[Real Estate AtoZ] The Hidden Risks of Commercial Residential Villas in the 'Jeonse Fraud Blind Spot'

"When I reported the jeonse fraud, they said it was a ‘Geunsaeng Villa’ and that I was not eligible for relief. At the time of the lease contract, I checked the certified copy of the register and found no issues, so I signed the contract, but now they say it’s an illegal building, which is very confusing."

Recently, the number of tenants unable to recover their deposits has increased due to the problem of ‘empty-can jeonse’ houses, where the sale price is lower than the jeonse deposit. In particular, recently, cases of jeonse fraud have emerged in ‘Geunsaeng Villas’ in Eunpyeong-gu, Seoul, which were illegally remodeled contrary to the approved building use, raising concerns about greater tenant damages.

What Exactly Is a Geunsaeng Villa That Harms Tenants?

A Geunsaeng Villa is a type of illegal housing created by remodeling the commercial part of a neighborhood living facility for residential use. Although it looks like a typical villa building on the outside, in reality, it is an illegal building used differently from its approved purpose. According to the Building Act, neighborhood living facilities must be used as commercial spaces necessary for daily life, such as retail stores. Due to differences in parking and floor restrictions compared to residential standards, changing the use is practically impossible.

The prevalence of Geunsaeng Villas is driven by the desire to increase development profits. From the builder’s perspective, obtaining approval as a neighborhood living facility allows reducing parking space while constructing a building with more floors, which is advantageous cost-wise. Later, by installing cooking facilities and remodeling it into a residence, the building outwardly resembles a normal house, leading many buyers to unknowingly purchase Geunsaeng Villas without realizing they are illegal buildings.

In fact, according to the current Seoul Metropolitan Government’s standards for installing auxiliary parking lots, neighborhood living facilities must provide one parking space per 134㎡ (facility area), whereas multi-family and apartment houses must provide at least 0.5 parking spaces per household based on area. Regarding floor restrictions, multi-family houses are limited to three floors or less, and multi-unit and row houses to four floors or less under the Building Act, but neighborhood living facilities have no separate floor limits.

Why Are Geunsaeng Villas Dangerous?

The problem is that tenants living in Geunsaeng Villas may not receive proper protection. Since neighborhood living facilities are classified as commercial buildings, tenants may be unable to register their residence, preventing them from establishing legal priority rights. In such cases, tenants find it practically difficult to recover their deposits even if issues like jeonse fraud arise. Additionally, tenants in Geunsaeng Villas face various restrictions, such as being unable to obtain jeonse loans or subscribe to jeonse deposit insurance.

Government support is also hard to expect. Although the government previously decided to provide low-interest loans to victims of jeonse fraud who acquire the property through auction, illegal buildings like Geunsaeng Villas are reportedly excluded from support. Furthermore, according to internal regulations of the Korea Land and Housing Corporation (LH), such buildings are excluded from public purchase and rental programs, reducing the possibility of public acquisition.

Nevertheless, tenants seek Geunsaeng Villas because of their low prices and the difficulty in determining their illegal status. Landlords often list these properties at prices lower than the surrounding market, considering their illegal aspects, so young people burdened by costs often fall for this and choose Geunsaeng Villas.

Also, even within the same villa building, some floors may be legitimate residences while a few floors are designated as neighborhood living facilities, making it hard to distinguish by appearance alone. To verify this, one must check the building register, but since people usually only check the certified copy of the register when signing lease contracts, they often miss this detail.

However, Geunsaeng Villas are not only risky for tenants. Property owners can also suffer damages. If the illegal status is discovered, the current owners?not the original builders who committed the illegal act?are subject to enforcement fines. If cooking facilities are not removed, owners must pay enforcement fines up to 10% of the standard market value twice a year. If the illegally extended parts are structurally impossible to restore to their original state, damage recovery becomes practically difficult.