[The Editors' Verdict] The '2+2 Year' Lease Renewal Request Right Is the Right Policy

The Lease Renewal Request Right and the Rent Increase Cap, collectively known as the Lease 2 Laws, which were introduced on July 31, 2020, will mark their 4th year of enforcement at the end of this month. The Lease Renewal Request Right (hereafter referred to as the Renewal Right) is a tenant's right to request a 2-year lease renewal once after the initial 2-year contract, with the rent increase capped at 5% upon renewal.

Discussions began in the 18th National Assembly in 2011 but failed to reach bipartisan agreement. In the 19th National Assembly, a special committee for the underprivileged was formed in 2015 to discuss the matter, but no conclusion was reached. Eventually, during the Moon Jae-in administration in 2019, the government expressed its intention to push forward through the first government-party consultations, and the law was passed in the 21st National Assembly in 2020, promulgated and enforced on July 31 of the same year.

The reason the system was introduced only after about 10 years of discussion was due to criticism that it significantly disrupts the market's price mechanism and causes side effects. While the rent would only increase by 5% at the end of the initial 2-year contract when using the Renewal Right, many argued that in the 4th year, after the additional 2 years, the accumulated rent increases would be reflected all at once, causing a rent surge. Most economic media outlets led such criticism.

Having worked exclusively in economic media as a reporter, I agreed with those claims and thought they were correct. Also, as an economics major, I believed government intervention should be minimized and the market's price function maximized. Even though I was in the tenant's position, I thought that way.

Now, almost 4 years after the introduction of the Renewal Right and the Rent Increase Cap, it seems my previous thoughts were mistaken. While rent increases can continue during the short 2-year period, over the somewhat longer 4-year period, there have been both rent increase and decrease phases. Also, although there are peak moving seasons, the fact that most transactions are quite dispersed rather than concentrated in specific periods seems to have had an influence.

An analysis of Seoul apartment lease contracts after the implementation of the lease reporting system in June 2021 by Yonhap News Agency and Real Estate R114 showed that out of a total of 650,893 lease contracts with renewal or new contract records, 222,315 were renewal contracts, accounting for 34.2% of the total. The remaining 65.8% (428,578 contracts) were new contracts signed by landlords with different tenants. Among all renewal contracts (222,315), 48.3% (107,448 contracts) used the Renewal Right.

After the enforcement of the Lease 2 Laws, the proportion of Renewal Right usage in Seoul apartment lease contracts, which reached 68.0% in the third quarter of 2021 when jeonse prices surged significantly, remained in the 60% range until the third quarter of 2022. However, as jeonse prices declined and the market shifted to favor tenants, the Renewal Right usage rate dropped to 44.6% in the fourth quarter of 2022, then to 32.1% in the fourth quarter of last year, and further down to 28.9% in the second quarter of this year.

The Lease Renewal Request Right and Rent Increase Cap have also been introduced in countries such as Germany, France, and New York in the United States. In Germany, indefinite lease contracts are common, and in France, the principle is a 3-year term with contract termination not allowed without just cause. These measures aim to guarantee tenants' housing rights but are considered to excessively infringe on landlords' property rights. Because rent increases are overly restricted, landlords sometimes leave properties vacant, waiting for the surrounding area to decline into slums before undertaking redevelopment, which is a noted side effect.

From that perspective, Korea's Renewal Right and Rent Increase Cap can be seen as fairly balanced policies between tenants and landlords.

PS. However, it is said that quite a few tenants are still unaware of the Renewal Right and Rent Increase Cap, even though these are their rightful protections. Many people around me do not know that if they do not use the Renewal Right and renew the contract, the right does not disappear but remains available for use at the next renewal.