Chapter 1 | Overview of Research

  □ Background of Research

  The Housing Lease Protection Act and the Commercial Building Lease Protection Act, which were enacted as special laws of the Civil Act, have been revised several times to cope with changes in the rental market, but the lease system of houses and commercial buildings has not yet been stably operated in our society. In the case of housing lease, conflicts over the lease term and rent increase have emerged as a social problem due to the introduction of the right to request contract renewal and the monthly rent cap, which are called the “Lease 2 Acts,” and the instability of housing prices. In the case of commercial building leases, due to the increase in the closure of business due to the COVID-19 pandemic and the increase in urban redevelopment projects, the problem of non-recovery of premiums and conflicts over compensation for losses continues to arise.

  □ Methods and Contents of Research

  This study attempted to present legislative and policy measures to protect tenants by comprehensively analyzing empirical surveys on the current state and improvement suggestions of housing and commercial building leases and the academic discussions on the amendment of lease system. The contents of the research was described as follows: i) summarizing the current legislation and policy related to housing and commercial building leases, ii) analyzing the results of the empirical survey to adequately assess how the legislation works in practice, and iii) presenting legislative and policy suggestions based on the results.

Chapter 2 | Current State of Research

  □ Related Legislation and Policy

  The right to request contract renewal, which gives housing tenants the right to renew the lease contract, was newly introduced in the revised Housing Lease Protection Act on July 31, 2020. A lessee may exercise the right to apply for a contract renewal only once, and the duration of the renewed lease shall be deemed to be two years. The rent limit is a system that prohibits the lessor from exceeding 5% of the existing jeonse and monthly rent(hereinafter ‘monthly rent’) upon the renewal of a lease contract. Currently, an amendment has been proposed to extend the the term of the lease to 6 years (3 + 3 years or 2 + 2 + 2 years) or to change the lease term indefinitely, and to set an upper limit on the rent increase based on the inflation rate or to introduce a standard rent system.

  The Commercial Building Lease Protection Act, revised in 2015, stipulates that if the lessor interferes with the tenant's opportunity of collecting premiums, the lessee shall compensate for the damage. Under the current law, there is, however, no provision to compensate for the premium when land is expropriated for public projects such as urban renewal. In the Land Compensation Act, there is only a provision for “compensation for operating losses” for tenants of commercial buildings that have demolished and suspended businesses due to public projects. According to the Act, the amount of compensation for operating loss at the time of land expropriation is uated, including the amount of reduction in operating profit due to the relocation of the business place (up to 4 months), facility relocation cost, pre-operating costs. In this regard, a revised bill has been proposed to add a type of obstruction of the opportunity to collect premium or to compensate for eviction or loss in consideration of premium.

  □ Previous studies and statistics

  Regarding the protection of the lessee of buildings for residence, a number of studies have been conducted on the problems and improvements of the contract renewal right and the monthly rent limit system since the implementation of the so-called Lease 2 Act. In addition, after the revision of the law, related case studies, perceptions and improvement opinions on the Lease 2 Act, and fact-finding studies based on lease dispute mediation data were also conducted. Regarding the protection of goodwill for tenants of commercial buildings, a number of studies were conducted on the problems and improvements of the premium system and protection of opportunity of collecting premiums under the 2015 Commercial Building Lease Protection Act, and the loss compensation regulations under the Land Compensation Act. In addition, after the revision of the Commercial Building Lease Protection Act, related cases were analyzed, comparative studies with foreign laws related to premium, and studies on ways to improve the dispute settlement system were conducted.

