[Exclusive] In Cases of Jeonse Fraud in Multi-family Housing, "LH Priority" When Priority Purchase Rights Clash... Special Act Amendment Proposed

Current Law Fails to Reflect the Unique Nature of Single-Registration Multi-Family Houses
Victim Tenants’ Claims Take Precedence Even Amid Conflicting Opinions
Ministry of Land Expresses Concern Over Loss of Relief Opportunities for Multiple Ten

The Democratic Party of Korea is seeking to revise the law so that, in cases where the right of first refusal of tenants and the Korea Land and Housing Corporation (LH) come into conflict during the auction of multi-family rental fraud victim housing, the authority of LH will take precedence. This legislative push follows concerns that when some tenants in a single-titled multi-family residence exercise their right of first refusal, other tenants may lose their chance for relief, prompting efforts to improve the system.

According to the Ministry of Land, Infrastructure and Transport and political sources on September 3, Yeom Taeyoung, a member of the Democratic Party of Korea, is set to propose an amendment to the Housing Lease Fraud Victims Support Act containing these changes. The amendment states that if there are at least two victims of rental fraud in the same property such as a multi-family house, and both LH and the affected tenants wish to exercise the right of first refusal, priority must be given to LH in the sale. The amendment adds a proviso to the current law, which gives priority to tenants’ right of first refusal in the event of a conflict, to allow this new approach.

This legal amendment comes after a case in June in Hwaseong, Gyeonggi Province, where there was a conflict between a victim tenant and LH over the right of first refusal in a multi-family residence. The residence in question saw non-return of rental deposits totaling 720 million won; last year, four subordinate tenants, including tenant A, assigned their right of first refusal to LH. In total, there are five victim tenants. However, at the auction date, tenant A suddenly exercised their right of first refusal directly and won the bid for the property at 811 million won.

As a result, the other subordinate tenants who had hoped to recover their losses through auction profit based on the assumption of an LH purchase found it difficult to reclaim their deposits. This is because, after distribution of the auction proceeds to the senior creditors and senior tenant, there is essentially nothing left for the subordinate tenants. Subsequently, LH submitted a request to the Suwon District Court, arguing that opportunities for multiple tenants to recover losses should not be lost, leading the court to halt the sale. Nevertheless, tenant A continues to express intent to complete the purchase. The court has therefore postponed the auction date, which was originally scheduled for September 4.

The Ministry of Land, Infrastructure and Transport believes that such cases have emerged because the current law does not account for the characteristics of multi-family residences, which can only have a single title registration. According to Article 25 of the Special Act on Support and Residential Stability for Victims of Rental Fraud, amended in May, if both a victim of rental fraud and LH apply for the right of first refusal, the court is to give priority to the victim's rights. The issue, however, is that unlike apartments, officetels, and multiplex houses (where separate registration is possible and usually only one victim tenant exists), multi-family residences may have several victim tenants for a single property. As such, when there is a conflict between victims who wish to transfer their right of first refusal to LH and those who wish to exercise it themselves, the question arises as to whose rights should take precedence.

Yeom Taeyoung stated, "In situations where there are multiple victims in a multi-family home, if one person exercises their right, the remaining victims fall into a blind spot, receiving no support from the auction proceeds," adding, "Since the system established to help victims has paradoxically resulted in excluding some victims, this amendment aims to rectify this contradictory situation."

Yeom Taeyoung, Democratic Party of Korea member. The Asia Business Daily DB

The Ministry of Land, Infrastructure and Transport also supports the legal revision. An official commented, "There is a consensus that, in communication with the National Assembly, legal reforms should be made to relieve as many tenants as possible."

However, until the bill passes the plenary session, affected tenants must continue to gain time through postponements of the auction. Both LH and the Ministry of Land, Infrastructure and Transport have submitted requests to the court asking for a suspension of the auction. A representative from LH said, "The Ministry of Land, Infrastructure and Transport and LH have pleaded with Suwon District Court to postpone the auction," adding, "The length of the postponement is up to the court's discretion."

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