'Galpangjilpang' Rental Business Regulations... A Faltering Field

Conflicts and Confusion Over Initial Rent and Guarantee Insurance
Civil Mediation Raises Initial Rent by Over 5%
Government Says "Not a Judgment" but Confusion on Site
Delays in Guarantee Insurance Certificate Issuance Cause Inconvenience
Uncertainty Over Joint Collateral Subscription

[Asia Economy Reporter Moon Jiwon] Conflicts and confusion surrounding the housing rental business operator system are intensifying. Side effects caused by the government's excessive interpretations, policy changes, and overregulation are emerging everywhere, including initial rent setting, landlords' subscription to guarantee insurance, and the application of the monthly rent conversion rate. Critics argue that the lack of clear regulations or guidelines in many areas is exacerbating confusion on the front lines.

According to the government and real estate industry on the 21st, the Seoul Southern District Court on the 19th issued a mediation decision in a civil case filed by landlord A and a tenant over the increase in the initial rent deposit, ordering a contract renewal with the deposit raised from the original 500 million KRW to 800 million KRW, a 300 million KRW (60%) increase, as requested by A.

A, who signed the lease contract in December 2018 and registered as a rental business operator in January the following year, was originally allowed under the Special Act on Private Rental Housing to set the initial rent arbitrarily after the previous contract ended. However, with the implementation of the rent ceiling system and the right to request contract renewal at the end of July last year, the 5% cap applied.

Typically, civil cases related to amount determination go through voluntary mediation between parties, and if no conclusion is reached, a judge enforces mediation. If either party refuses, it proceeds to civil litigation. In this case, the tenant accepted A's increase request at the last minute, ending the case at the voluntary mediation stage.

Therefore, the court's decision does not mean that the initial rent or general lease contracts are entirely unrelated to the 5% limit. However, it is significant that the court recognized that "the initial rent is not necessarily subject to the 5% cap," contrary to the government's interpretation. Kim Seongho, a legal advisor to the Korea Landlords Association and attorney at the Law Office of Jasan, explained, "The court's mediation result means that the 5% rule is not a mandatory provision."

The industry expects a surge in related civil cases centered on rental business operators who fail to negotiate with tenants and cannot arbitrarily set the initial rent. However, a Ministry of Land, Infrastructure and Transport official drew a line, saying, "This case is a civil mediation and not a final judgment," and "the interpretation cannot be changed."

Members of real estate-related organizations, including the Rental Business Association Approval Committee, held a rally on August 1 last year opposing the government's real estate regulations and shouted slogans against the Three Lease Laws. (Photo by Yonhap News)

The mandatory subscription to guarantee insurance for rental business operators, which will be fully enforced from August 18, remains controversial. Rental business operators must attach a guarantee insurance certificate when signing a lease contract and report it to RentHome within three months. However, due to the recent workload overload at the Housing and Urban Guarantee Corporation (HUG), the issuance of guarantee certificates has been delayed, reportedly putting many rental business operators at risk of fines.

Seong Changyeop, president of the Korea Landlords Association, pointed out, "If rental business operators fail to report within three months, they face a fine of 5 million KRW and may lose tax benefits," adding, "Despite meeting all qualification requirements, delays in HUG's processing have prevented reporting." He especially noted, "To subscribe to guarantee insurance, 22 documents per house are required, and none are simple," highlighting the significant confusion.

Recently, HUG caused confusion by informing that guarantee insurance could not be subscribed to if joint collateral was set on the rental housing. Typically, financial institutions set joint collateral on land and buildings when lending funds for building construction on land. Once joint collateral is set, it is not easy to divide. Consequently, many expressed dissatisfaction, saying they could not subscribe to guarantee insurance despite wanting to and were only fined.

Following the controversy, HUG acknowledged the mistake and reversed its stance, stating that joint collateral is also eligible for guarantee insurance subscription. A HUG official said, "There seemed to be confusion at each branch when guarantee insurance was first mandated," adding, "Currently, all branches accept subscriptions even with joint collateral." An industry insider pointed out, "Ultimately, the root of the problem lies in the government's abrupt abolition of the rental business operator system it had actively promoted," criticizing, "Market participants who trusted policy consistency have borne the full brunt of the confusion."

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