Government Will Not Consider Fines for Contracts with Jeonse-to-Jeonse Conversion Rates Exceeding 2.5%

"'Considered 'void ab initio'... Can respond through civil litigation and dispute mediation'"

[Sejong=Asia Economy Reporter Kim Hyunjung] The government announced that starting from October, it will lower the statutory jeonse-to-monthly rent conversion rate from the current 4.0% to 2.5%, but it is not considering imposing fines for contracts exceeding the 2.5% rate.

According to the government on the 23rd, the jeonse-to-monthly rent conversion rate, which will be lowered to 2.5% (base interest rate + 2.0%) from October, applies when the landlord converts all or part of the jeonse deposit into monthly rent during the lease contract period or upon contract renewal. It does not apply to new contracts, contracts where the tenant changes, or cases where monthly rent is converted to jeonse.

Under current law, the jeonse-to-monthly rent conversion rate is a "recommendation," and failure to comply does not result in fines or other penalties. Some have argued that to ensure effectiveness, penalty provisions such as fines should be established for contracts violating the conversion rate. A government official stated regarding this, "Since lease agreements are private contracts between individuals, administrative sanctions such as fines are not possible," and added, "Therefore, there are no plans to introduce additional mandatory regulations such as fines."

However, the government has repeatedly expressed the position that contracts violating the jeonse-to-monthly rent conversion rate are considered "null and void." The government expects that disputes can be resolved before civil litigation because Article 10 of the Housing Lease Protection Act explicitly states as a mandatory provision that "agreements violating this law that are disadvantageous to the tenant have no effect."

Previously, the government guided that if landlords receive monthly rent exceeding the conversion rate, tenants can seek relief through the Housing Lease Dispute Mediation Committee or civil lawsuits (unjust enrichment recovery lawsuits). Additionally, the government plans to add six more dispute mediation committees within this year to the existing six located in Seoul, Suwon, Daejeon, Daegu, Busan, and Gwangju, and to increase the number by another six next year, totaling 18 by the end of next year. The Housing Lease Dispute Mediation Committee under the Korea Legal Aid Corporation investigates, deliberates, and mediates disputes related to housing leases between landlords and tenants with legal experts, and was established in May 2017. The cost for disputes involving deposits under 100 million KRW is about 10,000 KRW.

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