  The Ministry of Land, Infrastructure, and Transport has disclosed monthly rent transaction information through an open transaction system after the implementation of the housing lease reporting system, and basically, no separate statistical data is prepared. Regarding the premium, the Ministry of SMEs and Startups is conducting a survey on the lease of commercial buildings, and according to the 2018 Commercial Building Lease Survey (target: 7,000 tenants), 50.8% of the experience of paying the premium when moving into the commercial building, and the premium averaged 23.52 million won. According to the Korea Legal Aid Corporation, the statistics on dispute settlement related to housing lease were 2,192 cases in 2019 (458 cases settled), 1,536 cases in 2020 (272 cases settled), 1,635 cases in 2021 (204 cases settled). The statistics on dispute settlement related to the lease of commercial buildings showed 499 cases in 2019 (75 cases mediated), 482 cases in 2020 (69 cases mediated), 493 cases in 2021 (74 cases mediated).

Chapter 3 | Analysis of Survey Data on Housing Lease

  □ Overview of Survey

  In the housing lease survey, a survey of 1,513 tenants and 567 renters nationwide and an in-depth interview survey of 87 experts working at universities and government-funded research institutes (online) conducted a analysis on the impact of the recently introduced Lease Act on tenants' housing stability and opinions on improving the system.

  □ Results of Survey

  First, the response to the necessity of the contract renewal right system and the monthly rent cap system, the effect of the introduction of these systems on housing stability of housing tenants and the housing rental market is as follows. In the case of the tenant group, 93.9% and 91.2% of the respondents said that the right to request renewal of the contract and the limt on the monthly rent were necessary, respectively. 94.8% of the respondents thought that the right to renew contracts helped to enhance the housing stability of tenants, but only 34.4% said that the system restricts the landlord's property rights. 86.5% of the respondents said the monthly rent cap eased the tenant's rent burden, but only 33.4% said that the system restricts the landlord's property rights. In addition, 57.2% of the respondents said that the monthly rent limit affected the rise in the monthly rent, and 43.8% said it affected the decrease of houses for rent. Overall, 83.1% and 79.6% of the respondents thought that the right to request renewal of the contract and the limt on the monthly rent helped stabilize the rental housing market, respectively.

  In the case of the lessor group, 58.9% and 56.5% of the respondents said that the contract renewal right system and the monthly rent ceiling system were necessary, respectively. 75.3% of the respondents thought that the contract renewal right system helps the housing stability of tenants, but at the same time, 70.7% of the respondents said that the system restricts the landlord's property rights. 65.4% of the respondents said that the monthly rent limt would ease the burden on tenants, but at the same time, 73% said that the system restricts landlords' property rights. On the other hand, 62.7% of the impact of the contract renewal right system on the housing market was uated as having an effect on the overall increase in the monthly rent and 66.5% on the decrease of houses for rent. In addition, 66.4% of the respondents said the monthly rent cap affected the rise in the monthly rent, and 66.1% said it affected the decrease of houses for rent. Overall, 46.6% and 45.5% of the respondents thought that the right to request renewal of the contract and the limt on the monthly rent helped stabilize the rental housing market, respectively.

  Subsequently, the opinions of the lessor and the tenant group on the improvement suggestions were investigated as follows. First, looking at the response of the tenant group, 53.6% of the opinions maintaining the current regulations on the contract renewal right system were found, and 55.6% of the opinions were to allow the two-year renewal right to be exercised twice if it needs to be revised. As for the monthly rent cap, 71.3% of the respondents said they the current regulations would be maintained, 47.6% said that 3-4% would be appropriate if they had to be revised, and 28.4% said 1-2% would be appropriate. Notably, 66% of the respondents said that the rate of increase in monthly rent should be applied differently by region.

  Next, looking at the response of the lessor group, 29.6% of the respondents said that the current regulations would be maintained, 43.5% abolished, and 26.9% changed, and 67.4% of the respondents said that 2 years + 1 year system would be appropriate if it should be revised. As for the monthly rent limit, 36% of the respondents said they the current regulations would be maintained, 37.4% abolished, and 26.6% revised. 39.5% of the respondents said that more than 10% would be appropriate if the upper limit should be revised, and 21.8% said 6-7% would be appropriate. On the other hand, 78.6% of the respondents said that the rate of increase in monthly rent should be applied differently by region. Taken together, the interests between the tenant group and the lessor group tended to be contradictory in the surveys on the contract renewal right and the monthly rent limit. In the group of renters, there were high responses that these systems restrict the landlord's property rights, and accordingly, there were relatively many opinions on the abolition or amendment of the system. On the other hand, in the tenant group, the response rate that these systems enhance the housing stability of tenants was very high, and opinions on maintaining the current system were relatively high.

