[Exclusive] Contracts halted one after another after change in guarantor, sowing confusion over LH jeonse rentals

[Financial News] Some contracts under the Korea Land and Housing Corporation (LH) jeonse rental program are being halted because of differing interpretations of the criteria for “new support.” Even contracts without a deposit increase—previously allowed for homes owned by individual landlords with more than 10 registered guarantees—are now being blocked. Tenants who have already passed the property-rights review are also unable to sign contracts, disrupting their moving schedules.
According to industry sources on the 13th, enrollment in LH’s jeonse rental program has been suspended across the board this month for homes owned by individual landlords with more than 10 registered guarantees. Even contracts for which a property-rights review had been requested or a favorable decision had been received by September were found to have been blocked at the final guarantee enrollment stage.
Under the LH jeonse rental program, when an eligible tenant finds a private home they want to live in, LH signs a jeonse lease with the landlord and then subleases the home to the tenant. The program has served as a housing ladder for vulnerable groups, including low-income households, young people and newlyweds, by providing jeonse deposits of up to 130 million won in the Seoul metropolitan area.
LH began restricting new participation by individual landlords who own multiple homes in January this year. The aim is to prevent jeonse fraud and guarantee claims and to manage the risk that landlords may fail to return deposits.
The problem is that interpretations of what constitutes a “new contract” changed when the guarantor changed. SGI Seoul Guarantee, which handled guarantees through September, treated cases in existing LH jeonse homes where only the tenant changed and the deposit did not increase as a continuation of a “renewal contract.” Accordingly, even landlords with multiple homes and more than 10 registered guarantees could sign a contract with a new LH tenant as long as the deposit was not increased. In fact, landlord A in Seoul’s Yeongdeungpo District had entered into multiple contracts in this way from January this year until the guarantor changed.
But the situation changed in October, when the guarantor switched to the Korea Housing & Urban Guarantee Corporation (HUG). HUG deemed every case in which the tenant changed to be a new contract, regardless of whether the deposit increased. As a result, landlords with more than 10 registered guarantees were excluded from eligibility without exception.
In effect, the exception for contracts without a deposit increase that had been applied in practice stopped working because the guarantor changed how it classified contracts.
Discontent is growing, particularly because enrollment has been halted after the new rules were applied retroactively even to contracts that had received favorable property-rights review decisions before the guarantor changed. In one case, the existing tenant in a home managed by A was selected in August for a rental home from Seoul Housing & Urban Development Corporation (SH Corporation) and began preparing to move; a new LH tenant was also found to take over in time for the move-out. The incoming tenant received a favorable property-rights review decision in September and had only to sign the contract, but the process was halted after the guarantor changed. To move into the SH Corporation home, the existing tenant must first settle the current LH jeonse rental contract and subsidy. But if the landlord cannot repay the existing jeonse subsidy to LH because the incoming tenant’s contract is blocked, the end of the subsidy may also be delayed, disrupting the move-in and change-of-residence registration schedule for the new home.
People in the sector say they understand the need to prevent jeonse fraud and manage guarantee risks, but argue that transitional measures should have been provided for contracts already in progress. They say, at a minimum, the previous criteria should have applied to contracts for which a property-rights review was requested or a favorable decision was received before the guarantor changed.
A HUG official said, “We took into account that issuing new guarantees to landlords at high risk of guarantee claims could lead to harm to tenants.” The official added, “To prevent this, we apply the 10-guarantee limit for landlords even when the tenant changes, just as we do for new contracts.”
There are also calls for LH, the entity responsible for operating the program, to have established uniform criteria before the guarantor changed, since guarantors interpreted the scope of a “new contract” differently. Critics say that replacing the guarantor without setting rules for handling contracts already in progress or transitional measures shifted the burden of the resulting confusion onto landlords and tenants.
An LH official said, “We plan to discuss with HUG, the current guarantor, how to prevent landlords who pose a risk of failing to return deposits, such as malicious landlords and habitual debtors, from participating in contracts, while protecting bona fide landlords with multiple properties and corporate landlords.”
[email protected] Choi Ga-young Reporter