Hello, this is Attorney Ki-hyung Bae of Cheongchul Law Firm.

When large-scale defects occur in an apartment complex, the residents' council, the body representing the unit occupants, typically takes the lead in filing a lawsuit against the seller (project developer) or the construction company, demanding defect repairs or damages.

In such cases, the residents' council often files suit on the simple premise that “we represent the residents, so we will collect the damages directly.” Legally, however, the true holder of the right to recover damages for apartment defects (the defect warranty claim) is each individual unit owner (buyer). A direct claim by the residents' council therefore carries a very high risk of being dismissed or rejected by the court.

Today I will explain the limits of the residents' council's authority in apartment defect litigation, the “claim assignment” procedure that must be completed to lawfully demand damages from the construction company and others, and the relevant Supreme Court precedent.

Limits on the Residents' Council's Standing – The Defect Warranty Claim Belongs to the Unit Owners

[Question] The residents' council is the representative body that oversees apartment management. Why can it not directly claim damages for defects against the construction company or the developer?

[Answer] In short, the Supreme Court has consistently held that, absent special circumstances, the claim for damages for defects under the Act on Ownership and Management of Condominium Buildings (집합건물법) (the defect warranty claim) belongs to the individual unit owners, not to the residents' council.

The clear legal standards on this point are as follows.

1. Limits of the Residents' Council's Authority (Scope of the Housing Legislation)

Under the Multi-Family Housing Management Act (formerly the Housing Act) (공동주택관리법(구 주택법)) and related legislation, the residents' council has the right to demand that the project proprietor “perform defect repairs.” The Supreme Court, however, has drawn a clear line: these provisions merely set administrative standards to ensure defects are repaired promptly, and “cannot be read as granting the residents' council a defect warranty claim (a claim for damages) in addition to the right to demand defect repairs.” (Supreme Court Decision 2008Da86232, May 28, 2009) In other words, the council may demand that defects be fixed, but it has no right to demand “compensation in money.”

2. The True Holder of the Damages Claim Is the “Unit Owner”

By contrast, the claim for damages in lieu of defect repairs under the Act on Ownership and Management of Condominium Buildings Article 9 (집합건물법 제9조), through which defects can be compensated in money, is a right that belongs exclusively to each individual unit owner, who is both the party to the sales contract and the actual owner of the apartment. The residents' council therefore cannot freely exercise or waive this right on behalf of the unit owners.

3. The Essential Requirement for a Valid Lawsuit: “Claim Assignment”

So what must a residents' council do to lead a damages lawsuit? In practice, the most common and reliable method is for the residents' council to take an “assignment” of each unit owner's damages claim under the Act on Ownership and Management of Condominium Buildings and then sue in its capacity as assignee. If this step is skipped and the council sues directly as if the right were its own, the claim may be rejected. Even if the council later takes an assignment of the claims during the proceedings and amends its cause of action, whether the limitation period (such as the 10-year period) has expired is judged as of the time of that amendment, which can cause a fatal disadvantage. (See Supreme Court Decision 2008Da86232, May 28, 2009)

Practical Key – Block the Limitation-Period Risk with Claim Assignment Agreements and Notices of Assignment

Ultimately, for a residents' council preparing an apartment defect lawsuit, the most basic and critical prerequisite that determines success or failure is to obtain valid claim assignment agreements for the damages claims from each individual unit owner before filing suit, or at the latest before the appraisal procedure, and to clearly complete the notice of assignment to the developer and the construction company.

Conversely, when a construction company or developer is sued, its first step should be to scrutinize whether the plaintiff residents' council has validly received the claim assignments, whether the assignment documents are free of defects, and whether the limitation period or the statute of limitations had already run as of the date of assignment, and to build its defense on those points.

Apartment defect litigation is a highly specialized field that requires consolidating the rights of a vast number of households and accurately cross-applying complex condominium law doctrines and housing legislation, so concrete legal review is needed from the outset.

Cheongchul Law Firm, drawing on its deep understanding of the procedural issues and substantive law in large-scale multi-family housing defect disputes, provides optimal solutions to prevent unfair procedural disadvantages and protect legitimate rights to compensation. If you are facing standing issues or claim assignment procedures in an apartment defect lawsuit, please consult the experts at Cheongchul Law Firm.

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Attorney Ki-hyung Bae has worked at the Defense Installations Agency and in the construction/real estate team of a major law firm, providing legal advice on every stage of government contracts and construction projects, including large-scale construction works, government-contracted construction, defense facility projects, and SOC construction projects, and resolving related litigation. With this extensive experience and expertise, Attorney Bae welcomes inquiries at any time regarding government-contracted construction, private construction, public procurement contracts, state property, local government property, and public property.

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Cheongchul Law Firm is composed exclusively of attorneys from Korea's top five major law firms, the prosecution, and the in-house legal teams of large corporations. Rather than a single attorney, a team of specialists in the relevant field responds to each case. Going beyond resolving specific issues, Cheongchul provides comprehensive solutions for the business as a whole, offering legal consulting focused on ultimately achieving what the client wants. If you need help reaching your goals, please do not hesitate to contact Cheongchul.