  However, in the case of the lessor group, more than half of the respondents said that these systems were necessary, and it is worth noting that the rate of uating them as helpful for the actual tenant's housing stability was higher. In the in-depth interview, experts also mentioned that despite the limitations of the landlord's property rights it generally had a positive effect on the protection of the lessee of buildings. In addition, it is noteworthy that both sides showed high opinions that the rate of increase in monthly rent should be applied differently by region.

  □ Lease-related Dispute Resolution

  Currently, there are no official statistics on disputes related to housing lease (number of cases, reasons for disputes, settlement methods, etc.). In this study, surveys and statistics related to the mediation of housing lease disputes by the Korea Legal Aid Corporation (number of disputes, reasons for disputes, settlement rate, etc.) were analyzed. In terms of the number of disputes, the ratio of disputes related to housing/deposit returns (1,609 in 2019, 905 in 2020, and 683 in 2021) was the highest, especially the ratio of disputes related to rent increases (4 in 2019, 41 in 2020, 54 in 2021) and contract renewal (49 in 2019, 154 in 2020, and 307 in 2021) have increased rapidly since the introduction of the so called Lease 2 Acts. In the in-depth interviews with experts, it was pointed out that the implementation of the right to renew contracts caused confusion, such as legal disputes or cases of expedient or abuse.

  Meanwhile, according to the results of this study, 45.4% of the tenant group said they were aware of the lease dispute mediation system and 63.1% of the lessor group. However, it was found that only 7.7% of the tenant group (143 people in total) and 15% of the leaseholder group (51 people in total) tried to resolve disputes between the parties to the lease contract by way of mediation. It is difficult to calculate the actual number of disputes based on the number of dispute settlements of the Korea Legal Aid Corporation, but it is estimated that the actual number of disputes between the parties to the lease contract will be much higher. In addition, as a result of the study, it was found that the ratio leading to the actual application for mediation was quite low compared to the recognition rate of the lease dispute mediation system by the parties to the lease contract. At the expert meeting, opinions were expressed several times that it is necessary to support legal policy efforts to strengthen the promotion of the mediation system and revitalize the mediation system to solve these problems. In addition, in-depth interviews with 87 experts suggested that participation in the mediation process should be mandatory, and that the effect of the mediation decision should be strengthened.

Chapter 4 | Analysis of Survey Data on Commercial Building Lease

  □ Overview of Survey

  In the survey on the commercial building lease, the perception of the commercial building premiums, the recognition of the protection of the opportunity to collect premiums, and opinions on improving the system for compensation of business loss in the redevelopment sites were empirically investigated and analyzed. The survey on premium was conducted through a survey (face-to-face method) of 1,515 tenants (company) across the country and an in-depth interview survey (online) of 87 experts working at universities and national research institutes. Regarding the improvement of the system for compensation of business loss, we asked for opinions through in-depth interviews with 5 tenants (company) in redevelopment area and in-depth interview surveys (online) of 87 experts.

  □ Results of Survey

  First of all, let's look at the results of the survey on premium. In a survey on the concept of premium (target: 1,515 tenants), the rate of recognizing premium in return for facilities (72.2%), operations (67.8%), and places (67.7%) was relatively high. The premium payment ratio at the previous commercial building was 45.7% and the recovery ratio was 37.7%, and 68.2% of the respondents said they could not find new tenants as the reason for non-recovery of the premium. In addition, the amount of premium at the previous commercial building was 40.2% for 20-50 million won and 34.2% for less than 20 million won, and the collected amount was 40.5% for 20-50 million won and 34.5% for less than 20 million won. However, only 29.7% of the respondents said they knew the provision for the protection of opportunities to collect premium under the Commercial Building Lease Protection Act. This is almost the same response rate as 29.6% of the respondents said they were familiar with the Act, and 70.4% of the respondents said they had heard of it but did not know it at all. In addition, many respondents said that regulations on the protection of collection opportunities were necessary, but more than half (52.2%) of the respondents said that they are not well protected.

