Buyer allottees of the officetel The Gallery 832 on a main street in Seoul's Gangnam are asking the Gangnam District Office to impose administrative dispositions on the project developer and the trustee for the officetel they contracted for. They requested corrective orders and fines against the developer and Korea Trust, saying that advertising sales before the sales filing was accepted and receiving the first interim payment within one month after signing the contract constitute violations of the Building Unit Sale Act. They also submitted an opinion letter attaching authoritative interpretations from the Ministry of Land, Infrastructure and Transport and the Ministry of the Interior and Safety. No related disposition has been issued yet.
The reason buyer allottees are demanding administrative dispositions for the officetels they contracted for is that corrective orders or fines can serve as grounds for canceling the contract. The Enforcement Decree of the Building Unit Sale Act requires that the sales contract include a clause allowing the buyer allottee to terminate the contract if the sales business operator receives certain administrative dispositions.
As the officetel market has recently weakened and cases have emerged where market prices fall below the sale price, more buyer allottees are examining whether they can cancel, which is cited as a backdrop for these disputes.
◇ Corrective orders and fines are grounds for canceling the contract… the contract language is the standard
Courts have also recently issued decisions that place importance on the wording of the contract in the relationship between administrative dispositions and the cancellation of sales contracts.
In December last year, the Supreme Court reversed and remanded a lower court ruling on the grounds that if the sales contract designates a corrective order under the Building Unit Sale Act as a ground for cancellation by agreement, it is difficult to limit the right to cancel the contract merely because the violation is minor. If the contract does not distinguish the seriousness of the violation, a court can hardly add a separate requirement of a "serious violation."
There is also a lower court ruling where a fines disposition actually led to contract cancellation. In May, the Seoul Central District Court recognized a case as a ground for cancellation by agreement where a trustee received the first interim payment before one month had passed from the contract date and received a fines disposition from the Gangnam District Office. The court ordered the developer and the trustee to return the deposit and interim payment of 873.15 million won paid by the buyer allottee. However, the trustee's liability to return was limited to the scope of the trust property.
The trustee argued that it had filed an objection to the fines disposition and the effect of the disposition had disappeared, but the court found that even if the effect is lost due to an objection, the "fact of having received a fines disposition" does not disappear. However, because this was a first-instance judgment based on the wording of the relevant contract, it is difficult to conclude that it applies as-is to other contracts.
Woo Hyun-su, an attorney at Barun, a law firm specializing in construction and real estate, said, "If the contract specifies administrative dispositions as grounds for cancellation and there is no separate language on the seriousness of the violation, whether an administrative disposition was imposed can itself be grounds for canceling the contract."
◇ "Let's get a disposition issued" complaints… businesses also respond with administrative procedures first
As administrative dispositions become a trigger for canceling contracts, some buyer allottees are seeking out legal violations in the sales process and asking the competent local government to impose dispositions.
Kim Ik-beom, an attorney at Jipyong, said, "Because cancellation is not easily recognized on general grounds like exaggerated advertising or mistake, there are many complaints to the authorities demanding corrective orders or fines."
Businesses are also responding more quickly. Before a disposition, they make voluntary corrections, and after a disposition is issued, they file lawsuits to cancel it and apply for stays of execution.
Kim said, "If you receive prior notice of a corrective order, you need to correct it quickly before the disposition comes out so you can later contest the disposition."
In an officetel case handled by Kim, the failure to note in the sales advertisement whether an educational environment protection zone had been designated became an issue, but the business voluntarily corrected it before the disposition, and later won at first instance in the lawsuit to cancel the corrective order. The appeal is currently underway.
If a disposition has already been issued, a stay of execution along with a cancellation lawsuit is also a key response measure. Kim said, "If you do not seek a stay of execution, buyer allottees can continue to claim contract cancellation based on the disposition until a ruling is handed down."