Constitutional Court Rules "Amendment to Private Rental Housing Act by Moon Jae-in Government Constitutional"

"Property Rights Restricted but Not a Violation of the Principle of Trust Protection"

The Constitutional Court has ruled that the provision in the 'Special Act on Private Rental Housing' (Private Rental Housing Act), newly established by the Moon Jae-in administration in August 2020 as part of real estate measures, which automatically cancels registration when the mandatory rental period of private rental business operators expires, does not violate the Constitution.

This is because the system itself was introduced for public interest purposes, granting legislators broad discretion in shaping the law; the possibility of legal amendments was somewhat anticipated; and the government introduced several supplementary regulations to minimize infringement when abolishing the system, making it difficult to view this as a violation of the principle of protection of trust.

Constitutional Court Grand Bench. Photo by Jinhyung Kang aymsdream@

According to the legal community on the 5th, the Constitutional Court unanimously dismissed the constitutional complaint case regarding Article 6, Paragraph 5 of the Private Rental Housing Act.

The rental registration system allows landlords who voluntarily register as private rental business operators to receive broad tax benefits in exchange for public regulations such as guaranteed rental periods and limits on rent increases. The mandatory rental period was divided into short-term (4 years) and long-term (8 years).

The Moon Jae-in administration announced the 'Plan to Revitalize Rental Housing Registration' in December 2017 to promote the supply of private rental housing and stabilize tenants' residential lives.

However, after inducing rental housing registration, as the real estate market overheated and speculative demand increased, exacerbating market instability, the government announced the 'Housing Market Stabilization Measures' on September 13, 2018, changing policy direction by adjusting excessive tax benefits for rental business operators and regulating their loans.

Nonetheless, the side effect of rising housing prices due to a shortage of listings persisted because apartments held by rental business operators were not listed on the real estate market during the mandatory rental period. Additionally, as legislative discussions on introducing rent caps and renewal rights in housing leases progressed, the distinction between private rental housing under the Private Rental Housing Act and general rental housing under the Housing Lease Protection Act became blurred, raising the need to reform existing systems to ensure consistency.

In response, on July 10, 2020, the government announced the 'Supplementary Measures for Housing Market Stabilization,' which largely abolished the rental registration system. It included abolishing short-term private rental housing and apartment long-term general private rental housing, extending the mandatory rental period for other long-term general private rental housing from 8 to 10 years, and stipulating that existing rental housing of the abolished types would have their registration canceled immediately upon expiration of the mandatory rental period.

Reflecting this, the amended Private Rental Housing Act on August 18, 2020, deleted the definition clause (Article 2, Item 6) that regulated short-term private rental housing with a 4-year mandatory rental period, excluded private purchase apartments from long-term general private rental housing, and extended the mandatory rental period for other long-term general private rental housing to 10 years (Article 2, Item 5). It also stipulated that registration would be canceled on the day the mandatory rental period ended for apartment private purchase rental housing and short-term private rental housing under the previous law (Article 6, Paragraph 5).

The constitutional petitioners were those who operated as short-term private rental business operators under the previous Rental Housing Act or the pre-amendment Private Rental Housing Act and changed their registration to long-term general private rental housing in August 2020.

The petitioners argued that Article 6, Paragraph 5 of the Private Rental Housing Act, which cancels registration on the day the mandatory rental period ends for apartment long-term general private rental housing and short-term private rental housing, and the enforcement decree of the Comprehensive Real Estate Tax Act excluding houses registered as long-term general private rental housing after July 11, 2020, from tax benefits, violate the principle of non-retroactive legislation and infringe on their freedom of residence and property rights. They filed a constitutional complaint in November 2020.

The Constitutional Court first dismissed the constitutional complaint regarding the enforcement decree provisions excluding tax benefits, stating that it lacked the 'directness' of fundamental rights infringement.

The Court stated, "The infringement of fundamental rights against the petitioners is realized only through specific tax assessments or refusal of correction orders, so the petition for adjudication regarding the tax benefit exclusion provisions, which regulate the tax base, rates, and amounts for comprehensive real estate tax and income tax, does not meet the requirement of directness of fundamental rights infringement and is therefore inadmissible." This means that since fundamental rights are infringed only through administrative dispositions, the constitutionality of the law itself should be challenged through administrative litigation rather than before the Constitutional Court.

Regarding Article 6, Paragraph 5 of the Private Rental Housing Act, which stipulates registration cancellation, the Court found that the constitutional complaint met the admissibility requirements.

The petitioners claimed, "The registration cancellation provision forces us to move immediately into the registered rental housing or forcibly sell other houses, infringing on our freedom of residence, and infringes on our property rights by confiscating all profits from soaring housing prices while requiring compliance with public obligations, violating the principle of proportionality."

However, the Court ruled that the provision does not infringe on the petitioners' property rights. Even if the petitioners had expectations of tax benefits or profits from rising housing prices under previous regulations, these were mere expectations based on the then-existing legal system and not property rights.

Regarding the claim of infringement on freedom of residence, the Court stated, "The registration cancellation provision only prevents maintaining the status of the same type of rental business operator after the mandatory rental period ends; it does not prohibit rental business operators from freely setting or changing their residence, so it cannot be seen as restricting the petitioners' freedom of residence."

However, the Court acknowledged that the provision restricts the freedom of occupation because it prevents the petitioners from maintaining their status as rental business operators of the same type of rental housing.

It then examined whether the protection of trust was sufficiently ensured in restricting fundamental rights.

The Court concluded, "The degree to which the petitioners' trust is infringed is not greater than the public interest in the need to reform the rental housing system, stabilize the housing market, and ensure tenants' long-term and stable residential environment. Therefore, the registration cancellation provision does not violate the principle of protection of trust and does not infringe on the petitioners' freedom of occupation."

As grounds for this judgment, the Court cited: ▲ The Private Rental Housing Act was enacted to promote the supply of private rental housing and stabilize tenants' residential lives by regulating the construction, supply, management of private rental housing, and fostering private rental business operators, thus the rental business operator system formed under it has a strong public interest character to promote supply and ensure tenant stability; ▲ Therefore, how to form and operate the rental business operator system is a matter for legislators to decide policy-wise, considering social and economic circumstances to achieve legislative objectives;

▲ After the government's announcement of the 'Plan to Revitalize Rental Housing Registration' in 2017, side effects led to the 2018 'Housing Market Stabilization Measures,' which adjusted excessive tax benefits for rental business operators and regulated their loans, and legislative discussions on introducing rent caps and renewal rights blurred the distinction between general rental housing under the Housing Lease Protection Act and private rental housing, making it foreseeable that legislation abolishing short-term private rental housing and apartment long-term general private rental housing and extending mandatory rental periods could occur.

Furthermore, the Court noted, "The government also prepared supplementary tax support measures to mitigate the degree of trust damage to existing rental business operators by, in principle, maintaining previous tax benefits until the registration cancellation date, allowing stable continuation of rental business."

A Constitutional Court official stated, "This case is the first time the Constitutional Court has ruled on the constitutionality of Article 6, Paragraph 5 of the Private Rental Housing Act, which abolishes short-term private rental housing and apartment long-term general private rental housing in the amendment on August 18, 2020, and stipulates that registration is canceled when the mandatory rental period ends for previously registered cases."

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