Lease contract bills backfire

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Lease contract bills backfire

 The Moon Jae-in administration and ruling Democratic Party (DP) are rushing to rubber-stamp three bills designed to better reflect tenants’ rights through guaranteeing lease renewals, putting a cap on rent prices and enforcing mandatory disclosure of rent rates. But the three bills are paining tenants as they have further fanned a spike in rent and worsened supply shortages. Many families and newly-weds find themselves in trouble as rent prices have jumped by millions of won in a matter of months.

The bills mandate an automatic renewal in two-year rent (jeonse) contracts and cap rent hikes at 5 percent when extending the contract. But the retroactive application and the potential of infringing on property ownership can be challenging to the Constitution. The government bill proposes to bestow upon existing tenants the right to claim a renewal in two-year rent contracts in order to prevent a sudden surge in rent prices. But retroactive applications can be revoked if under review by the Constitutional Court. The Rent Act for Commercial Buildings in 2018 also raised legal issues over its retroactive application, but avoided controversy as it has not been submitted to the Constitutional Court.

If it becomes a retroactive legislation, landlords and tenants could clash over rent that was raised before the law. The government proposal enables tenants to claim back their deposit increase beyond the 5 percent cap. But conflict could arise if landlords have already used that money. The provision allowing tenants to file damage suits against their landlords for denying a renewal on “false grounds” also won’t be easy to implement, as defining “false” can be tricky. The government would be overly interfering with the private sector.

There have been many warnings about the side effects. Rent prices have already increased due to tougher rules for landlords to live in their own homes for sale — and because of a surge in their property tax. We wonder why the government is pushing ahead with those bills that would only help raise rent prices and hurt the market. Rent prices hit sky-high in 1989-1990 when a jeonse contract period was extended to two years from one year.

The ruling party with a super majority in the legislature has been railroading controversial bills. Many are seriously flawed since they neglected market principles. Reckless market intervention can pain tenants more. Policymakers must change course and first stabilize the housing market.
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