Even if the owner of a multi-household dwelling does not provide information such as how much deposit was received for other units, the Supreme Court has ruled that a licensed real estate agent must investigate and inform the person seeking to sign a lease and move in.
The Supreme Court's Second Division (presiding Justice Oh Kyung-mi) said on the 13th that on Apr. 4 it overturned the lower court ruling that sided with licensed real estate agents in a lawsuit filed by tenant A against the Korea Association of Realtors for a mutual aid payment and sent the case back to the Seoul Central District Court.
With brokerage by licensed real estate agent B, A moved into one unit of an eight-unit multi-household dwelling in Gwonseon-gu, Suwon, Gyeonggi, in Apr. 2020. The lease deposit was 110 million won.
In the confirmation and explanation document for the property prepared during the lease contract process, the section on "rights other than ownership" listed a maximum claim amount of 715 million won, the debtor, and the holder of the revolving mortgage. In the section on "actual rights relations or rights not publicly disclosed," it stated, "Explained verbally that there are numerous prior-ranking interests due to the lessor's refusal to submit data."
The multi-household dwelling, along with other urban lifestyle housing, was put up for auction in May 2021 and sold for a total of 3.6 billion won. The sale proceeds were all distributed to prior-ranking creditors, and A did not get any of the deposit back.
Under Article 25 of the Licensed Real Estate Agent Act, licensed real estate agents must faithfully and accurately explain the condition of the property and its rights relations to the leasing client. A filed a lawsuit against the Korea Association of Realtors seeking damages, saying, "Licensed real estate agent B failed to properly check other units and rights relations in the multi-household dwelling, causing a loss in which the entire deposit could not be returned."
If a client suffers damage due to the brokerage activities of a licensed real estate business operator, the operator is liable for compensation. If there is damage due to a brokerage accident, the client may claim a mutual aid payment from the Korea Association of Realtors and receive compensation in lieu.
In the first trial, the court ordered the Korea Association of Realtors to pay A 66 million won in mutual aid funds and interest. The first trial court found that even if the lessor refused to provide data such as the deposits of prior-ranking tenants, making it difficult for the licensed real estate agent to know the realities accurately, the agent could sufficiently recognize, based on the size of the multi-household dwelling, the number of units, and the going rate for deposits of similar nearby properties, that the deposits already contracted could exceed the collateral value of the dwellings.
It added, "Recording that 'there are many prior rankings' while saying the lessor would not provide data constituted providing the tenant with incorrect information." However, it limited liability for damages to 60%, saying the tenant also has a responsibility to investigate whether the deposit can be properly returned.
In the second trial, the court ruled that B had no liability for damages. The appellate court determined that A, based on B's explanation, knew that the lessor would not provide other lease data and that there were multiple prior-ranking lease contracts, and still entered into the contract, saying, "A entered into the lease contract under A's own risk and responsibility."
The Supreme Court overturned the lower court ruling, saying it misunderstood the legal principles regarding a licensed real estate agent's duty of care and causation. The court said, "Under the Enforcement Rules of the Licensed Real Estate Agent Act, licensed real estate agents must present to the tenant client the deposit amounts and leasing times of other tenants in a multi-household dwelling," and added, "B did not investigate and verify how much prior-ranking deposits might exist and did not explain that to A."