'Jeonse to Banjeonse' Transition Also Subject to 5% Cap... [Lease 3 Laws Q&A]

(Photo by Yonhap News)

[Asia Economy Reporters Inho Yoo, Mune Won] As the enforcement of the revised Housing Lease Protection Act, which introduces the right to request contract renewal and caps on rent increases for jeonse and monthly rent, approaches, landlords who have been offering jeonse at prices relatively lower than market rates are now under pressure.

According to the real estate industry, inquiries are increasing from landlords who, due to the three lease laws, cannot raise rent to market levels for at least 2 to 4 years, seeking ways to terminate contracts with existing tenants.

Once this law is enforced, tenants will have the right to request the landlord to extend the jeonse or monthly rent contract once more (for 2 years). Landlords must accept the tenant’s request for contract extension unless there are special circumstances. Rent increases are limited to within 5% of the previous contract.

The changes brought by the three lease laws are summarized in a Q&A format.

- My contract ends in September, but the landlord recently sent a message declaring the contract termination. Can I still exercise the right to request contract renewal after the three lease laws are enforced?

▲ No. The current law’s provision requiring notification of contract termination 1 to 6 months in advance only explains conditions under which tacit contract renewal does not apply and is unrelated to the right to request contract renewal. The three lease laws recognize the right to request contract renewal even for ongoing contracts, so you can exercise this right and extend the contract after the law is enforced. However, it must be exercised at least one month before the contract expires. If less than one month remains until expiration after the law is enforced, it may be difficult.

- I currently have a jeonse deposit of 400 million KRW and want to convert it to a half-jeonse (banjeonse) with a deposit around 100 million KRW. How much can I raise the monthly rent after the three lease laws are passed?

▲ The rent cap also applies when converting jeonse to monthly rent or half-jeonse. You need to calculate the converted deposit by dividing the current deposit by the jeonse-to-monthly rent conversion rate (4%) and then calculate the allowable rent increase. If you reduce the deposit from 400 million KRW to 100 million KRW, you can charge about 1.06 million KRW in monthly rent. Rent calculations can be done on the RentHome website.

- The contract period is still ongoing, but the landlord demanded a renewal contract with a 20% increase in the jeonse deposit, and I agreed. Can I get the excess amount back after the three lease laws are enforced?

▲ Yes. If the landlord raised the deposit during the contract period, you can get back the amount exceeding the 5% cap after the three lease laws are enforced. For example, if the deposit was raised from 500 million KRW by 100 million KRW (20%), you can get back 75 million KRW after deducting the 25 million KRW (5%) allowed increase.

- What if the landlord notified contract termination before the revised law was enforced and has already signed a new contract with another tenant?

▲ The existing tenant cannot exercise the right to request contract renewal. This is to protect the new tenant. The revised law does not provide any remedy for this situation.

- Under what circumstances can the landlord refuse contract renewal?

▲ When the landlord intends to move in themselves or for the purpose of residence by direct ascendants or descendants. However, they must actually reside for 2 years. Tenants can request the landlord to prove the reason for actual residence.

- What if the landlord refuses contract renewal claiming actual residence but rents the property to a third party?

▲ You can claim damages against the landlord. The compensation amount can be the equivalent of 3 months’ rent (jeonse converted to monthly rent based on interest rates), or twice the difference between the rent received from the new tenant and the rent at the time of refusal, or the largest amount among the damages caused by the refusal to renew.

This content was produced with the assistance of AI translation services.