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

In this installment, we examine the requirements for a lawsuit in which the project implementer, after the approval of the management and disposition plan has been publicly announced, seeks surrender of the existing land and buildings, and the procedure the implementer must follow with respect to persons subject to cash settlement, such as those who did not file an allotment application.

[Question]

Under what requirements may the project implementer demand surrender of existing buildings after the approval of the management and disposition plan has been publicly announced, and what procedure must it follow with respect to persons who did not file an allotment application?

[Answer]

A. Suspension of Use and Profit After Public Announcement of Plan Approval, and the Claim for Surrender

Right holders such as owners, superficiaries, chonsegwon holders and lessees of the existing land or buildings may not use or profit from the existing land or buildings from the time the approval of the management and disposition plan is publicly announced until the date of the public announcement of transfer, and the project implementer must demolish the existing buildings after obtaining approval of the management and disposition plan [main text of Article 81(1) and Article 81(2) of the Act on the Improvement of Urban Areas and Residential Environments (도시 및 주거환경정비법, the "Urban Improvement Act")]. However, this does not apply where the implementer's consent has been obtained or where compensation for losses under the Act on Acquisition of and Compensation for Land, etc. for Public Works Projects (공익사업을 위한 토지 등의 취득 및 보상에 관한 법률, the "Land Compensation Act") has not been completed (proviso to Article 81(1) of the Urban Improvement Act).

Accordingly, for the implementer to demand surrender from persons subject to cash settlement or tenants, approval and public announcement alone are not enough; compensation for losses must have been completed. The extent to which compensation must be paid before it is "completed" has been contested in practice.

B. Redevelopment Projects: Compensation for Losses Is Complete Only When Relocation Expenses, Etc. Have Also Been Paid

Supreme Court Decision 2019Da207813 (June 30, 2021) held: "Housing relocation expenses, resettlement allowances and moving expenses under Article 78 of the Land Compensation Act (hereinafter 'relocation expenses, etc.') also constitute 'compensation for losses under the Land Compensation Act' under the proviso to Article 49(6) of the former Urban Improvement Act. Therefore, for the implementer of a housing redevelopment project to take over land or buildings within the improvement zone from persons subject to cash settlement or tenants in order to commence construction, it is also required to pay relocation expenses, etc. as determined through consultation or adjudication procedures. If an agreement is reached between the implementer and the person subject to cash settlement or tenant on relocation expenses, etc., the implementer's obligation to pay relocation expenses, etc. and the counterparty's obligation to surrender the real estate stand in a relationship of concurrent performance, and where adjudication procedures are used, the payment of relocation expenses, etc. must precede surrender of the real estate."

In the same vein, Supreme Court Decision 2019Da278426 (July 29, 2021) held, regarding a residential tenant within a redevelopment zone, that "it is reasonable to view that the defendant may refuse to surrender the building portion in question until the relocation expenses, etc. are paid," and Supreme Court Decision 2019Da300477 (July 29, 2021) held that "an implementer of a housing redevelopment project that is obligated to pay relocation expenses, etc. is not permitted to claim restitution of unjust enrichment against a person subject to cash settlement who is using and profiting from the existing land or buildings."

However, whether compensation for losses has been completed is determined item by item. Supreme Court Decision 2020Da217083 (November 11, 2021) held that "if the compensation for losses fixed by the expropriation adjudication for the business-loss compensation item that was included in the application for adjudication and examined and decided upon has been paid or deposited in full by the commencement date of expropriation, compensation for business losses under the Land Compensation Act must be regarded as completed, and tenants and others therefore may not refuse the implementer's claim for surrender of the real estate on the ground that part of the business-loss compensation remains unpaid."

C. Reconstruction Projects: The Compensation Proviso Does Not Apply, and Persons Subject to Cash Settlement Are Entitled to Concurrent Performance With the Liquidation Payment

Because the implementer of a reconstruction project in principle has no power of expropriation, the above compensation proviso does not apply. Supreme Court Decision 2012Da62561, 2012Da62578 (July 24, 2014) held that "the proviso to Article 49(6) of the Urban Improvement Act applies only to improvement projects in which the implementer has been granted, under Article 38 of the Urban Improvement Act, the authority to expropriate or use land, etc. within the improvement zone under the 'Act on Acquisition of and Compensation for Land, etc. for Public Works Projects' (hereinafter the 'Public Works Act'), and cannot apply to housing reconstruction projects, to which no such authority has been granted," and further held that it is "difficult to find that the proviso or the provisions of the Public Works Act apply by analogy" to reconstruction projects. The reasoning is that compensation for tenants in a reconstruction zone is a matter to be resolved by the landowner-lessor under the lease agreement.

Meanwhile, regarding persons subject to cash settlement in a reconstruction association, Supreme Court Decision 2009Da81203 (August 19, 2010) held that "where a reconstruction association bears the obligation to pay a liquidation payment to the owner of land, etc., under the principle of fairness the owner of land, etc. bears the obligation to transfer ownership of the land, etc. to the association free of any registration restricting rights, and this obligation to transfer ownership free of rights-restricting registrations and the implementer's obligation to pay the liquidation payment stand in a relationship of concurrent performance." Accordingly, a person subject to cash settlement may refuse to transfer ownership and surrender possession until the liquidation payment is received.

D. Measures Regarding Persons Who Did Not File an Allotment Application, Etc.

Within 90 days from the day after the management and disposition plan is approved and publicly announced, the project implementer must hold consultations on compensation for losses of land, buildings or other rights with ① persons who did not file an allotment application, ② persons who withdrew their allotment application before the end of the application period, ③ persons who are unable to file an allotment application in a speculation-overheated district, and ④ persons excluded from allotment under the approved management and disposition plan, and such consultations may begin from the day after the end of the allotment application period (Article 73(1) of the Urban Improvement Act).

If no agreement is reached, the implementer must apply for an expropriation adjudication or file a sale demand lawsuit within 60 days from the day after that period expires (Article 73(2) of the Urban Improvement Act). If it applies for an expropriation adjudication or files a sale demand lawsuit after this period, it must pay interest according to the number of days of delay at 5% per annum for delays of up to 6 months, 10% per annum for delays of more than 6 months and up to 12 months, and 15% per annum for delays of more than 12 months (Article 73(3) of the Urban Improvement Act and Article 60(2) of its Enforcement Decree).

As to the status of persons subject to cash settlement, the above Decision 2009Da81203 held that "an association member who did not file an allotment application or withdrew it must be regarded as losing membership on the day after the last day of the allotment application period." From that day, therefore, such a person is excluded from the total number of members and becomes the counterparty to consultations on compensation for losses.

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