South Korea introduces 'Rent and Lease Security Trust' for tenant deposit safety

A new form of lease agreement is being introduced in South Korea, where tenants will deposit their jeonse, or lump-sum security deposit, with a public institution rather than directly with the landlord. This 'Rent and Lease Security Trust' aims to enhance security for both parties involved in rental contracts.

Under this system, the Housing & Urban Guarantee Corporation (HUG) will enter into a three-party contract with landlords and tenants. Tenants will deposit their jeonse with HUG, which will then manage these funds. HUG will provide monthly income to landlords, equivalent to rental payments, derived from the investment of these deposits. Upon the conclusion of the lease agreement, HUG will directly return the full jeonse deposit to the tenant.

This arrangement significantly mitigates the risk for tenants, who are often vulnerable to losing their deposits if the landlord faces financial difficulties. Unlike traditional contracts, landlords will not hold the jeonse directly. Furthermore, tenants will no longer need to purchase separate guarantees for deposit return or loan security, thereby reducing associated fees. The initiative also seeks to lower housing expenses for tenants by facilitating the conversion of monthly rent payments into jeonse arrangements.

For landlords, the trust offers a stable income stream without the risks of rent arrears or vacancies. HUG plans to generate an annual interest income of around 4% by investing the deposited jeonse funds into projects like HUG-guaranteed project financing loans. This income will be distributed monthly to landlords. Even if investment losses occur, tenants' deposits will be fully protected, and landlords will continue to receive their agreed-upon monthly returns. Additionally, landlords relocating from regulated areas like Seoul to other regions may be eligible for housing annuities, supplementing their income from the trust.

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Going forward, through the rent and lease stabilization agency, tenants will be able to sign lease agreements with peace of mind, free from the risk of deposit return, and landlords will be able to do so without the burden of rent arrears.