  Meanwhile, in this study, the results of the survey (target: 1,515 tenants) related to the improvement plan of the premium system are noteworthy. First of all, 88.4% of the respondents said they should come up with a reasonable standard for calculating premium, and 73.1% said they should come up with a system for disclosing premium to the outside. Furthermore, more than half (58.6%) agreed to ban the receipt of premium. Taken together, tenants of commercial buildings had a low recognition rate of legal and institutional protection, and on the contrary, there were high opinions calling for improvement in the calculation standards and disclosure methods.

  Next, we examine the results of a survey related to the improvement of the system for compensation of business loss in public redevelopment project. First of all, it is difficult to find official statistics on the extent to which the tenants of the redevelopment project areas are compensated for operating losses due to redevelopment such as public utilities. According to the results of a survey of experts, 60.9% thought that the current standard for compensation for losses is appropriate. However, many improvement suggestions to protect tenants of demolished commercial buildings were made such as discussions with tenants in redevelopment process, compensation for losses equivalent to the premium (so-called eviction compensation system). In-depth interviews with tenants in redevelopment areas also suggested that the appraisal process for loss compensation should be transparent and concrete, and that operating losses due to loss of customers (regular customers) should be included in loss compensation, and that a system should be prepared to reflect the opinions of tenants in the redevelopment process.

  □ Lease-related Dispute Resolution

  Currently, there are no official statistics on disputes related to the lease of commercial buildings. In this study, investigations and statistics related to the mediation of lease dispute by the Korea Legal Aid Corporation (number of disputes, reasons for disputes, success rate of mediation, etc.) were analyzed. In terms of the number of disputes, the ratio of disputes related to the return of commercial buildings/deposit was the highest (193 in 2019, 189 in 2020, and 173 in 2021), and disputes over premium (72 in 2019, 52 in 2020, 44 in 2021) and contract renewal (38 in 2019, 37 in 2020, and 52 in 2021) were steadily occurring. However, according to the survey results of this study, 31.1% of the respondents said they were aware of the lease dispute settlement system, and 68.9% said they did not know. Only 15.6% of the respondents said they tried to resolve disputes between the parties to the lease contract through an application for mediation. In short, through this study, it was found that both the recognition rate of the parties to the lease contract on the dispute mediation and the rate of actual mediation applications were low.

Chapter 5 | Legal Issues Concerning the Protection of the Lessee in the Housing Lease

  □ Improvement Suggestions

  In recent previous studies related to the protection of the lessee in the housing lease, a number of studies have been conducted on the problems and improvements of the right to request contract renewal and the monthly rent limit system since the implementation of the so-called Lease 2 Act. The current improvement proposals presented in professional circles are as follows. First of all, as an improvement plan for the lease contract period, opinions are suggested to allow the exercise of the right to renew the lease for a term up to 6 years (3 + 3 years or 2 + 2 + 2 years). In addition, there is an opinion that the lease term should be indefinite in principle by referring to foreign legislative cases such as Germany, and that the contract can be terminated if there is a justifiable reason for the lessor. On the other hand, under the current Housing Lease Protection Act, if a lessor unfairly rejects a tenant's request for contract renewal (e.g., if he/she refuses to renew the contract due to his/her actual residence and does not actually live), a certain amount of damage should be compensated. Some authors argue that the standard for compensation should be raised to ensure the effectiveness of the regulation.

