An elderly couple in their 80s who are members of the Hannam New Town redevelopment association in Yongsan District, Seoul, sold their jointly owned dwellings and are now facing penalty fees. That is because the Ministry of Land, Infrastructure and Transport changed its interpretation of the law on transferring association membership rights within speculative overheating districts and decided to apply it retroactively to contracts already signed.
Before signing a sales contract for the dwellings in Sep., the couple asked the government and the district office in charge whether, since the dwellings are in a speculative overheating district, the association membership rights could be fully transferred upon sale. That was because the wife, A, the representative association member of the dwellings, donated half of her equity to her husband in 2018 due to health issues, leaving B short of the 10-year holding requirement. In principle, transfers of association membership rights within speculative overheating districts are prohibited, but exceptions are recognized if the 10-year holding and 5-year residency requirements are met.
The couple received a response from the government and the district office that "if the representative association member meets the requirements, the membership rights can be succeeded to the person who acquires the entire shared equity," and they signed a sales contract for the dwellings at the end of Sep. However, after the Ministry of Land, Infrastructure and Transport (MOLIT) changed its interpretation of the law last month and decided to apply it to existing contracts, the deal fell through and they now must pay penalty fees. The seller said, "We proceeded with the contract after confirming with the government and the local government," adding, "It is too harsh to make individuals fully bear the damage caused by policy changes."
Confusion in the market is growing after the Ministry of Land, Infrastructure and Transport changed its interpretation of the law on transferring membership rights of redevelopment associations within speculative overheating districts and decided to apply it retroactively. The Ministry of Land, Infrastructure and Transport (MOLIT) changed its interpretation of the Urban and Residential Environment Improvement Act to allow the transfer of association membership rights when selling jointly owned dwellings undergoing redevelopment only if all co-owners meet the "10-year holding and 5-year residency" requirements. Previously, only the representative association member needed to meet these requirements.
The problem is that MOLIT is applying the changed legal interpretation to contracts signed before it sent an official notice to local governments, creating situations where properties are subject to cash liquidation or penalty fees must be paid due to contract cancellations. In particular, it is reported that some transactions cannot be remedied even though they proceeded after receiving answers from the government or local governments that "only the representative association member needs to meet the requirements."
According to the government, local governments, and the redevelopment industry on the 11th, the Ministry of Land, Infrastructure and Transport (MOLIT) recently changed its interpretation of the legal restrictions on transferring association membership rights within speculative overheating districts under the Urban and Residential Environment Improvement Act and concluded that it would apply this to sales contracts signed before the change in interpretation.
After the Supreme Court issued a ruling on Aug. 14 in a lawsuit between an apartment buyer and a reconstruction association over whether association membership should be recognized, the Ministry of Land, Infrastructure and Transport (MOLIT) changed its interpretation to say that all co-owners of jointly titled dwellings must meet the 10-year holding and 5-year residency requirements to succeed to the entirety of the association membership rights.
MOLIT sent an official notice on the changed legal interpretation to local governments on Nov. 4. It decided, however, to apply the changed interpretation to contracts signed after Aug. 14, when the Supreme Court ruling was issued. In a notice to local governments, MOLIT said, "In principle, from the time of the Supreme Court ruling, the changed interpretation should be applied in deference to the legal reasoning of the Supreme Court decision." Some local governments, anticipating market confusion, initially decided to apply the previous interpretation to contracts signed before MOLIT's notice arrived, then reversed themselves. They decided to apply the new legal interpretation to existing contracts as well.
For contracts signed after Aug. 14, there are cases where buyers are stripped of association membership rights, leading to cash liquidation of the dwellings, or where sellers must pay penalty fees due to contract cancellations. An official in a Seoul district said, "There are a great many inquiries related to transactions of jointly owned dwellings," adding, "There is market confusion as the legal interpretation is being applied retroactively."
In particular, some contracts proceeded after receiving answers from local governments that "it is possible if only the representative association member meets the requirements," yet relief is difficult. A, who signed such a contract, said, "In Sep., after the Supreme Court ruling, I inquired about the case through the national petition system with the district office in charge and MOLIT, and the official in charge gave the petitioner an official response that 'succession is possible under the previous rules,' so the transaction proceeded," adding, "The public cannot know Supreme Court rulings in real time and can only trust the official responses of MOLIT, the competent ministry, and the district office with jurisdiction. Retroactively voiding contracts to the date of the ruling will only produce more victims."
Although the retroactive application of the changed legal interpretation is causing property damage in the real estate market, the Ministry of Land, Infrastructure and Transport (MOLIT) maintains that the change follows the Supreme Court's ruling and should apply from the time of the ruling. A MOLIT official said, "The final authority to interpret the law lies not with MOLIT but with the courts," adding, "There was a notice on Nov. 4 that the Supreme Court precedent had changed, but in principle, the time when the legal interpretation applies is considered to be the day of the Supreme Court ruling."