Korean Jeonse Lease Fraud: 7-Year Sentence Upheld by Korean Supreme Court

The Korean Supreme Court upheld a 7-year prison sentence for the “Construction King” for a Jeonse Lease Fraud. The Jeonse Deposit System is a Korean rental system in which a tenant places a deposit that is sometimes 50% or more of the value of the property down on the property for the benefit of utilization of the property for a set lease term.

For example, a tenant may pay a deposit of US$ 500,000 for a property with a US$ 1,000,000 value. No rental payments are owed. The landlord is obligated under contract and law to return the deposit at the end of the lease. Issues occur when the property is upside (landlord owes more in mortgage and other loans than the value of the property) or when a fraud occurs. Most devolved countries prohibit these large deposits for non-commercial leases.

In some cases, real estate agents intentionally deceive tenants, IPG Legal advises for an independent due diligence by a Korean lawyer or reputable real estate agent before engaging in a Jeonse or any rental agreement where you place a large deposit on a rental unit. In many cases, a lien can be entered into the property record.

For an article on Korean Real Estate Agent liability please see: Liability of Korean Real Estate Agents for Acts & Omissions

Korean Jeonse Lease Deposit Fraud

Korean Jeonse Lease Deposit Fraud Facts

1. Defendant purchased land in the Incheon area utilizing the names of various parties connected with the Defendant.
2. Defendant raised funds through a construction company he owned and operated to build rental apartments on the purchased land.
3. When the apartments were built, Defendant registered ownership of the apartments in the names of trustees.
4. Defendant signed lease agreements and accepted Jeonse rental deposits for the apartments. The rental deposits were used to pay for business expenses including loan interest and salaries. Defendant owned or controlled over 2,700 rental units.
5. Defendant was unable and/or refused to pay back deposits to tenants.
6. Defendant was accused of embezzelment of more than KRW 14 billion in rental deposits from over 190 tenants. The Korean Prosecution contended that the Defendant had no intent to return the rental deposit at the time of execution of the Jeonse Lease Agreement.
7. The first trial court found the Defendant guilty and sentenced the defendant to 15 years in prison.
8. In the appeal, the Defendant’s sentence was reduced to seven years and the Korean Supreme Court upheld the decision of the appeals court.

Sean Hayes is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only a few non-Korean lawyers as a Top Attorney by AsiaLaw, and IPG Legal is consistently ranked Top Dispute Resolution Law Firm for our litigation services.

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