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

This time, we look at whether an association that has obtained an amended establishment approval, after its original establishment approval was voided or revoked, must draw up a new management and disposition plan, and how contractor selection and the construction contract relate to the management and disposition plan.

[Question]

Must the management and disposition plan be re-established when the original association establishment approval is void or revoked, and is a management and disposition plan based on unit applications received before the contractor was selected valid?

[Answer]

A. Nullity or Revocation of the Establishment Approval and the Validity of the Management and Disposition Plan

If the original association establishment approval is void ab initio or is revoked, a management and disposition plan established and approved on the premise that the approval was valid loses its effect retroactively. An association that has obtained an amended establishment approval therefore must newly establish a management and disposition plan and obtain approval for it.

Supreme Court Decision 2015Du51347 (December 15, 2016) held that "where the original association establishment approval is void ab initio or is revoked, a management and disposition plan established and approved on the premise that the original establishment approval was valid loses its effect retroactively," and went on to state that "the association must either repeat the notice and public announcement of unit applications and the other procedures prescribed in Article 46(1) of the Act on the Improvement of Urban Areas and Residential Environments (도시정비법 제46조 제1항) or individually confirm the intentions regarding unit applications of those eligible to apply (including those who applied in the earlier application procedure and those who did not apply at that time but have not lost their membership; the same applies hereinafter), and establish the management and disposition plan on the basis of the resulting application status; if the association establishes the management and disposition plan according to the earlier application status without going through such procedures, that plan is unlawful."

The Court did, however, identify exceptional circumstances in which a new management and disposition plan may be established on the basis of the earlier application status: "① where there is no substantial change between the new and the previous project implementation plan in matters that the statutes require to be included in the unit application notice, such as ‘the details of the land or buildings to be allocated’ and ‘the approximate details of the contributions’; ② where, in light of the nature and scale of the project, the interval between the approval dates of the two project implementation plans is not excessively long; and ③ where none of those eligible to apply has actually informed the association that they wish to withdraw or change their earlier application or to newly apply for a unit" [Articles 72(1) and 74(1) of the Act on the Improvement of Urban Areas and Residential Environments (hereinafter the "Urban Improvement Act") (도시정비법 제72조 제1항·제74조 제1항)].

B. Where Unit Applications Were Received and the Management and Disposition Plan Established Before Contractor Selection and the Construction Contract

After obtaining establishment approval, an association must select its contractor at a general meeting through competitive bidding or a similar method (Urban Improvement Act Article 29(4) (도시정비법 제29조 제4항)), and the project implementer must, within 90 days of the public notice of project implementation plan approval (or, where the contractor is selected after that approval, of the date the contract with the contractor is signed), notify each prospective allottee of the estimated contribution and other matters and publicly announce the unit application (Urban Improvement Act Article 72(1) (도시정비법 제72조 제1항)). In other words, unit applications are meant to take place after the contract with the contractor has fixed the outline of construction costs and contributions.

In Seoul Administrative Court Decision 2011Guhap3401 (September 2, 2011), the resolution selecting the contractor had been conclusively declared void and the unit application announcement had been made before a lawful contractor selection. The court noted that "it is only through the construction contract with the contractor that the building design outline and the approximate contributions of the members become fixed, and on that basis the owners of land and other property decide whether to apply for a unit, accepting a considerable financial burden, or to receive cash settlement; such information must therefore not only be stated in the application notice but also be stated as accurately as possible." On these grounds, the court held that "giving the application notice and public announcement, receiving unit applications on that basis, and establishing the management and disposition plan at issue before a lawful contractor selection and construction contract was unlawful, and the defect was grave and obvious, rendering the plan void."

C. Where the Management and Disposition Plan Presupposes a Resolution on the Draft Construction Contract

Where a draft construction contract with the contractor and a draft management and disposition plan are put before the same general meeting, if the resolution on the draft construction contract is void, the management and disposition plan that presupposes the terms of that contract becomes unlawful as well.

In Seoul Administrative Court Decision 2010Guhap337 (December 2, 2010), the total project cost stated in the establishment consent forms, KRW 97,457,000,000, had been increased to KRW 131,139,303,300 in the draft construction contract and the draft management and disposition plan. The court held that "where an agenda item concerning 'the terms to be included in the contract with the contractor,' which is a mandatory provision of a housing redevelopment association's articles and may only be changed through the strict procedure for amending the articles, is put to a general meeting, and the terms to be included in that contract alter the conditions of cost sharing among members set out in the original establishment consent forms, then, even though this is not formally a procedure for amending the articles, Articles 20(3) and 20(1)15 of the Urban Improvement Act (도시정비법 제20조 제3항, 제1항 제15호), which require a supermajority to protect the members' interests, apply by analogy, so that the consent of at least two-thirds of the members is required" (now Article 40(3), proviso, and Article 40(1)16 of the Urban Improvement Act (현 도시정비법 제40조 제3항 단서·제1항 제16호)). Because the two-thirds threshold was not met once members who had lost their eligibility and those who had withdrawn their written votes were excluded, the court concluded that "the resolutions on 'the resolution on the construction contract with the contractor (Agenda Item 1)' and 'the resolution on and amendment of the management and disposition plan (draft) (Agenda Item 2)' failed to meet the quorum and are void, and the management and disposition plan at issue, established on that basis, is likewise unlawful."

The court further treated as a ground of unlawfulness of the management and disposition plan the fact that the application procedure had been carried out without providing even the minimum information needed to assess the "approximate details of the contributions," such as each member's appraised value of prior assets, at the time of the application notice.

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