Housing lease

Housing lease (전세 傳貰) is referred to a lease contract in which the lessee should pay to the lessor around 60-70 percent of the real estate as a deposit in lump sum. These days a monthly lease with the deposit reduced is preferred by the lessors who seek no other investment opportunities.

The housing lease is a unique lease contract of real estate, in particular, a residential house or commercial building, in Korea.

Key words
lease, deposit, real estate, collateral

Legal nature
The nature of housing lease is explained as a mixed contract (혼합계약 混合契約) in which a lease contract (임대차 賃貸借) is combined with a loan agreement (금전소비대차 金錢消費貸借).

The conspicuous difference between the [Korean] housing lease and ordinary lease is the deposit to be paid as much as 60-70 percent of the current price of the leased property to the lessor. Upon the termination of the contract, the lessor should return the deposit to the lessee. In other words, the interest on such deposit has been set-off by the rent in a nominal sense.

From the point of economic view, such deposit amounts to a compulsory deposit of common Korean people enough to sustain the household living expenses during the financial hardship. On the other hand, anybody could easily purchase a residential house or apartment with such deposit money if he/she selects not to live in the house or apartment for a time being.

Collateralization
With respect to the housing lease for the lessee, the lessor may make the most of the real estate as collateral. In other words, the owner of such real estate has got a certain amount of money, which shall be returned upon the termination of the contract, by granting the real estate as collateral or pledge.

In this case, the said collateralization cannot obtain the nature of the real property right. So it is necessary to demand mortgage or guarantee in order to secure the return of such deposit. As a result, the housing lease may be used as an efficient tool of real estate financing (부동산금융 不動産金融).

Even though the Civil Act provides for a housing lease as a real property right, it has hardly been used as collateral. In reality, the right of housing lease is in nature like a claim. It means insufficient legislation for the minority protection.

Lease Protection
Traditionally the lessor has stronger voice than the lessee in the real estate markets owing to a prolonged short supply of houses and buildings. For the benefit of the lessees, the government established both the Housing Lease Protection Act (1981) and the Commercial Building Protection Act (2001). See Lease protection.