Hello, this is Attorney Park Jong-han from Cheongchul Law Firm.

In construction subcontracting contracts, it is common to have an agreement on delay damages. However, when a construction subcontracting contract is rescinded, the rescission of the contract means that the effects of the validly formed contract are retroactively extinguished, resulting in a state as if the contract had never existed from the beginning. Therefore, it might be a concern whether the agreement on delay damages is also retroactively extinguished.

Thus, when a construction subcontracting contract is rescinded, it is necessary to examine whether the validity of the agreement on delay damages is also lost in accordance with the rescission of the contract or whether the validity of the agreement on delay damages continues despite the rescission of the contract.

[Question] - Applicability of the agreement on delay damages upon rescission of the construction subcontracting contract

[Answer] - Even if the construction subcontracting contract is rescinded, the agreement on delay damages continues to apply, but the timing and duration of the delay damages are limited from the point when the contractual party could have rescinded the contract to the point when the ordering agency could have commissioned another contractor to complete the work.

The construction contract for building new buildings is a contract aimed at the completion of work known as the completion of the building, and the agreement on delay damages is a predetermined amount of damages for the delay in completing such work. Therefore, unless there are special circumstances, the contractor is obliged to pay delay damages if they do not complete the work and deliver it to the client within the agreed period.

However, in the aforementioned case, the timing of delay damages is to be limited, in the absence of special circumstances, to the agreed completion date or the end date. This cannot be said to continue indefinitely until the contractor or client completes the building; rather, it should be limited to the point when the contractor could have rescinded the contract due to the contractor's suspension of work or other reasons for rescission (not necessarily the point of actual rescission) until the point when the client could have commissioned another contractor to complete the same building. Additionally, if the work is delayed for reasons for which the contractor is not responsible, that period should be deducted from the total. If the amount of calculated delay damages is deemed excessively high, the court may reasonably reduce it under Article 398, Paragraph 2 of the Civil Act (refer to Supreme Court ruling 1989. 7. 25, cases 88DaKa6273, 88DaKa6280).

In other words, even if the construction subcontracting contract is rescinded, the delay damages agreement continues to apply, but the timing and duration of the delay damages are limited from the point when the contractual party could have rescinded the contract up to the point when the ordering agency could have commissioned another contractor to complete the work.

This has briefly examined the applicability of the agreement on delay damages upon the rescission of the construction subcontracting contract. In disputes related to national contracts and public procurement, the relevant laws are very complex and often amended, so it is necessary to have knowledge and experience in this regard. It is essential to be well-versed not only in court rulings but also in the administrative agency's interpretations and cases of disposition. Therefore, I recommend seeking assistance from Attorney Park Jong-han, who has expertise in national contract laws and experience in resolving various disputes related to national contracts and procurement.

Cheongchul Law Firm consists solely of attorneys from the nation's top five law firms, including Kim & Chang, Gwangjang, Taepyungyang, Sejong, and Yulchon, as well as legal teams from large corporations. Instead of just one attorney, specialized attorneys in related fields form a team to respond. Cheongchul provides comprehensive solutions that go beyond simply resolving specific issues, focusing ultimately on achieving what the client desires. If you need assistance in achieving your goals, please do not hesitate to contact Cheongchul.

[Construction/Real Estate Lawyer] What is the standard for determining a "one home per household" owner when selling a reconstructed apartment in a speculation overheated district? – Contract date vs Registration date

Hello, I am Attorney Bae Gi-hyung from Cheongchul Law Firm.

When selling a reconstructed apartment located in a speculation overheated district, the Urban and Residential Environment Improvement Act (hereinafter referred to as the ‘Urban Improvement Act’) generally stipulates that after obtaining approval for the establishment of an association, purchasing an apartment does not grant qualification as an association member to prevent speculative demand. However, in the case of selling a property owned by a 'one home per household' owner who has owned for more than 10 years and lived for more than 5 years, it is exceptionally allowed for the buyer to inherit membership of the association.

However, a tricky problem may arise here. While the seller is selling the reconstructed apartment, there may be a period during which they temporarily own two houses while searching for a new home to move into. For example, if the seller pays the remaining balance for the new house and completes the registration first, then receives the remaining balance for the sale of the reconstructed apartment and transfers the registration a few days later. Will the buyer lose qualifications as an association member due to this 'temporary ownership of two homes'? When should the seller be considered a 'one home per household' owner? Let's take a closer look at the content and meaning based on the Seoul Administrative Court's ruling 2019GuHab61700, which provides a clear standard for this important question.

[Question]

In other words, it is unfair to block the transfer of membership solely based on the fact that they were temporarily in a two-home state at the time of the transfer of ownership registration.

The core issue of this case pertains to when the time of judgment regarding the seller's qualification as a 'one home per household' owner occurs, specifically in cases where a 'temporary two homes' state arises during the process of selling a reconstructed apartment and buying a new home. If the judgment time for being a 'one home per household' is considered to be at the time of the transfer of ownership registration, this creates a practical constraint that the registration of the new home must occur after the sale of the reconstructed apartment, leading to significant repercussions.

