People who bought units in a lifestyle lodging facility (saengsuk) in Seoul's Gangnam in 2021 sued Sigongsa, claiming it failed to properly inform them that the property "cannot be used for residential purposes," but they ultimately lost. The Supreme Court found that they signed the contracts knowing that saengsuk is different from dwellings.
The Supreme Court's First Division (presiding Justice Roh Tae-ak) said on Feb. 16 that on Jan. 29 it overturned the lower court ruling that had ordered the return of the deposit and remanded the case to the Seoul High Court in the lawsuit filed by a person surnamed Joo and three others against The Gisel, the developer of Seocho Roioum Gisel, seeking the return of unjust enrichment.
Joo and three others signed presale contracts with The Gisel for Seocho Roioum Gisel in Jan.–Feb. 2021. Seocho Roioum Gisel has five basement levels and 18 above-ground floors, and consists of 408 lifestyle lodging rooms and seven neighborhood living facility units. The four contracted a total of three units, with sale prices ranging from 427.15 million won to 814.05 million won. They paid The Gisel between 299.01 million won and 569.82 million won as down payments and interim payments.
On Jan. 14 of the same year, before they signed, the Ministry of Land, Infrastructure and Transport issued a legislative notice requiring presale announcements for saengsuk to state "residential use not allowed; lodging business registration required," after cases increased of saengsuk being used illegally or by loophole as dwellings. The Enforcement Decree of the Building Act was revised on May 4 of the same year.
Joo and the others argued that The Gisel promoted this saengsuk building as capable of being used for residential purposes, and that they entered into the presale contracts under a mistake about the possibility of actual residence. They then filed suit, claiming The Gisel was obligated to return the deposit as unjust enrichment.
The first trial dismissed Joo and the others' claims. The first-instance panel said, "The Gisel's promotional materials make clear that this building is a saengsuk, which is different from dwellings," adding, "The supply contract also repeatedly specifies that this building does not fall under dwellings, so it is hard to see Joo and the others' mistake as having been induced by The Gisel."
On appeal, the court ordered The Gisel to pay Joo and the other three between 20 million won and 80 million won. The appellate panel found that "The Gisel broadly promoted, through advertisements and consultations by sales agents, that 'you can actually reside in this building,'" and that "even as the likelihood greatly increased that using saengsuk for purposes other than lodging would be prohibited, it failed to inform Joo and others, inducing their mistake."
The Supreme Court overturned the appellate ruling and ordered the case to be reheard and reconsidered. It said, "Although words such as 'residential' and 'reside' were used in part in presale promotions like blogs about this building," at the same time, "phrases such as 'legal use is lodging facility,' 'lodging business, real estate leasing business,' 'exempt from comprehensive real estate tax and capital gains tax surcharges,' and 'unrelated to one household owning two dwellings' also provided relatively detailed information that it differs from general residential buildings."
It also said, "It accords with common social sense to view that the contracting parties entered into the contracts recognizing that this building cannot be used for residential purposes." It cited, among other things, that the contract states, "Any disadvantages arising from use for purposes other than a lifestyle lodging facility are borne by the plaintiffs."