  Various opinions are also being expressed regarding the monthly rent limit. First of all, there are opinions to discuss the improvement of the system after examining the progress of the current system, opinions that the legal upper limit should be raised or lowered (e.g., more than 7% of less than 3%), and opinions that the burden of housing costs should be eased by actively enacting local government ordinances. In addition, it is suggested that the initial rent (rent when signing a contract) should be regulated by referring to foreign cases such as Germany and France.

  □ Review and Consideration

  Since the right to request contract renewal and the monthly rent cap have not been implemented for a long time, and the uation of the effectiveness is divided, it is difficult to set the legislative and policy direction on any of the currently proposed amendments. To this end, it is necessary to continue to empirically uate the impact of these systems on the housing lease market and analyze the cases of disputes related to housing lease. Until the amendment is finalized, necessary efforts should be made to stably operate the current system. In particular, compared to before the revision of the Housing Lease Protection Act in 2020, disputes frequently arise due to the landlord's refusal to renew the contract due to the landlord's actual residence, so it is necessary to develop legal theories and precedents for the cases. In addition, since the problem of limiting the property rights of landlords due to the monthly rent limit is also consistently raised, it is necessary to steadily implement support policies such as tax benefits for landlords who comply with the regulations.

  In addition, when reviewing various improvement proposals in the future, the following aspects should be noted. First of all, the tenant’s right to lease renewal and the monthly rent cap must be operated together. In Korea, it is difficult to change the lease term indefinitely at this stage. The monthly rent limit is applied when exercising the right to renew the contract, and whether this right is abolished or expanded in the future, the monthly rent limit has no choice but to share its fate. Next, when the law is revised, it is necessary to consider both the housing stability of the tenant and the protection of the landlord's property rights. This is because if only the right of housing tenants is unilaterally emphasized, the resulting social and policy burden, such as a rise in rent, may be passed on to tenants again. In short, in order for any improvement proposal to be stably introduced and settled, efforts should be supported to minimize the side effects that the implementation of these systems may trigger.

Chapter 6 | Legal Issues Concerning the Protection of the Lessee in the Commercial Building Lease

  □ Improvement Suggestions

  In recent previous studies on the protection of goodwill for tenants of commercial buildings, a number of studies were conducted on the problems and improvements of the regulations on the premium and protection of the opportunity to collect premium under the 2015 Commercial Building Lease Protection Act, and the regulations on the loss compensation under the Land Compensation Act. In addition, after the revision of the Commercial Building Lease Protection Act, related cases were analyzed, comparative studies with foreign laws related to premium, and studies on ways to improve the dispute settlement system were conducted. Currently, various discussions on the improvement of premium are being held in in professional circles. As in Japan's legislation, it can be divided into opinions that it is necessary to re-establish the concept of premium (e. g., excluding location premium), institutionalize the method of calculating and disclosing the amount of premium.

  Various discussions are also being held on improving the system regarding compensation for losses in expropriation. Some argue that the loss compensation under the Land Compensation Act should be increased. As stipulates that the loss compensation should be increased, and others insist that the eviction compensation should be introduced.

  □ Review and Consideration

  Similar to the French Commercial Act, Korea's Commercial Building Lease Protection Act guarantees the duration of the commercial lease for a certain period of 10 years to protect the commercial property rights of tenants of commercial buildings and protects the opportunity to recover the premium. Although premium contracts are a common phenomenon, it is also true that there is an unreasonable aspect in Korea's contract practice. First, in order for the premium to be reasonably calculated, it is necessary to ensure that operating profits are transparently disclosed to the other party. In addition, in order to improve the practice of paying premiums mainly at the request of former tenants, it is necessary to prepare a premium calculation method that can appropriately reflect the market value of operations by referring to foreign cases such as the UK and France.

  In addition, the Commercial Building Lease Protection Act protects the business property of commercial tenants by protecting the opportunity to recover the premium, but the Land Compensation Act or the Urban Improvement Act still does not stipulate the compensation for premium. In other words, when a public project or an urban redevelopment is in progress, compensation for property rights must be paid, but the premium of commercial tenants is not subject to compensation. This is not in harmony with the fact that the Commercial Building Lease Protection Act recognizes tenants' premium as property rights that must be protected. The redevelopment-related laws such as the Land Compensation Act and the Urban Improvement Act need to be revised to properly compensate for loss of business property of commercial tenants.

