“What if the landlord doesn’t return the deposit?”… How to survive the ‘reverse charter storm’

Tenant Mr. Kim, who lives in apartment A (101㎡) in Songdo-dong, Yeonsu-gu, Incheon, is worried about the end of his contract. A few days ago, to the landlord, ‘Thank you so far. I’ll be leaving in three months, so get ready to return the deposit.”

Two years ago, in April 2021, Mr. Kim signed a lease contract for a charter price of 500 million won. But now, the charter price has dropped to 380 million won (based on March transactions). Mr Kim said, “I said I would return it, but the answer was not very good, so I am worried.”

Apartment in downtown Seoul. Not related to the article/news1

In a situation where the price of jeonse peaks and then falls, the reverse jeonse crisis is expected to intensify, focusing on areas where a large amount of inward movement is planned. Due to the high supply, the price of jeonse has fallen, making it difficult for landlords to return deposits to tenants. Specifically, in the case of Incheon, where the rental price rose the most two years ago, there are a number of places where the rental price has dropped to 100 million to 200 million won, focusing on large areas. How should I respond if I am a tenant in this situation?

According to the real estate industry and the legal community on the 25th, it is best to take a different response approach depending on the circumstances of the lessor and the lessee. From the lessee’s point of view, it is better to get the money back when the price of jeonse falls. In particular, if you have many loans, you can save on monthly interest payments. If the price of jeonse drops, you have no choice but to ask for the deposit back.

On the other hand, it is rare for a landlord to have the jeonse deposit received at the time of the lease agreement. In some cases, the person actually lives in a house by adding more money to the deposit, or making a gap investment with the deposit. There are cases where gap investments are made by taking loans and adding funds, as well as gap investments where there is no capital.

In this situation, if the tenant requests the return of the deposit, it is inevitable for the landlord. I’m trying to provide money somehow, but if the jeonse price reduction is so big that I can’t afford it, the ‘worst case scenario’ that I can’t return it might happen.

Once reverse taxation is obtained, the lessee must clearly express his intention not to renew the contract on the same terms until two months before the lease expires. Evidence such as KakaoTalk, text messages, and phone recordings must be left behind to ‘gather evidence’.

If the lessee is insured with jeonse guarantee insurance, they can file a claim with the Housing and Urban Guarantee Corporation (HUG) (it is not possible to receive an immediate deposit), but if the tenant is not insure, it becomes a headache. Even if the landlord is going to reduce the jeonse price for the tenant, they have to find a new tenant and somehow make up the difference, but many landlords put off renting a car, because say ‘no new tenants can be found’ without reducing the deposit. In that case, the lessee must actively exercise his rights, such as filing a lawsuit.

If the lessee is in a position where he can move to another place, he can first maintain the opposing force and the right to preferential repayment through the leasehold registration order, and proceed to claim the deposit and delay interest from the lessor. In particular, late interest is sure to be quite onerous from the lessor’s point of view.

Attorney Kim Yong-woo, a law firm specializing in real estate, said, “If you file a lawsuit against the landlord to return the deposit and win the case, you will be charged 5% interest on the day after the tenant moves. out of the rental house until the complaint is served, and 12% per year from the next day.. “If we win, we can transfer it to an auction,” he explained.

Of course, from the lessee’s point of view, the lawyer’s fee to put in the legal case can be burdensome, but if the case is successful, you can claim a portion of the attorney’s fee from the lessor. Based on the first trial, deposits of 100 million won and 7.4 million are available, in the case of 200 million won, 10.4 million won, and in the case of 500 million, 13.4 million won. However, in order to recover the cost of litigation from the lessor, a separate procedure is required for the reimbursement of litigation costs.

If a bank mortgage is set as a priority, even by auction, it is difficult to get all the jeonse deposit back with the current system alone. In response, the government is improving the system by paying preferential purchase rights to leaseholders and providing long-term low-interest loans.

What if the tenant cannot move? As it is impossible to claim late interest without leaving the house, the legal action is almost meaningless. Attorney Kim said, “Right now, it seems realistic to negotiate well with the landlord and receive monthly rent.” Reverse monthly rent is a method where a landlord who cannot afford to return the deposit when the market price of monthly rent is lower than the current contract pays interest to the tenant according to the amount of the difference in the deposit.

Seo Jin-hyung, professor of the MD Department of Product and Business Planning at Kyungin Women’s University (co-representative of the Fair Housing Forum), said, “Foreclosure auction is possible, but even this is difficult if a higher mortgage is “I think we’ll have no choice but to hold out until he’s ready.”