Hello, this is Attorney Jonghan Park of Cheongchul Law Firm.

This time, we look at when a "cash settlement target" arises in an urban improvement project, that is, a person who does not receive a newly built unit and instead has their previous assets settled in cash, and we review the situation type by type.

[Question]

Which landowners become cash settlement targets, and is a person who never received the notice to apply for a unit, or who withdrew the application after the application period ended, also a cash settlement target?

[Answer]

A. Cash Settlement Targets Defined by Statute

Under the Urban and Residential Environment Improvement Act (hereinafter the "Urban Improvement Act," 도시정비법), the project implementer must consult on compensation for the loss of land, buildings, or other rights with ① a person who did not apply for a unit, ② a person who withdrew the application before the application period ended, ③ a person who cannot apply for a unit in a speculation-overheated district, and ④ a person excluded from unit allocation under the approved management and disposal plan (Urban Improvement Act Article 73(1) (도시정비법 제73조 제1항)). These are the cash settlement targets defined by statute.

In its decision of July 28, 2011, Case No. 2008Da91364 (대법원 2011. 7. 28. 선고 2008다91364 판결), the Supreme Court held that "a union member who became a cash settlement target by meeting the requirements of Article 47 of the former Urban Improvement Act, such as by not applying for a unit or withdrawing the application, is reasonably deemed to have lost the status of union member" (now Article 73 of the Urban Improvement Act).

B. Scope of Persons Who Did Not Apply or Who Withdrew the Application

Where the project implementer failed to give a lawful notice to apply for a unit and a landowner was therefore unable to apply, that landowner should not be regarded as "a person who did not apply for a unit." In its decision of December 15, 2016, Case No. 2015Du51309 (대법원 2016. 12. 15. 선고 2015두51309 판결), concerning the stage of signing the sales contract, the Supreme Court stated that "articles of association or a management and disposal plan containing such a provision mean that a union member who, despite the union's demand to sign a sales contract, breached the obligation to sign and did not sign the contract becomes a cash settlement target," and upheld the lower court's finding that a union member who could not sign a sales contract because they never received the notice to sign does not fall within the cash settlement targets.

Only a withdrawal of the application made before the application period ended counts. In its decision of December 22, 2011, Case No. 2011Du17936 (대법원 2011. 12. 22. 선고 2011두17936 판결), the Supreme Court held that "a person who withdrew the application, as used here, refers only to a person who applied within the application period but withdrew the application before that period ended and thereby became a cash settlement target in the course of formulating the management and disposal plan, just like a person who did not apply under subparagraph 1 of the same Article; it does not mean that a landowner who has applied is naturally allowed to withdraw the application at will after the application period has ended and thereby becomes a person who withdrew the application," and the current Urban Improvement Act Article 73(1)2 (도시정비법 제73조 제1항 제2호) codified this by referring to a person who withdrew "before the application period ended."

C. Speculation-Overheated District Restrictions and Persons Excluded Under the Management and Disposal Plan

In an improvement project in a speculation-overheated district, a person designated for unit allocation under the management and disposal plan and the members of that person's household may not apply for a unit in a separate improvement project in another speculation-overheated district for five years from the date of designation (for union-member units, the date of the first approval of the management and disposal plan) (main text of Urban Improvement Act Article 72(6) (도시정비법 제72조 제6항 본문); persons who acquired union membership through inheritance, marriage, or divorce are excepted), and a person who cannot apply for this reason becomes a cash settlement target (Urban Improvement Act Article 73(1)3 (도시정비법 제73조 제1항 제3호)).

For example, suppose Gap is a member of Reconstruction Union A in Seocho-gu (a speculation-overheated district) and became a union-member unit recipient when the first management and disposal plan was approved on March 1, 2023, and Gap's spouse Eul, a member of the same household, is a union member who owns a house in Redevelopment Zone B in Gangnam-gu (also a speculation-overheated district). Eul cannot apply for a unit in Zone B until February 29, 2028, and if Zone B conducts its application procedure in the meantime, Eul becomes a cash settlement target. If Eul acquired the Zone B house by inheritance after March 1, 2023, Eul may still apply, but if Eul had already inherited it before then, the exception does not apply (Ministry of Government Legislation, statutory interpretation 21-0887 of February 8, 2022).

D. Persons Excluded From Unit Allocation Under the Approved Management and Disposal Plan

Also, in a speculation-overheated district, a person who acquires a building or land after approval of union establishment in a reconstruction project or after approval of the management and disposal plan in a redevelopment project cannot, in principle, become a union member (Urban Improvement Act Article 39(2) (도시정비법 제39조 제2항)), and the project implementer must compensate such a transferee for losses by applying Article 73 mutatis mutandis (Urban Improvement Act Article 39(3) (도시정비법 제39조 제3항)).

Meanwhile, a person who acquired land or a building that is too small, or a person who acquired land subdivided after the improvement zone was designated or a sectional ownership unit in an aggregate building, may be settled in cash under the management and disposal plan (Urban Improvement Act Article 76(1)3 (도시정비법 제76조 제1항 제3호)), and a person excluded from unit allocation under the approved management and disposal plan becomes a cash settlement target (Urban Improvement Act Article 73(1)4 (도시정비법 제73조 제1항 제4호)).

The specific standard for "land or a building that is too small" is left to city/province ordinances (Enforcement Decree of the Urban Improvement Act Article 63(1)3 (도시정비법 시행령 제63조 제1항 제3호)). For example, in a Seoul redevelopment project, a landowner who does not own a previous house becomes a unit recipient only if the total area of the previous land is 90㎡ or more, or the appraised value of the rights is at least the estimated price of one unit of the smallest apartment offered for sale (Seoul Metropolitan Government Urban and Residential Environment Improvement Ordinance Article 36(1) (서울특별시 도시 및 주거환경정비 조례 제36조 제1항)), and a person who falls short of this is excluded from unit allocation and becomes a cash settlement target.

E. Union Members Who Did Not Sign a Sales Contract Under the Articles of Association or the Management and Disposal Plan

Beyond the statutory grounds, the articles of association or the management and disposal plan may designate as cash settlement targets union members who did not sign a sales contract within the contract signing period. Regarding articles of association that applied the cash settlement provisions mutatis mutandis to union members who did not sign a sales contract within 60 days after approval of the management and disposal plan, the Supreme Court decision in Case No. 2008Da91364 above held that "such a provision in the articles of association is intended to give union members an additional opportunity to leave the status of union member and receive cash settlement even after the management and disposal plan has been approved, and therefore cannot be deemed void as contrary to the former Urban Improvement Act."

However, as the Supreme Court decision in Case No. 2015Du51309 above made clear, such articles of association or management and disposal plans mean that union members who refused to sign despite the union's demand to sign a sales contract become cash settlement targets, so a union member whom the union never notified to sign a sales contract does not become a cash settlement target.

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