The reconstruction union in Sang-gye-dong, Seoul, which canceled the selection of a construction company, and the real estate trust company responsible for the reconstruction of the complex were sued for 6 billion won, citing that "the additional contributions required from union members are substantial." The construction company that was selected claimed damages, stating that the union and the trust company unilaterally terminated the contract 10 months after the selection and did not return the bid deposit provided to the union.

The view of Sang-gye Jugong Apartment Complex 5 in Nowon-gu, Seoul / Photo = Reporter Jung Hae-yong

According to the legal and redevelopment industries on the 13th, GS Engineering and Construction has filed a 6 billion won damages lawsuit against the Sang-gye Jugong Apartment Complex 5 Reconstruction Project Maintenance Business Committee (hereinafter referred to as the union) and Korea Asset In Trust, which is responsible for the reconstruction of the complex, in December 2023. The case is currently being heard in the Seoul Central District Court, with the fourth hearing scheduled for the 15th.

Sang-gye Jugong Apartment Complex 5 is located at 721 Sang-gye-dong, Nowon-gu, Seoul (land area of 33,854.6 square meters) and was completed in 1987. The complex consists of 5 floors and 840 households. It is a low-rise apartment with a single structure of 37 square meters (approximately 11 pyeong) under a trust method with Korea Asset In Trust as the trustee. The plan for the reconstruction project is to build 996 households across five buildings, with three basement levels and a maximum of 35 floors above ground.

In January 2023, GS Engineering and Construction was selected as the construction company, but it was stripped of this status in November of the same year, ten months later. When selecting a construction company, the union typically presents the desired total construction cost and receives bids. However, Sang-gye Jugong Apartment Complex 5 was bid without such conditions, and GS Engineering and Construction presented a total construction cost of 334.2 billion won (about 6.5 million won per 3.3 square meters). As there was no competitive bidding, the union at that time selected GS Engineering and Construction as the contractor but requested Korea Asset In Trust, which was responsible for the execution, to negotiate additional conditions such as price (total construction cost) and to formalize the contract, granting negotiation authority to the trust company. However, additional negotiations between Korea Asset In Trust and GS Engineering and Construction were not conducted, leading to the union's decision to cancel the contractor selection.

The union and the trust company selected GS Engineering and Construction as the contractor, but they assert that a contract was not formalized. In contrast, GS Engineering and Construction contends that a contract should be considered binding.

The reason GS Engineering and Construction is contesting the unilateral termination of the contract is that the union and the trust company selected them as the contractor, but they claim that a contract was not formalized and thus refuse to return the bid deposit. The original bidding condition included a clause stating that "the 5 billion won bid deposit could be converted to the union's project costs upon selection as the contractor." Based on this clause, the union argues that since they were selected as the contractor, the 5 billion won converted to project costs does not need to be returned. Furthermore, they assert that since only the contractor selection was made, it does not constitute a contract cancellation.

On the other hand, GS Engineering and Construction claims that it constitutes an unilateral termination of the contract. A representative from GS Engineering and Construction explained, "Despite not having made any changes to the conditions of the contract, including construction costs, after the contract was signed, we were unilaterally terminated and have thus filed a lawsuit for damages totaling 6 billion won, including the bid deposit of 5 billion won that was provided to the union and project expenses."

A representative from Korea Asset In Trust stated, "If we lose the lawsuit and the compensation amount is determined, Korea Asset In Trust will contribute to the compensation to the union, and the trust company is not directly responsible for the obligation."

Graphic = Son Min-kyun

Meanwhile, the union contributions being litigated between Sang-gye Jugong Apartment Complex 5 and GS Engineering and Construction are closely related to the structure of the apartment complex rather than the construction costs themselves. Among the 996 households to be reconstructed, excluding 152 rental units and 840 union member households, there are only 4 units available for general sale. It is effectively a 1:1 reconstruction model. Additionally, the equity of the union members is low. As a result, based on a construction cost of 6.5 million won per 3.3 square meters, the calculated union contribution for a 59 square meter unit reaches between 300 million won to 400 million won, and for 84 square meters, it goes up to around 500 million won. Recently, construction costs per 3.3 square meters have risen to between 8 million and 9 million won, resulting in many reconstruction complexes concluding contracts under such conditions. However, complexes with larger land equity and a higher number of units available for general sale do not see contributions from union members reaching such levels.

A representative from the remodeling industry noted, "Sang-gye Jugong Apartment Complex 5 is in discussions with the Seoul city government to aim for increasing the floor area ratio" and added, "We are working to lower the union contributions by increasing the amount of units available for general sale and improving the viability of the project."