Series Index

Part 1 | Attorney Hong Seung-kwon: “AI Arrives in the Legal Profession”

Part 2 | How Should Lawyers Use AI?

Part 3 | Dividing Roles Between AI and Lawyers

Part 4 | AI Legal Advice Isn’t Enough—Here’s Why Lawyers Still Matter

Part 5 | Attorney Hong Seung-kwon: Korea’s AI Law—KRW 30 Million Fine Threshold

Part 6 | Criminal E-Litigation Begins, but Full Digitalization of Investigation Records Remains the Key

Part 7 | You Can’t Remove a Co-CEO Just Because You Want To

Part 8 | Why ₩10M Deposit May Not Qualify as Small Tenant

Part 9 | Hong Seung-kwon | Why Korea’s Property Registry Still Lacks Public Credibility

Part 10 | Hong Seung-kwon | Can a Seller Cancel After a Provisional Deposit?

Part 11 | Hong Seung-kwon | How Far Does Protection for Small Tenants Extend in Korea?

By Hong Seung-kwon
Principal Attorney, PAN Law Firm (skh@law-pan.com)

South Korea’s jeonse fraud crisis has pushed tenant protection rules back into focus. Among the safeguards drawing renewed attention is the priority repayment right for small tenants, which allows some renters to recover part of their deposit ahead of other creditors when a property goes to auction. Yet the protection is narrower than it first appears, and in practice can prove ineffective where senior mortgages or leasehold registrations are already in place.

Under the Housing Lease Protection Act and the Commercial Building Lease Protection Act, tenants whose deposits fall below certain thresholds are classified as “small tenants.” Even if the leased property is sold through auction, such tenants may receive a specified portion of the sale proceeds ahead of other secured creditors. This right is known as the priority repayment right.

Small Tenant Status Depends on More Than the Deposit

The detailed standards are set by enforcement decrees under each law and vary by region. In Seoul, a residential tenant qualifies as a small tenant if the deposit does not exceed KRW 165 million, and may receive priority repayment of up to KRW 55 million. In commercial leases, a tenant may receive priority repayment of up to KRW 22 million if the converted deposit does not exceed KRW 65 million.

For commercial leases, the key point is that eligibility is determined not by the nominal deposit but by the converted deposit. This is calculated by adding the security deposit to 100 times the monthly rent. A tenant who leases a shop with a KRW 50 million deposit and KRW 500,000 in monthly rent, for example, would have a converted deposit of KRW 100 million and would therefore not qualify as a small tenant.

Even where a tenant does not fall within the small-tenant category, a tenant who has satisfied the legal requirements for opposability may still be repaid ahead of junior creditors in the distribution process. But where a senior mortgage already exists, that creditor is paid first, leaving the tenant to recover only from what remains.

Consider a simple example. Suppose a tenant leases an apartment in Seoul worth KRW 500 million with a deposit of KRW 200 million. The tenant has completed resident registration and obtained a fixed date. However, a mortgage with a maximum secured claim of KRW 300 million had already been registered. If the apartment is sold at auction for KRW 400 million, the mortgage holder recovers KRW 300 million first, leaving only KRW 100 million for the tenant. In that case, the tenant faces a loss of KRW 100 million out of the original deposit, even if a separate claim against the landlord remains possible in theory.

Tenants Entering After Leasehold Registration Lose Priority Protection

Another issue also warrants attention. The use of leasehold registration orders has increased sharply in recent years. This system allows a tenant to preserve opposability and priority rights even after the lease has ended and the tenant has vacated the property. The difficulty arises when a new tenant later enters a property where such a registration has already been recorded.

A leasehold registration order is often a warning sign that a landlord’s finances have deteriorated to the point where the deposit could not be returned. Even so, some landlords continue to attract new tenants by offering lower deposits, and those tenants may assume that a smaller deposit automatically places them under the protection available to small tenants.

That assumption is mistaken. Under Article 3-3(6) of the Housing Lease Protection Act and Article 6(6) of the Commercial Building Lease Protection Act, a tenant who enters a property after a leasehold registration has been completed cannot exercise the priority repayment right, even if that tenant otherwise qualifies as a small tenant. In other words, once the registration is already in place, a later tenant cannot rely on small-tenant priority protection. If the property is then sold at auction, that tenant may recover none of the deposit.

The small-tenant protection system is clearly a meaningful safeguard, but it is not absolute. Before signing a lease, tenants should examine the property registry carefully to determine whether senior mortgages or leasehold registrations already exist. Where a leasehold registration has already been recorded, extra caution is essential, as the protection many tenants assume they have may no longer apply.

About the Author
Hong Seung-kwon is the managing attorney of Pan Law Office in South Korea. He handles civil and criminal litigation as well as emerging legal issues in the digital era. He also writes regularly on legal developments affecting technology, property rights and regulatory policy.

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