Constitutional Court Rules "Contract Renewal Request Right and Rent Cap System Provisions Constitutional"

The Constitutional Court has ruled that the provisions of the Housing Lease Protection Act, which prevent landlords from refusing a tenant's request for contract renewal without just cause, and the provisions limiting the upper limit on rent or deposit increases upon contract renewal, do not violate the Constitution.

On the 28th, the Constitutional Court unanimously upheld the constitutionality of Article 6-3 of the Housing Lease Protection Act and related provisions concerning the tenant's right to request contract renewal in a constitutional complaint case.

Lee Jong-seok, Chief Justice of the Constitutional Court, is presiding over a trial on the 28th at the Grand Bench of the Constitutional Court in Jongno-gu, Seoul. On this day, the Constitutional Court ruled the contract renewal request right and the rent ceiling system under the Housing Lease Protection Act constitutional. Photo by Kang Jin-hyung aymsdream@

On that day, the Constitutional Court declared constitutional the following: Paragraphs 1 and the main text of Paragraph 3 of Article 6-3 of the Housing Lease Protection Act, which prohibit landlords from refusing a renewal request without just cause; Paragraphs 5 and 6 of the same article, which impose liability for damages if a landlord refuses renewal citing actual residence but then leases to a third party without just cause; the rent increase limit provisions (the part related to Article 7 Paragraph 2 in the proviso of Paragraph 3); Article 7-2, which limits the calculation rate when converting monthly rent; and Supplementary Provision 2.

However, the Court dismissed the constitutional complaint regarding the publication and distribution of the 'FAQ on Amendments' section in the explanatory booklet of the amended Housing Lease Protection Act.

The Court explained, "This is intended to guide the public on the newly established or changed systems due to the amendment of the Housing Lease Protection Act and to aid understanding. Such legal interpretations and guidance do not have binding force nor affect the legal status of the petitioners, so this does not constitute an exercise of public authority subject to constitutional complaint, making this part of the petition inadmissible."

The amendments to these provisions were introduced on July 31, 2020, and the explanatory booklet for the amended Housing Lease Protection Act was published on August 28, 2020, after the law's enforcement. The FAQ section of the booklet included interpretations such as the tenant's right to request contract renewal being exercisable under the amended law even if there was an agreement to extend the lease before the law's enforcement.

Petitioners, who are landlords owning housing domestically or successors to landlords' status, claimed that these provisions and the publication and distribution of the 'FAQ on Amendments' section infringed on their fundamental rights or violated the Constitution, and filed a constitutional complaint.

The Court stated, "The legislative purpose of guaranteeing tenants' housing stability is legitimate, and the means are appropriate as they reduce tenants' residential mobility and limit rent increases, thereby promoting housing stability for tenants."

It added, "Housing stability is an indispensable element for a dignified life, and the state has an obligation to protect economically vulnerable tenants and promote social welfare, so the public interest is significant. On the other hand, restrictions on landlords' freedom of contract and property rights are relatively short-term and cannot be considered severe."

Regarding the right to request contract renewal, the Court noted, "It does not completely restrict the landlord's right to use and profit from the property," and pointed out that "legislative measures have been established to mitigate restrictions on fundamental rights by specifying grounds on which landlords can refuse."

The Court judged that the period and number of times the right to request contract renewal can be exercised are limited, and the duration of the renewed contract is set at two years, so the infringement on landlords' property rights is not significant.

The provision stipulating tenants' right to claim damages if landlords refuse renewal without just cause and lease the housing to a third party was also deemed not to excessively restrict landlords' freedom of contract or property rights.

Regarding the rent increase cap system, the Court said, "Limiting the scope of rent increases is an inevitable regulation to ensure the effectiveness of the contract renewal request system," and that "the 1/20 rate limit is not excessively low."

Furthermore, delegating the authority to set the conversion rate between monthly rent and deposit to a presidential decree was considered appropriate, as it requires professional and policy considerations.

The Court also ruled that Supplementary Provision 2, which applies the amended provisions to lease contracts in effect at the time of the amendment's enforcement, does not violate the Constitution, stating, "It is common for laws regulating private contractual relationships to impose new legal regulations according to social and economic circumstances."

Article 6-3 of the Housing Lease Protection Act stipulates that tenants can request a two-year contract extension from landlords (owners), and landlords cannot refuse without just cause such as actual residence.

Paragraph 2 of Article 7 of the same law limits the increase rate to within 5% when either party requests an increase in rent or deposit.

These provisions were introduced in 2020 during the Moon Jae-in administration as part of the so-called 'Three Lease Laws' along with the monthly rent reporting system, aiming to provide stronger protection for tenants.

However, there have been calls for repeal, arguing that these laws caused confusion in the Jeonse market and led to a surge in large-scale Jeonse fraud cases.

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