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

In this installment, we look at the meaning and contents of the management and disposition plan, a key stage of an urban redevelopment or reconstruction project; the voting quorum of the general meeting that establishes or amends the plan; and the issues frequently disputed in practice when determining whether that quorum has been met.

[Question]

What must a management and disposition plan contain, and how is the quorum of the general meeting on the management and disposition plan determined?

[Answer]

A. Meaning of the Management and Disposition Plan and the Effect of Its Approval

A management and disposition plan is a series of rights-conversion plans that converts the existing ownership of land, etc. within the project zone, and rights other than ownership, into rights to the land and buildings created by the project and allocates them. In legal theory it constitutes "public replotting of rights (공용환권)".

Article 74(1) of the Act on the Improvement of Urban Areas and Residential Environments (도시 및 주거환경정비법, the "Urban Improvement Act") provides that, when the allotment application period ends, the project implementer must, based on the status of allotment applications, establish a management and disposition plan and obtain approval from the head of the city or county, and the same applies to any amendment, suspension or abolition. The plan must include, among other things, the allotment design; the names and addresses of persons eligible for allotment; the estimated value of the land or buildings each eligible person is expected to receive; details, estimated values and methods of disposal of reserved land, etc.; details of each eligible person's existing land or buildings and their value as of the date the project implementation plan approval was publicly announced; and the estimated project costs together with the resulting scale and timing of members' contributions.

On the legal nature of approval of a management and disposition plan, Supreme Court Decision 2001Du7541 (December 11, 2001), a case under the former Urban Redevelopment Act, held that "the administrative agency's approval under Article 34 of the Urban Redevelopment Act is a supplementary act that completes the legal effect of the housing redevelopment association's management and disposition plan." Once a management and disposition plan is approved and publicly announced, the plan itself takes effect as an administrative disposition.

When a management and disposition plan is approved and publicly announced, rights in the existing land and buildings are converted into allotment rights and liquidation payments, use and profit from the existing land, etc. are prohibited (except for right holders who have obtained the implementer's consent or whose compensation for losses has not been completed), and demolition of buildings and general sales become possible.

B. Voting Quorum of the General Meeting on the Management and Disposition Plan

The establishment and amendment of a management and disposition plan are matters for resolution by the general meeting and are resolved with the approval of a majority of association members (Urban Improvement Act Article 45(1)(x) and Article 45(4)). However, where project costs increase by 10/100 (excluding the rate of increase in producer prices and compensation for losses under Article 73) or more, the resolution must be passed with the approval of at least two-thirds of association members (Urban Improvement Act Article 45(4)).

In addition, a general meeting resolving the establishment or amendment of a management and disposition plan requires at least 20/100 of association members to attend in person (Urban Improvement Act Article 45(10)), and the association must notify each member in writing, one month before the date of the general meeting, of matters such as the estimated allotment value for each eligible person, the value of existing assets, the estimated project costs and the scale of members' contributions (Urban Improvement Act Article 74(5)).

C. Reference Point for Determining a "Substantial Change" in Project Costs

Where the project costs resolved in the management and disposition plan have changed substantially to an extent that seriously affects the interests of association members, the consent of at least two-thirds of members is required. The question is against which stage's figure the change should be compared.

Supreme Court Decision 2012Du28520 (June 12, 2014) held that "when determining whether the project costs resolved at the time of establishing the management and disposition plan have changed substantially to an extent that seriously affects the interests of association members, they should not be compared directly with the estimated cost of demolishing and constructing buildings stated in the consent form for establishing the association. Rather, it must first be determined whether the project costs approved by members at the time of the project implementation plan have changed substantially, to an extent that seriously affects members' interests, compared with the estimated demolition and construction cost stated in the consent form for establishing the association, and next whether the project costs resolved in the draft management and disposition plan have changed substantially compared with the project costs approved by members at the time of the project implementation plan."

In that case, the total project costs at the management and disposition plan stage had increased by about 13.8% over roughly three years compared with the total project costs approved at the project implementation plan stage. Considering increases in construction costs and inflation, the Court found that this was not a substantial change and that the consent of at least two-thirds of members was therefore not required.

D. Scope of Association Members Counted for the Quorum

Association members who did not file, or withdrew, an allotment application and thus became subject to cash settlement lose their membership and are therefore excluded from the total number of members on which the general meeting quorum is calculated.

Supreme Court Decision 2010Du7765 (March 29, 2012) held that "existing association members who did not file an allotment application should be excluded from the total number of association members used to calculate the quorum of a general meeting held after the allotment application period has ended." The decision treated the point at which persons subject to cash settlement lose membership as the day after the last day of the allotment application period.

Meanwhile, Supreme Court Decision 2012Du5572 (August 20, 2014) held that "a general meeting resolution that differentiates rights among members whose membership is recognized by statute is, absent special circumstances, void; however, because the articles of association may restrict the rights of members whose membership is recognized only by the articles, where the general meeting resolves to grant membership again to persons who lost membership on the day after the allotment application period expired because they did not file an allotment application, and restricts the content of their rights, the general meeting resolution should not be regarded as void for that reason."

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