for a voluntary auction using jeonse rights and winning the bid themselves. Let’s look at a real auction case from the Seoul Central District Court. Tenant Mr. B registered his residence in a multi-family house in 2019 and obtained a fixed date certificate. On the same day, with the landlord’s consent, he registered the jeonse right. When the landlord delayed returning the deposit near the contract’s end, Mr. B completed the registration of the tenant’s right and applied for a voluntary auction based on the jeonse right within the same month. Last year, Mr. B won the bid alone at about 66% of the auction price, slightly exceeding the jeonse deposit amount. By leveraging the advantage of being a ‘senior tenant’ with earlier registration dates than other rights on the real estate registry and simultaneously holding the status of a ‘senior jeonse right holder’ through jeonse right registration, he was able to acquire ownership using the deposit as leverage.

Jeonse Rights Are Not Invincible... Use ‘Tenant’s Right Registration’ When Moving

However, tenants should be cautious as there are cases where even after executing an auction based on jeonse rights, they do not receive the full deposit distribution. For example, suppose tenant Mr. C moved into a house priced at 250 million KRW with a jeonse deposit of 200 million KRW and completed residence registration, fixed date certification, and jeonse right registration. Later, Mr. C conducted an auction on the house and won the bid at 150 million KRW.

If Mr. C had trusted only the jeonse right and moved out or relocated before the auction process without taking additional measures, there would be no way to recover the remaining 50 million KRW. Typically, tenants assert their opposability against the winning bidder and refuse to vacate to recover the remaining amount not covered by the auction. Moving without such measures results in losing opposability, a harsh consequence. Therefore, even if tenants have jeonse rights, they must register ‘tenant’s rights’ to maintain the status of a senior tenant (opposability and priority repayment rights) when moving out.