Regulating a Housing Lease Contract in Korea from the Perspectives of Distributive Justice and Economic Efficiency

At present, it is no longer convincing to insist upon the continuing validity of the principle the rules governing private transactions should not be manipulated to help achieve a fair distribution of wealth among the members of society, when we can observe so many examples of legal regulation apparently introduced for precisely that purpose, such as minimum wage laws, and fair rent controls. Social theorists, including Marx, Durkheim, and Weber, regarded the law as essential to the construction of social and economic bonds. Among other things, the Act on Protection of Housing Lease is the very means to construct social and economic bonds. Meanwhile, the increase of economic efficiency seems to be one of purposes of legal regulation of contracts. For, with resources limited, it is our common concern how we could increase the production and satisfy more people. However, today, the economic efficiency model based on a rational, one's-present-utility-maximizing one meets the challenge from much empirical evidence. For this reason, the economic efficiency will be treated as a secondary purpose in this Article. In Korea, like other countries with market economy system, the initial fair distribution of wealth has been distorted by numerous voluntary private transactions between different individuals. In particular, in connection with housing market, it should not be overlooked that in korea, over two-fifth of the population still live in the housing concerned as a lessee. Accordingly, the resulting array of individual holdings must be modified by a corrective redistribution. The main ways to achieve distributive justice are the direct legal regulation of individual transactions and taxation. By the way, the Civil Code and the Act on Protection of Housing Lease are more or less imperfect in several ways as a redistributive contractual regulation. The Act on Protection of Housing Lease Article 3 provides that a housing tenant cannot claim an exclusive right to use and profit from the house concerned to the person to whom the house was transferred, until the day after registering for residence with a moving-in report, so that many housing tenants fail to secure the usufruct from transferees who became owners of the housing concerned on the day of registering for residence with a moving-in report. The Civil Code Article 630(1) provides that the sublessee bears the duties to the lessor as well as the sublessor that have arisen from the sublease contract, while the lessor bears no duties arisen from the sublease contract to the sublessee. Among other things, it tells that the sublessee should pay rent to the lessor as well, even though he already paid rent to the sublessor. As a result, the sublessee, if he is a risk-averse person, may pay prohibitive costs to avoid the risk of paying rent double like this. Also, the Civil Code Article 629(1) provides that an legitimate assignment of lease contract or sublease needs a consent from the lessor of real property as a vital factor. Based on this legal rule, many lessors reject their own consents to the assignment of lease contract or sublease concerned, in the case sublessors do not raise the rents. According to the Act on Protection of Housing Lease §3-3, in the case that the housing tenant who had not gotten back the deposit from the landlord even after the termination of the contract registered the usufruct of the building concerned and then moved out of the building with no occupation, any subsequent lessee with a specified small deposit who contracts with the landlord to lease the building can not claim the right to get back some amount of the small deposit, taking precedence over a person who has any real right granted by way of security. The Act §7 and its Enforcement Ordinance §2 limit the increase of the rent or deposit concerned during the lease contract duration below the one-twentieth of each. But, in reality, many housing lessors are in de facto excess of the proportion by turning the deposit concerned into rent or to the contrary. Also, in contrast to under the Act on Protection of Commercial Building Lease, under the Act on Protection of Housing Lease, a new lessee is not able to claim to the State authority concerned the information about a pre-existing fixed date granted from the lessor and the amount of a pre-existing deposit. It is not desirable to pursue the increase in economic efficiency only for now. Considering distributive justice, even if it decreases for the time being, economic efficiency will increase in the long term. Subprime mortgage crisis in the US tells well this statement is true.