Let’s say you rented a house under a two-year "jeonse" contract using your life savings, and your landlord sold the house to someone else. The new owner of the house automatically becomes your new landlord. What happens if the new landlord is unlikely, or rather, unable, to return your deposit, potentially because he or she heavily relied on mortgage financing to buy the house?

The law doesn't explicitly say what you can do, but according to case law, you may refuse succession of the contract to the new landlord, and instead stick to the contract with your previous landlord. In this case, the lessee will terminate the lease. But can the lessee always say no to a change of the landlord? Consider the following example from 2022.

When a lessee signed a contract to rent a house from a landlord, the landlord told the lessee that he planned to sell the house in two months. Nonetheless, the lessee paid the jeonse rent deposit to the landlord and moved in. Meanwhile, the landlord proceeded to sell the house to a new landlord as planned. A few weeks later, learning about the transaction, the lessee told the former landlord, "When the landlord changed, a mortgage was set up contrary to the agreement, so I want to terminate the lease and ask you to return the rent deposit." As the former landlord refused, the lessee filed a lawsuit against him in May 2022.

In the above case, the court ruled that the new landlord succeeded the status of the lessee’s landlord despite the lessee's refusal, that the lease was not terminated, and that the former landlord was not required to return the rent deposit to the lessee. Why did the court make this judgment?

Under the Housing Lease Protection Act, when the owner of the house changes, the new owner of the house becomes the new landlord, unless in exceptional circumstances. These exceptions are recognized when the lessee is materially disadvantaged, contrary to the purpose of the Housing Lease Protection Act to "secure stability in the residential life of national citizens," such as when a change of landlord occurs unexpectedly and the landlord is unable to return the rent deposit.

The aforementioned example could not be seen as an exceptional circumstance, according to the court. The court noted the following facts.

Firstly, the lessee in the above case was already aware that the house was going to be sold to someone else when she signed the lease with the former owner of the house and moved in.

Secondly, the lessee -- who herself was also a landlord of another house -- tried to find a new tenant for the house she owned but it didn't happen. So she probably decided to live in her own house instead of the house she rented. Then, the lessee suddenly made an objection to the change of the landlord and gave notice to terminate the lease. Thirdly, before giving the above notice, the lessee apparently did not try to find out or seriously consider whether the new landlord was capable of returning the rent deposit.

Lastly, the collateral security -- which allows the mortgage lender to hold priority over a lessee in debt claim if the mortgage-financed landlord goes default -- that the lessee took issue with was established by the former landlord as a security for the down payment, not as a security for the lessee. Furthermore, the collateral security by the lender had already expired less than a month before the lessee's complaint.

Shim Jun-seop

This is the first installment in a series of columns written by attorneys at Barun Law LLC to provide legal insights in the field of construction, real estate and housing in South Korea. The writer is an attorney at the firm. -- Ed.

For further inquiries, contact junseop.shim@barunlaw.com