Renting in Korea, Lease Options
JEONSE/CHONSEI (‘KEY MONEY DEPOSIT’) is specific to Korea and involves depositing a large sum of money (usually works out to 30~60% of the property value/ price) with the landlord for the duration of the lease (usually 2 years). Once the tenant’s lease is up, the landlord must return the full amount. This is a very advantageous system for renters who have the money to make the key money deposit, which can range from KRW20 million to upwards of KRW300 million.
Before entering such an arrangement, it is important to check the building’s register to make sure there are no lien against or loans on the property. The renter is expected to pay 10% of the total amount when the contract is signed and the balance when moving in. Should the tenant have to leave before the expiry of the lease, he/she may be expected to find another tenant who will pay the key money.
Although financially advantageous for the renter, this system can also be risky. For example, ownership of the building or apartment may change before the expiry of the lease, or the landlord may not be able to find another tenant right away and so may not have the money to pay back the full deposit. Some landlords also tend to think they can maneuver their way out of paying if the lease was signed by an individual rather than by a corporation. There are steps a tenant can get at the beginning of the contract to reduce the risk.
While the average jeonse has averaged 40-50% of the 'house' value, property owners have been asking for over 60% from even renewing tenants. This is the situation for Koreans as well as for expats. In 2011, Jeonse rates are reported to have gone up 13% around the country, 11% in Seoul. Some tenants have seen their chonsei double. Because interest rates are so low and property owners gain little financially from the traditional jonsae system, they prefer to receive a monthly rates instead.
Getting your jeonse (or wolse) money back: Registering the lease and jeonse payment at the local gu (local government) office offers some protection.Bring your lease agreement to the local registry office (등기소) to get a hwak-jeong-il-ja (확정일자 ). This is an official record of the deposit money you have put down, and establishes your priority for getting your money back should the property go to public auction.
However, if you haven't done registered the lease, you may still be able to establish your priority rights over other creditors. According to Korean law, a tenant can claim priority over lenders claiming the property if the tenant can show proof the he/she (1) has occupied the property and (2) registered her/his relocation with the local government office. However, the tenant may not be able to claim priority for the total amount of her/his deposit. For more information contact Korea Legal Aid http://www.klac.or.kr/ or check out Lawyers in the Korea4Expats Directory.
WOLSE (Monthly Payment + Deposit) is a variation of Jeonse in which you pay a certain sum as a security deposit (usually worth about 1~2 years rent) and pays a monthly rent on the designated date of each month. The deposits range from 4 to 20 times the monthly payment amount. It is usual to pay 10% of the deposit when the contract is signed and the balance plus one month’s rent when moving in. The deposit is returned to the renter at the end of the lease period. If the tenant is late with the rent that amount will be deducted from the deposit as will costs for damages, etc. It is occasionally difficult to wrestle the full amount from the landlord/landlady, especially if the lease was signed by an individual who is about to leave the country. Wolse is becoming increasing popular with property owners since they still get money they can invest (although interest rates are lower than they once were) while also getting a steady, non-refundable income from their property. Monthly rents range from KRW 300,000 to around KRW 3 million a month or more depending on location and quality.
KALSE (FULL PAYMENT UP FRONT) means that the rent is paid for the entire period of the lease before the tenant moves in. Property owners prefer this method and often require it from multinational corporations since they don’t have to return any money and they still earn interest on a large sum. Under this system, if the monthly rent of a two-year lease agreement is KRW 8 million (roughly USD 8,000.00) the company will pay KRW 192 million before their staff moves in. When using this system, it is important to be very specific in the contract and include an opting-out clause in case problems are discovered after the expat moves in. Bear in mind also that Koreans don’t always view a contract or lease as absolutely binding (although this situation is improving). Kalse (Monthly rent with no deposit)
The Lease period is usually for a minimum of one-year and a maximum period of three years. It is not unusual, especially for expats, to have to terminate the lease earlier than indicated. To avoid having to pay a penalty or losing the entire pre-payment, it is important to clearly stipulate acceptable reasons for early termination as well notice and refund procedures in the lease agreement. The usual notice period is 60 to 90 days. General if you have a provision in your two-year lease allowing for termination after one year and you have to leave before completing the first twelve months, you may only receive a refund on the second year's pre-payment.
A pre-paid two or three-year lease is, of course, is the option most preferred by realtors and property owners, and the one they will often push. Bear in mind that you do not have to go this route and that it may not be to your advantage. If, for some reason, you find that your initial housing choice does not meet your needs (or those of your family), it is very difficult to get out of the lease (and get back the balance of the money paid). Moreover, some property owners and realtors are not as efficient or willing as others when it comes to following-up on problems in the house/apartment, despite what was said before you moved in. As often happens, you will have only a few days to figure out where you want to live and to find a place you like. Unless you already have contacts in Seoul (or wherever you’re going to be living in Korea), you won’t know the realities of daily living in Korea until you’ve experienced them for a while.
Protecting your investment (pre-paid lease or deposit) is very important. One way to protect yourself is to register a 'kuen mortgage', especially if you've paid out a large sum. A lawyer can help you with this (although it can be done without legal representation) and the legal fees will be about 1.5% of the total rental payment. A Kuen mortgage means you have registered your investment with the local government office and that you hold a first lien on the property for the total amount of your payment. This will ensure that you get your money back if the property owner goes bankrupt or becomes, in some other way, insolvent or that you will not be evicted should the property change hands. Moreover, the Keun mortgage allows you to see if there are any other liens on the property before it's too late and also makes it easier for you to get the balance of your payment back if you have to terminate the lease early.
Monthly, no deposit leases are available from some of the furnished and/or serviced apartments. See the Korea4Expats.com Directory for some options: For information on specific apartments or projects, check out the Korea4Expats.com Directory: http://www.korea4expats.com/Housing-service.html
IMPORTANT NOTE: Before you sign any lease or even before you begin to work with any real estate agent, it is recommended that you verify that the real estate agent with whom you are working is a registered agent. You can check this by contacting your local district (gu) office and giving them the name and business registration number of the agent. You are also required by law to register your change of address within 2 weeks of your move by bringing your lease agreement to the district (gu) office. Your Alien Registration Card must be updated within 2 weeks of your move.
Giving Notice: In part because of the obligation to refund the tenant's deposit, the law requires that property owners be giving sufficient notice that they must find new tenants. This applies when the lease expires as well. Tenants are required to give no less than 30 days notice prior to the lease end-date if they intend to move, otherwise the lease is automatically extended for 3 months and the tenant must pay the rent for those 3 months. Not all property owners enforce this 30 day notice - 3 months rents rule, but there are some who do.
Tax Deduction of Rent: If you pay your own rent and you are a taxpayer, your rent can count as a tax deduction under the National Tax Service's Cash Receipt System. Your first have to register for the system and then go to your local tax office, with your valid lease agreement, and tell them you would like to claim your rent payments on the cash receipt system. The payments will then be recorded in the system automatically each month until the end of the lease period.
K4E Editor: Korea4Expats.com tries to ensure that the information we provide is accurate and complete, so should you notice any errors or omissions in the content above please contact us at firstname.lastname@example.org.
Last Updated on 2014-02-17
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