An officetel can be used for commercial or residential purposes. If it is used for commercial purposes, the value-added tax paid when purchasing the officetel can be refunded. In this case, it is not included in the number of houses owned, so if you own another house, you can be exempted from property tax and comprehensive real estate tax as a non-multiple homeowner. If used for residential purposes, there is no value-added tax refund, and it is natural to be subject to property tax and comprehensive real estate tax as a multiple homeowner, and transfer income tax may be imposed when transferring.
The standard for determining whether an officetel is used for residential purposes is largely influenced by the "reporting of resident registration addresses". If a condition is included in the lease agreement that includes a special agreement that address registration and move-in declaration cannot be made, then the officetel is considered registered for commercial use. Another criterion is whether there are residential facilities. Residential facilities include cooking facilities such as a sink, bedrooms, bathrooms, and boiler facilities, and if there are such residential facilities, it can be judged as residential.
Even if it is an officetel for commercial use, if the tenant registers their address, the tax office can consider that the officetel is being used for residential purposes and can reclaim the value-added tax that was refunded. Local governments can impose enforcement fines until residential facilities are removed. If an officetel for commercial use is illegally converted into a residential one for rental business, there may be a special clause in the real estate contract that prohibits address registration and move-in declaration. If damage occurs due to move-in declaration, the tenant may have to bear the compensation.
Such real estate contracts are highly unlikely to have legal effect. This is because such agreements are extremely disadvantageous to the tenant. Therefore, even if such a special clause exists, tenants can report their move-in and registration, and the legal responsibility for any financial losses incurred falls on the landlord, not on the tenant.
If you do not report your move-in and address registration to the place where you actually reside, the tenant may actually violate the Resident Registration Act. It is better to avoid real estate contracts that may be problematic. In addition, a more serious problem may arise if there is a problem with the officetel, where the tenant may not be able to receive the deposit properly. In order for the tenant to obtain protection under the Housing Lease Protection Act, it is essential to actually reside, register the address and move-in, and receive a confirmation date. If these standards are not met, you may not be able to receive the deposit back, so it is better not to enter into a real estate contract that refuses address registration.
If the contract has already started and the down payment has been paid, you may also incur financial losses when terminating the contract. If you have to proceed with the contract unavoidably, you can set up "jeonse rights" or "rental rights". Both methods are means to receive priority rights by registration. If the landlord tries to proceed with the contract by offering a special agreement that address registration is not possible, the tenant can claim jeonse rights or rental rights and proceed without canceling the contract.
Jeonse rights (전세권): It means the right to receive priority payment of the jeonse deposit over subordinate rights holders and other creditors for the entire real estate by paying the jeonse deposit and using it for its intended purpose while actually residing (Civil Law, Article 303, Paragraph 1).
Rental rights (임차권): It means the right that arises when the landlord contracts with the tenant to use the real estate and agrees to pay the deposit and expenses associated with it (Civil Law, Article 618).
If the landlord refuses to register the lease or ownership rights, then it would be better to cancel the contract. However, if the contract must proceed, the "Priority Payment Right (최우선변제권)" can be used. This only applies to small-scale tenants. According to the Housing Lease Protection Act, the Priority Payment Right is a system that allows tenants to receive a certain amount of their security deposit before other creditors in the event of an auction or public sale of the applicable office building. To receive payment under this system, the following conditions must be met:
- The security deposit must be small-scale.
- The tenant must actually reside there.
- The tenant must register their address and submit a move-in notice before the registration of the auction (including the registry of the auction commencement decision) in the real estate register confirmation certificate (register book, 부동산 등기부등본, 등기사항증명서).
- The tenant must demand payment of the dividend by the dividend claim deadline, which is the deadline for accepting dividend applications.
Let's take a look at condition 1. In Seoul, if the security deposit is 165 million won or less, the Priority Payment Right will protect up to 55 million won of the deposit. In Sejong City, Yongin City, Hwaseong City, and Gimpo City, if the security deposit is 145 million won or less, the Priority Payment Right will protect up to 48 million won of the deposit. In Ansan City, Gwangju City, Paju City, Icheon City, and Pyeongtaek City, if the security deposit is 85 million won or less, the Priority Payment Right will protect up to 28 million won of the deposit. In other areas, if the security deposit is 75 million won or less, the Priority Payment Right will protect up to 25 million won of the deposit.
Conditions 3 and 4 can be difficult to meet in situations where the auction is proceeding without the tenant's knowledge. Therefore, the best option for contracts with such problems is to avoid them altogether. However, if the auction is suspected to be proceeding, it is recommended to quickly register the address and monitor the progress of the auction.
Another safety measure that tenants can take to receive their deposit back properly after the end of the contract is to have a security deposit insurance. However, the insurance is only available for residential officetels, and not for commercial officetel contracts that do not meet the insurance criteria. Note that security deposit insurance is available from organizations such as the Korea Housing and Urban Guarantee Corporation (HUG), Seoul Guarantee Insurance (SGI), and Korea Housing Corporation (HF).
If you are about to sign an officetel contract, it is important to check the real estate registration confirmation (registration copy, 부동산 등기부등본) to see if it is registered as a residential property before paying the deposit.
If, in the event that you have already paid the deposit or are currently in the process of signing a real estate contract, and the landlord does not retract the condition of unregistered address or moving-in report, the tenant must receive the paid deposit or contract fee in order to cancel the contract. You can find more information on this matter here.
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