The facts of this case can be summarized as follows:

l   The housing reconstruction maintenance project association (plaintiff, hereinafter referred to as 'Association') in the D district of Gangseo-gu, Seoul, received approval for the establishment of the association from the head of the district office on April 3, 2017. Subsequently, on August 3, 2017, all of Seoul was designated as a speculation overheated district.

l   F, who is a member of the association and the owner of a multi-family house within the maintenance area (hereinafter referred to as 'First Home'), entered into a contract to sell the First Home for 990 million won to couple B and C on March 26, 2018 (hereinafter referred to as 'First Sale Contract'). The contract included a special provision stating that F met the one-home-per-household requirement of owning for 10 years and residing for 5 years, and that B/C had no obstacle to the transfer of association membership.

l   On the same day (March 26, 2018), F and her husband G entered into a contract to purchase another home (hereinafter referred to as 'Second Home') for 528 million won from H.

l   Important timing difference: The couple F completed the registration of transfer of ownership for the Second Home (new house) on April 30, 2018, and completed the registration of transfer of ownership for the First Home (original home) to couple B on June 26, 2018. As a result, F temporarily became a two-home owner for about two months.

l   The Association applied for a change of approval including B and C as members, but the district office on August 1, 2018, stated, "Since F was a two-home owner at the time of the transfer of the First Home, B and C cannot be members according to Article 39, Paragraph 2 of the Urban Improvement Act," and excluded them from the change of approval (hereinafter referred to as 'this decision').

l   In response, the Association filed a lawsuit seeking to invalidate the rejection of membership for B and C.

In this regard, the Seoul Administrative Court's ruling on December 3, 2019, stated, "If an association member who owns real estate within the maintenance district conducts a cause-related act involving changes in rights, such as sale or donation regarding that home, and has met the criteria for ownership period and residency period established in Section 1, Article 37 of the Enforcement Decree of the Urban Improvement Act as a one-home-per-household owner, it is reasonable to view that the individual meets the requirements for the ‘transferor’ set forth in the exception. Therefore, even after obtaining approval for the establishment of the association, it can be seen as a case where the transferee can acquire the status of an association member," and upheld the plaintiff's claim.

In other words, the judgment criterion for Article 39, Paragraph 2, Item 4 of the Urban Improvement Act is not the 'registration date' but the 'date of signing the sales contract.'

This ruling is highly significant as it clearly establishes the judgment criterion for whether one is a 'one home per household' owner based on the date of signing the sales contract. It first mentioned the legislative purpose of the relevant provisions of the Urban Improvement Act. That is, Article 39 of the Urban Improvement Act aims to block speculative demand for real estate within speculative overheated districts while also not excessively restricting members who have been one-home-per-household owners for a long period while transferring property to move their actual residence. Hence, in cases where one accidentally becomes a two-home owner based on the timing of registrations for the property being sold and the property being purchased, it is reasonable to recognize exceptions. Legally, the position of the transferor arises at the time of the cause-related act such as a sales contract, regardless of the timing of the effectiveness of ownership change (i.e., registration date), and the transferee determines transaction conditions based on that state. Lastly, if strictly applied based on the registration date, those who become temporary two-home owners due to time differences between the contract and registration or due to other accidental circumstances would not be able to inherit membership, which would not align with the legislative intention and would unduly restrict the transferor's freedom of residence while providing unpredictable and significant harm to the transferee, making it unreasonable.

The ruling by the Seoul Administrative Court in the case 2019GuHab61700 is highly meaningful as it clarifies the judgment criterion for the exceptional requirement for inheriting membership rights when transferring a reconstructed apartment within a speculation overheated district, specifically defining it as the 'date of the sales contract or cause-related act', thereby providing a rational legal interpretation standard that matches the complex realities of real estate transactions. It is expected that this will reduce cases where well-intentioned transferors and transferees suffer from unpredictable circumstances, thereby allowing for more stable transactions.

Nevertheless, regulations regarding reconstruction remain complex and may vary in interpretation depending on individual cases. Particularly in real estate transactions involving substantial amounts, even a minor mistake can lead to significant losses. Therefore, before proceeding with related transactions, it is essential to consult with legal experts to minimize legal risks. Our law firm promises to provide the best solutions for your successful real estate transactions based on our extensive experience and expertise.

Cheongchul Law Firm is composed only of lawyers from top law firms in Korea such as Kim & Chang, Gwangjang, Taepyeongyang, Sejong, and Yulchon, as well as from legal teams of large corporations, and responds not by a single lawyer, but by forming a team of specialists in relevant fields. Cheongchul provides legal consulting focused on delivering comprehensive solutions for the overall business and achieving what the client desires. If you need help achieving your goals, please do not hesitate to contact Cheongchul.