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

In apartment sales, a key issue arises when a buyer relies on the developer's advertisement regarding the apartment's exterior, materials, location, and other features in entering the sales contract, but the actually delivered apartment or surrounding environment differs from the advertisement. What remedies are available to the buyer?

The starting point is the “legal nature of sales advertising” — that is, whether the sales advertisement is incorporated into the contents of the sales contract, or whether it is merely an invitation to offer.

[Question] Legal nature of sales advertising — when it is incorporated into the contract and when it is not

[Answer]

가. Principle — Sales advertising is an invitation to offer

The basic position of Korean precedent is that “sales advertising has the nature of being merely an invitation to offer.” That is, the sales advertisement itself is not a manifestation of offer or acceptance, but merely an act inducing the buyer to make an offer to the seller, so the contents of the advertisement do not by themselves form the contents of the sales contract.

In the actual sales-contract formation process — “sales notice → sales advertising → sales application → selection of occupants and assignment of units → execution of the sales contract” — it is difficult to pinpoint the exact moment of offer and acceptance.

나. Requirements for exceptional incorporation into the contract

However, where the sales advertisement satisfies all three of the following requirements, precedent holds that it is reasonable to find that “an implied agreement existed between the seller and the buyer to make the advertisement's contents part of the sales contract” (Supreme Court Decision 2005Da5812, 5829, 5836 dated June 1, 2007 / 대법원 2007. 6. 1. 선고 2005다5812, 5829, 5836 판결). ① the advertisement's contents must concern the apartment's exterior, materials, etc.; ② the contents must, in light of social common sense, be matters whose performance the buyer may demand from the seller as terms of the contract; and ③ there must be no special circumstances, such as the sales contract reserving objection to the contrary.

다. Effects of incorporation into the contract

This distinction in the legal nature of sales advertising carries significant practical consequences. Where the sales advertisement is incorporated into the sales contract, if the seller fails to deliver on the advertised contents, the buyer may seek relief by terminating the sales contract on grounds of the seller's breach of contract, or pursuing liability for breach of contract or warranty liability for defects.

By contrast, where the sales advertisement is not incorporated into the sales contract, the buyer must resort to rescinding the contract on grounds of mistake or fraud, terminating it for changed circumstances, or pursuing tort damages for violation of the Act on Fair Labeling and Advertising. However, rescission for mistake or fraud and termination for changed circumstances are very rarely recognized.

라. Cases affirming incorporation

Supreme Court Decision 2005Da5812, 5829, 5836 dated June 1, 2007 (대법원 2007. 6. 1. 선고 2005다5812, 5829, 5836 판결) addressed apartment sales advertisements that included ① advertising for hot-spring development containing germanium components within the complex, ② advertising for living-room flooring constructed in maple solid wood, ③ advertising for abundant fruit-tree planting within the complex, ④ advertising for installation of a theme park, and ⑤ advertising that occupants could use the seller's nationwide condominium and resort facilities free of charge as condominium membership holders. The Court held that these were “matters concerning the exterior, materials, etc. of this apartment, and the condominium-membership advertising was equivalent to ancillary facilities and was capable of performance, so each of them became part of the sales contract.” That is, advertising about the apartment's physical exterior, interior materials, and ancillary facilities within the complex constitutes specific transactional terms whose performance the seller can deliver and the buyer can reasonably expect, so they are incorporated into the sales contract.

The Seoul High Court Decision 2006Na15658 dated September 27, 2006 (서울고등법원 2006. 9. 27. 선고 2006나15658 판결) further held, regarding the first-floor private garden installed and displayed at the model house at the time of sale, that ”the matters concerning the first-floor private garden that the seller presented through the sales brochure or the installation and display of the model garden at the model house at the time of sale are not a mere invitation to offer but constitute the contents of the sales contract, and therefore the seller has a contractual obligation to install for buyers a first-floor private garden of at least the same area and characteristics as those installed and displayed at the model house at the time of sale.” This is a case finding that advertising and display through the model house went beyond a mere invitation to offer and constituted presentation of specific transactional terms.

마. Cases denying incorporation

By contrast, Supreme Court Decision 2014Da57228, et al., dated May 28, 2015 (대법원 2015. 5. 28. 선고 2014다57228 등 판결) (the so-called Yeongjong Sky City Apartment case) addressed a case where the sales advertisement promoted “Opening of the Third Yeongjong Bridge in 2014,” “Opening of the Second Airport Railway and Yeongjong Station,” “Entry of large-scale cultural and leisure facilities,” and “Installation of schools, central commercial district, parks, and other facilities.” The Court held that ”this development project concerns the apartment's locational conditions and is not about transactional terms such as the apartment's exterior, materials, or structure. Furthermore, since local governments, the national government, or individual development entities are planning and pursuing it, the seller cannot realize it, and the buyers of this apartment must be deemed to have been well aware of this, so it is not included in the contents of the sales contract.”

That is, where the sales advertisement concerns not the apartment's own physical transactional terms but nearby roads, railways, public facilities, and other locational conditions, and where the entity realizing them is not the seller but the national government, local government, or a third party, the buyer cannot reasonably expect to demand performance from the seller in light of social common sense, so they are not incorporated into the sales contract.

Supreme Court Decision 2012Da29601 dated November 13, 2014 (대법원 2014. 11. 13. 선고 2012다29601 판결) addressed a case of the “build first, sell later” method, holding that “where apartments to be sold under the build-first-sell-later method have part of the complex sold before completion and part after completion, whether the specific transactional terms regarding the apartment's exterior, materials, etc. at the time each buyer entered the sales contract are incorporated into the sales contract must be examined individually, and whether there was an implied agreement between the seller and each buyer to make them part of the contents of the sales contract must be determined,” particularly that “where the sale was made after completion, the buyer can directly check the actually delivered apartment's construction state regarding exterior, materials, etc., through registration and other means, and decide whether to enter the sales contract, so even if there was sales advertising through a brochure or installation of a model house before completion and such advertised content was actually built into the apartment, it is difficult to find that an implied agreement existed to make matters appearing only in the sales advertisement regarding the apartment's exterior, materials, etc. part of the sales contract.”

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