[Edaily Reporter Sung Gha-hyun ] The Supreme Court has ruled that if a landlord rejects a tenant’s request to renew a lease on the grounds that the tenant intends to live in the property, but subsequently rents the property to a third party, the court must strictly examine whether there were justifiable grounds for doing so. The Supreme Court stated that there must have been circumstances unforeseeable at the time of the refusal to renew, and that the landlord must also prove that renting to a third party was unavoidable.

The Second Division of the Supreme Court (Presiding Justice Kwon Young-jun) last month upheld a lower court’s ruling in favor of the plaintiff in a damages lawsuit filed by tenant Mr. Kim against landlord Mr. Im.

Mr. Kim had entered into a two-year lease agreement with a security deposit of 660 million won and lived in an apartment in Seodaemun-gu, Seoul. Four months before the contract expired, he expressed his intention to renew, but Mr. Im refused, citing his own intention to live in the apartment. Mr. Kim vacated the premises upon the contract’s expiration.

After Mr. Kim moved out, Mr. Im actually lived in the apartment for one year and two months before subletting it to a third party for a security deposit of 820 million won.

According to the Housing Lease Protection Act, a landlord may refuse to renew a lease if the landlord or a lineal ascendant intends to actually reside in the property. However, if the landlord rents the property to a third party without just cause before the expiration of the period during which the lease would have been renewed had the renewal request not been refused, the landlord must compensate the tenant for damages incurred as a result of the refusal to renew.

Mr. Kim filed a lawsuit arguing that, although Ms. Im had refused to renew the lease on the grounds of personal occupancy, she had leased the apartment to a third party without just cause before the two-year term expired, and therefore must compensate him for the damages resulting from the refusal to renew.

Mr. Im argued that he had lived in the apartment for nearly two years and was forced to rent it out because six tenants of his other properties had demanded the return of security deposits totaling 690,280,000 won.

The trial court ruled in Mr. Im’s favor. The trial court held that the return of the lease security deposits constituted circumstances that could not have been foreseen at the time the renewal was refused. The court explained, “If Mr. Lim had been prohibited from entering into a lease agreement with a third party, he would have had no choice but to sell the apartment in question—which would have required him to pay approximately 300 million won in capital gains tax,” adding, “This would constitute a significant restriction on Mr. Lim’s exercise of his property rights.”

The appellate court overturned the first-instance ruling, ordering Mr. Im to pay 30.79 million won in compensation. It reasoned that the obligation to return the security deposit for the other property had already been established at the time of the refusal to renew the lease, and that it was entirely foreseeable that the deposit would need to be returned around the time the contract expired. The court also viewed the leasing of the apartment to a third party as merely one of several methods available to secure the security deposit.

The Supreme Court also ruled that the appellate court’s decision was justified. The Supreme Court pointed out, “For a justifiable reason to be recognized under the Residential Lease Protection Act, the landlord must have been compelled to lease the subject property to a third party due to circumstances that could not have been foreseen at the time of the refusal to renew, and leasing the subject property to a third party must have been unavoidable.” It further upheld the lower court’s ruling, stating that the circumstances cited by Mr. Im were foreseeable at the time of the refusal to renew the lease and that it was difficult to conclude that leasing the apartment to a third party was unavoidable.