[Jeonse Living ABC] With Jeonse Prices Falling, 'Switching'... Consider 'This' First

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

#Kim (34), an office worker living in a jeonse apartment in Gyeonggi-do, is considering moving to another apartment in the same area instead of renewing his contract. Two years ago, he signed a jeonse contract for 350 million KRW, but due to the real estate market downturn, the price of new jeonse listings in the area has dropped by about 100 million KRW.

As jeonse prices sharply decline, more tenants are considering new jeonse contracts instead of exercising their right to renew. Attorney Koo Min-su advises prospective tenants preparing for a new jeonse contract to not only find a reasonably priced jeonse home but also verify the landlord’s reason for moving and whether there is a plan to move back in, to ensure the possibility of securing a four-year jeonse period in advance.

If you have mid- to long-term plans such as work or children's education, it is economically advantageous to exercise the right to renew the contract and secure a jeonse home with a rent increase limit of 5%, rather than moving every two years and paying brokerage fees (0.3% of the jeonse deposit), moving costs (2 to 3 million KRW), and other annual compensation and incidental expenses. Since the amendment on July 31, 2020, tenants have been granted the right to request contract renewal, extending the effective period of jeonse contracts on residential properties to ‘2+2 years’ unless the landlord refuses renewal for actual residence. For reference, the right to request contract renewal is a kind of option held by tenants, and if circumstances such as a drop in jeonse prices occur after two years, tenants may choose not to exercise this right.

However, tenants should be aware that landlords can refuse contract renewal by claiming actual residence. During the recent years of rapid real estate price increases, some tenants reluctantly accepted landlords’ requests to raise the jeonse deposit by more than 5%. There have also been cases where landlords (including their direct ascendants and descendants) deceived tenants to evict them without intending to reside in the property, aiming to receive a higher jeonse deposit. Recent lower court rulings respect the landlord’s intention to move back in at the time of contract renewal refusal, and do not require landlords to disclose specific reasons. In other words, even if the landlord reverses their initial promise not to move back in, tenants have no way to prevent it.

In response, tenants can claim damages after eviction if they prove the landlord’s falsehood. Tenants whose contract renewal was refused due to the landlord’s actual residence become interested parties in the lease of the property and have the right to request a written statement of the confirmed date status of the lease contract that would have continued during the renewal period if the renewal request had not been rejected (refer to Articles 5(5) and 6(1) of the Enforcement Decree of the Housing Lease Protection Act). If the landlord’s falsehood is proven, tenants can be compensated for actual damages (such as moving costs), the difference between the converted monthly rent the landlord earned by leasing to a third party and the converted monthly rent at the time of renewal refusal for two years, or the amount equivalent to three months of the converted monthly rent at the time of renewal refusal?whichever is highest.

Tenants should also be aware of the clause stating ‘Any agreement disadvantageous to the tenant that violates this law shall be null and void’ (Article 10 of the Housing Lease Protection Act). If tenants are forced to renew contracts with excessively increased deposits due to unavoidable circumstances, this clause opens the door for tenants to recover the portion exceeding 5% during the jeonse contract period.