[Jeonse Living ABC] "Jeonse or Wolse"... Tenants Worry About Losing Their Deposit

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

#Office worker Mr. A (31), currently living in a Seoul officetel paying 700,000 KRW monthly rent, is considering switching to a jeonse house. This is because he recently received a notice of rent increase from the landlord, and the market interest rates for jeonse loans from commercial banks have dropped to the 3% range. However, due to the recent rampant jeonse fraud, he worries about not being able to recover the deposit he worked hard to save. Lawyer Koo Min-su advises that if proper safety measures are put in place in advance to recover the jeonse deposit, jeonse may be better than monthly rent under the current interest rate situation.

Monthly rent has the characteristic of relatively low risk of losing the deposit. This is because it falls within the scope of the preferential repayment right for small-scale tenants, making it more likely to be repaid first in auction or delinquent disposition procedures compared to other creditors. Especially in Seoul, if the deposit does not exceed 165 million KRW, up to 55 million KRW can be preferentially repaid. This is why monthly rent contracts are made even if the landlord has taken out a bank loan and there is a senior mortgage registered on the real estate registry. Due to the small refund amount, even if a new tenant is not found, the landlord is likely to repay from their own resources.

The situation is different for jeonse or banjeonse (half-jeonse). If the jeonse deposit exceeds a certain percentage of the property's sale price or surpasses the preferential repayment right limit for small-scale tenants, the tenant must be the first-priority lessee. Unfortunately, many tenants in Michuhol-gu, Incheon, where newlyweds are concentrated, have entered banjeonse contracts in houses with senior mortgages registered. If they are not the first-priority lessee, they cannot assert their rights against the successful bidder and will ultimately be subject to an eviction order and have to vacate the house. Although they qualify as small-scale tenants and can receive preferential repayment for part of the deposit, if the deposit exceeds a certain amount, they may lose the entire deposit. Therefore, if the landlord has taken out a loan, it is necessary to request a special clause for the cancellation of the senior mortgage.

It is also important to verify whether the landlord has legitimate rights when signing a jeonse contract. In particular, there are cases where a person called the builder sells or rents out units while the property is under a trust registration (ownership transferred to a trust company) on the real estate registry. In such cases, tenants and brokers must obtain a consent form from the trust company (stating that the builder has the owner's consent to enter into the jeonse contract).

Although viewing trust registration requires visiting the registry office in person, the key point tenants should remember is simple: 'Without the consent of the trust company registered as the owner, the jeonse contract is invalid.' An invalid jeonse contract does not recognize preferential repayment rights or enforceability. Even if it is clear that the builder constructed the house, if trust registration exists, the ownership of the house has been transferred to the trust company.