Investigation Reveals Rental Scam Involving 10 Billion Won Deposit

"I thought it would be fine since it was an association related to the government; I never doubted it."

This was the sentiment expressed by victim A, who signed a lease for an officetel in Samseong-dong, Gangnam, Seoul, based on that trust. The building is owned by the Korea Construction Technology Association, a legal entity under the Ministry of Land, Infrastructure and Transport. Association staff held seminars in the building's basement, and the property manager personally addressed any issues that arose. A lived there for five years, extending the lease without any problems.

However, in September 2023, a sudden notice arrived. The rental company had defaulted on rent payments to the building owner for several months, leading to the termination of the lease and a demand to vacate. The notice warned that legal action would follow if they did not leave within a week. With the Chuseok holiday approaching, tenants, mostly in their 20s and 30s, were thrown into panic. Days later, court bailiffs forcibly entered the premises and began searching through their belongings. The nightmare had begun.

The tenants had received confirmation dates and completed their residency registrations. A licensed real estate agent had assured them that the property was safe. Yet, their security deposits were never returned. A total of 28 households were affected, with losses amounting to 10 billion won. The culprit was a company with a mere 10 million won in capital.

The company, Sovereign State, primarily engaged in leasing and management, had leased the entire annex from the association and then subleased it to individual tenants. The tenants had signed contracts with Sovereign, not the association, and their deposits were paid into Sovereign's corporate account.

Under this arrangement, even if Sovereign fell behind on rent to the association and the lease was terminated, tenants had no legal grounds to demand their deposits back from the original owner, the association. Furthermore, the contract between the association and Sovereign included a confidentiality clause that prohibited disclosing contract details to third parties. Tenants were effectively barred from understanding the risks involved.
 
Public records also supported Sovereign's position. The association had registered a leasehold with Sovereign, and the property registry publicly listed Sovereign as the official leaseholder. The special provisions in the lease agreement further added to the trust. Article 3 of the contract stated, "This contract is with Sovereign State, the leaseholder approved by the owner, the Korea Construction Technology Association." This gave the impression that the contract was directly guaranteed by the association.

Conversely, Article 4 stated, "In the event of any discussions or negotiations between the landlord and tenant, the Korea Construction Technology Association shall not be held responsible." This structure created trust under the association's name while simultaneously absolving the association of legal responsibility in case of disputes.

Some victims chose the association's property due to past experiences of losing security deposits. Notably, among the 25 households participating in the civil lawsuit, three were foreign nationals. For them, the subleasing structure resembled familiar rental management practices from abroad, making it difficult to harbor suspicions, and they were relatively vulnerable due to their unfamiliarity with the legal structure of lease agreements.

The association signed a lease agreement with Sovereign in 2014 and received monthly rents starting at 80 million won, increasing to a maximum of 95 million won from 2016 to 2023. During this time, the total security deposit, which was actually 10 billion won, was significantly understated in the sublease contract submitted by Sovereign to the association.

The contract between the association and Sovereign included a clause stating that the total security deposits received from tenants could not exceed 80% of the deposit Sovereign paid to the association. With a deposit of 2 billion won, Sovereign could only collect a maximum of 1.6 billion won in security deposits. However, there was a stipulation that if this limit was exceeded, Sovereign would have to provide tenants with a security insurance policy. Later, the agreement was modified to state that the excess deposit would be paid to the association as an additional deposit. Nevertheless, Sovereign collected nearly 10 billion won in security deposits without paying any additional deposits to the association. The association also failed to verify the compliance with the agreement or the actual amount of the security deposits during the seven years it received rent.
 
In September 2023, after five months of unpaid rent, the association sent a notice of lease termination to Sovereign and the tenants. The notice claimed that "Sovereign presented a false contract to obtain consent, making that consent invalid, and the contracts with the tenants were unauthorized subleases without consent." In October of the same year, the association criminally charged Sovereign's representative, Choi, with document forgery, fraudulent document use, obstruction of business, and rental fraud.

However, the victims had a different perspective. They argued that the association maintained the contract while using the "confidentiality clause" to prevent disclosure of the lease agreement details to third parties, during which time Sovereign gathered tenants under the pretext of the association's consent. The victims filed a civil lawsuit against the association, claiming it bore responsibility for allowing this structure to persist, but the first-instance court did not recognize the association's liability for damages. The court ruled that while the association had the right to verify the actual amount of the sublease deposits and compliance with the agreement, it was not obligated to do so.

Under the credibility of a building owned by a government-affiliated organization, tenants gathered, and a rental company with only 10 million won in capital managed to collect 10 billion won in deposits over seven years. The court recognized Sovereign's liability for damages in the first instance, but due to its lack of repayment ability, the prospects for recovering the deposits remain bleak. While the victims' lives have been turned upside down, the deceptive subleasing structure that allowed for the accumulation of 10 billion won under the guise of a government-affiliated building remains in a legal gray area.