"Cannot Sell, Only Paying Taxes"... Landlords Tied Down by Tenants' Renewal Rights [Real Estate AtoZ]

Even if the lease is extended before the end of the mandatory rental period
The renewal right can still be exercised after deregistration
Landlords can be tied up for up to four additional years
Tax burden increases throughout the lease period

#Mr. A, who is renting out one apartment unit in Seo-gu, Daejeon, received a request from his tenant to extend the lease, ahead of the deregistration of his registered rental status scheduled for June next year. The tenant wants to extend the lease, which is set to expire in June, until June 2028. Mr. A had planned to dispose of the property as soon as the registered rental status was canceled, but he ultimately renewed the contract because, under the regulations, he cannot refuse a renewal request during the mandatory rental period unless there is a serious defect attributable to the tenant. He is now worried that, when the renewed contract expires, the tenant may once again exercise the right to request renewal, which could prevent him from selling the property until as late as 2030.

Cases are mounting in which registered landlords facing deregistration struggle to dispose of their properties because of tenants' right to request contract renewal. President Lee Jaemyung has mentioned overhauling the registered private rental housing system and is pressuring multi-homeowners to put more properties on the market. However, in the rental industry, there is growing discontent that, due to tenants exercising their renewal rights, landlords who want to sell cannot do so and are left only with a heavier tax burden.

Extending contracts before the end of the mandatory rental period... Up to four years locked in if renewal right is exercised

According to the Special Act on Private Rental Housing as of the 14th, a registered landlord cannot refuse a tenant's request to extend the lease during the mandatory rental period unless there is a serious defect attributable to the tenant. During this period, a lease can be extended even without the tenant exercising the right to request renewal. As a result, even a tenant who has already extended the lease during the mandatory rental period can, after the registered rental status is canceled, exercise the right to request renewal one more time under the Housing Lease Protection Act.

Because of these rules, landlords complain that they remain tied to lease contracts and cannot sell their properties even after their registered rental status is canceled. If a tenant extends the lease for two years just before the end of the mandatory rental period and then exercises the renewal right once more after deregistration, the lease can be extended for up to four additional years.

Mr. B, who is renting out an apartment in Nowon-gu, said, "My registered rental status is set to be canceled in October 2027, and if the tenant whose contract expires in June that year asks for an extension, I will not be able to sell the property until 2029. If the tenant even uses the renewal right after that, I will end up having to hold on to it until 2031."

Landlords whose deregistration is imminent are reluctant to move forward with sales, even when they intend to dispose of their properties. They want to sell early because of rising tax burdens, but in reality it is difficult due to the many procedures required, including obtaining tenant consent. Although deregistered landlords have been temporarily allowed, even in regulated areas of the Seoul metropolitan region, to postpone moving in for their own residence until February 2028, thereby opening a path to sell properties with sitting tenants, many find it hard to take advantage of this. Properties owned by registered landlords cannot have their rent raised by more than 5% per year, so their deposits are lower than those of comparable units in the area. As a result, there are fewer purchase inquiries.

Mr. C, who is renting out two small apartments in Jungnang-gu, said, "The mandatory rental period ended last year, and the tenant's contract is set to expire this coming April, so I was planning to put the units on the market. However, because I could not raise the rent by 5%, the jeonse deposit is 100 million won lower than surrounding properties, which makes the financing burden heavier for potential buyers, and that makes it hard to sell."

Unclear whether 14,000 units will actually hit the market after deregistration

For landlords, the tax burden increases if they do not dispose of their properties after the registration period ends. During the mandatory rental period, they receive tax benefits such as exemption from inclusion in the comprehensive real estate tax base and reductions in property tax, but these benefits end once the registered rental status is canceled. Mr. D, who is renting out an apartment in Hanam, Gyeonggi Province, said, "During the mandatory rental period, landlords have no grounds to refuse contract renewal, so in many cases the jeonse contract continues even after the registered rental status ends. Once the exemption from inclusion in the comprehensive real estate tax base disappears, the tax burden becomes overwhelming, especially when you are retired and have no significant income."

Experts point out that, to encourage registered landlords to put their properties on the sales market, the rules on tenants' renewal rights need to be revised. According to the Korea Housing Lessor Association, there are a total of 14,861 apartment units in Seoul whose registered status is scheduled to be canceled in 2027 and 2028. If the tenants living in these units extend their contracts before the end of the mandatory rental period and later exercise their renewal rights as well, the properties will not be able to come onto the market for a long time.

Song Seunghyun, CEO of Urban and Economy, said, "The current structure, in which landlords must accept contract extensions even after the end of the registered rental period, can act as a factor that blocks properties from being listed for sale. It is necessary either to require that the renewal right be exhausted during the mandatory rental period, or to introduce an exception that restricts additional renewals after deregistration for contracts that were already renewed within the mandatory rental period." Sung Changyup, president of the Korea Housing Lessor Association, said, "At a minimum, tax benefits for landlords should be maintained until the end of the existing lease contract, or the right to request contract renewal should be exempted for contracts that were renewed during the mandatory rental period."

The Ministry of Land, Infrastructure and Transport is taking a wait-and-see approach to this situation. An official from the ministry said, "We understand the point that landlords are making," but added, "At present, however, we are not at a stage where any specific institutional reforms are under review."