Chapter 7 | Conclusion

  □ Suggestions for Protection of the Lessee in the Housing Lease

  Since it is difficult to define the lease term indefinitely in Korea, the proposals to extend the shortest period of lease from 4 to 6 years are a more feasible way to guarantee the lease term. However, as mentioned above, for such legislative improvement, the interests between the parties to the lease contract must be fully considered through empirical investigation and analysis. There are also conflicting opinions to raise and lower the monthly rent limit than the current one. Under the current Housing Lease Protection Act, the limit of not exceeding 5% in rent is unified and clear, but it also has the disadvantage of not being able to respond quickly to changes in economic conditions. In particular, in order to flexibly respond to situations where external shocks are high, such as significant rise in prices or interest rate fluctuations during the lease term, it is necessary to consider a plan to flexibly set the rent increase. From this point of view, it is necessary to comprehensively review the amendments to the monthly rent limit currently proposed in the National Assembly, especially proposals on the elastic limit linked to objective indicators such as the consumer price index. In addition, as a result of the survey, there was a high demand for differential application of the monthly rent cap by region, so additional studies should be conducted on how to reasonably limit the increase in monthly rent through ordinance in areas where housing costs are seriously unstable in the housing rental market.

  On the other hand, it is necessary to examine in detail whether the initial rent regulation systems such as Germany and France can be introduced in Korea, and if so, what are the prerequisites. If the level (range) of rent or deposit to be applied to a new lease is to be uated as reasonable, it is necessary to ensure housing affordability for the tenant, but also to ensure that the lessor can receive his economic benefits even if he does not raise the rent. It would be desirable for the initial rent to be prepared through social discussions (e.g., a consultative body with the nature of a public-private joint committee) based on objective economic indicators such as consumer price index or benchmark interest rates, referring to Germany's standard rent system (increase in rent up to the reference rent customary in the locality).

  □ Suggestions for Protection of the Lessee in the Commercial Building Lease

  The Commercial Building Lease Protection Act guarantees the lease term for a period of 10 years, and when this period elapses, the tenant can no longer request renewal, but if the lessor refuses to renew, he can claim the protection of the right to collect the premium. The current Commercial Building Lease Protection Act allows the lessor not to sign a lease contract with a new tenant if the existing tenant has not used the commercial building for profit for more than one year and six months. However, it is necessary to consider deleting this clause because it may be abused by the lessor not to enter into a lease contract with a new tenant.

  In addition, according to the Commercial Building Lease Protection Act, if the lessor “significantly requests a large amount of rent” from the new tenant, the lessee's opportunity to collect the premium is obstructed. The question is how much rent is significantly excessive. If there is no objective standard for this, the tenant who has to prove the landlord's obstruction of the collection of the premium will be in a difficult position. A system is needed to investigate and disclose the level of rent in commercial buildings.

  In order for the premium to be formed normally and reasonably, a fair value uation for the business must be made, and the premium must be calculated based on this. The information for the formation of premium must also be transparently disclosed. There are many ways to uate the value of an operation, but a method of uating the value of an operation through the current operating profit (total profit multiplier method) or future operating profit (income reduction method) is widely used. In order to uate the value of the operation through this method, the contents of the store's operating profit must be transparently disclosed.

  Next, if the tenant of the demolished commercial building is unable to continue his/her business due to public projects, etc., compensation should be calculated in consideration of various factors. In particular, as in the case of Japan, it is necessary to add related standards in terms of compensation for business property, such as compensation for the loss of regular customers due to the relocation of stores. Although there may be differences depending on the degree, it may take a considerable period of time for tenants of the relocated building to make a certain profit, just as they actually started a new business.