Cancellation of Korean Apartment Sales Contracts under Korean Law

In the recent past, Korean real estate developers offered potential buyers of apartment complexes that were not yet built in Korea favorable terms, including, temporary interest-free loans. However, with the economic downturn, rising vacancies, construction delays, construction defects, construction variances, and increasing interest rates many buyers are attempting to cancel apartment sales contracts in Korea through lawsuits at Korean courts. Many buyers are facing severe difficulties in paying mortgages and see some apartments as worth substantially less than the initial purchase price. Cancellation of these sales agreements may lead to a return of all monies spent on the apartment, including, deposit sums.

Cancellation of Korean Apartment Purchase Agreements under Korean Law

Test for Cancellation of an Apartment Purchase Agreement in Korea

When determining whether to cancel an apartment or other real estate purchase agreement in Korea the courts look to the following factors in determining whether to void the Korean sales agreement

1. The difference between the information provided by the seller at the time of contracting and the actual reality after completion of the building;
2. Whether the obligations under Korean law to notify the buyer of risks, obligations, and duties were strictly complied with by the seller; and
3. Whether each variance (change of building from promised at purchase to as-built) is reflected in the price and the unit was sold at a lower price than similar units.

Cases that Led to Cancelling of Korean Apartment Sales Agreements

1. Building promised number of floors proposed for the apartment complex was substantially lower than the as-built complex (ex. 15 Story Building Proposed versus 5 Story Building Built).
2. View promised at contracting was obstructed by a 9-meter sound-proofing wall.
3. Common areas of buildings were obstructed or not usable and no specific disclosure was made at execution of the apartment sales agreement.

Cases that Led to a Decrease in Korean Apartment Sales Agreement Sale Price

1. Floor expansion joints were cheaply constructed and designed; and
2. Numerous cases in which construction was defective, cheaply constructed, negligently designed, or of low quality.

It seems that Korean courts are, increasingly, strictly looking to see if deceptive sales practices were engaged in and that mandatory disclosure obligations are strictly complied with, while the standard disclosure noting that: “specific construction details may change as needed and the purchasers may not object to such changes” shall no longer, in of itself, disclaim liability for deceptive sales practices.

We shall update the reader when more is known.

Sean Hayes is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only a few non-Korean lawyers as a Top Attorney by AsiaLaw, and IPG Legal is consistently ranked Top Dispute Resolution Law Firm for our litigation services.

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