[Construction/Real Estate Attorney] What is the reference point for a one-household, one-home standard when selling a reconstructed apartment in a speculation heating district? – Contract date vs. Registration date

Hello, I amAttorney Bae Gi-hyeong from the Cheongchul Law Firm.

When selling a reconstructed apartment located in a speculation heating district, the Urban and Residential Environment Maintenance Act (hereinafter referred to as the 'Urban Maintenance Act') is generally stipulated that after obtaining approval for the establishment of the union, one should not be granted member status even if one buys an apartment to prevent speculative demand. However, in cases where a 'one-household, one-home' individual sells a house owned for over 10 years and lived in for over 5 years, there is an exception allowing the buyer to inherit membership status.

However, a tricky issue arises here. While the seller is selling the reconstructed apartment, they may go through a process of finding a new house, resulting in a period of temporarily owning two homes simultaneously. For example, they might first pay off the balance for the new house and finish the registration, then, a few days later, receive the balance from the sale of the reconstructed apartment and transfer the registration. Will the buyer lose their membership status due to this 'temporary two-home' situation? At what time should the seller be judged as a 'one-household, one-home' individual? We will closely examine the content and meaning centered on the Seoul Administrative Court's 2019 ruling 2019Guhap61700 that presented clear standards for this important question.

[Question]

In other words, it means that it is unjust to prevent the inheritance of membership status solely based on the fact that there was a temporary two-home situation at the time of the ownership transfer registration.

The core issue of this case is regarding the situation where becoming a 'temporary two-home' occurs during the process of selling a reconstructed apartment and purchasing a new home, and whether the timing for judging the transferor's 'one-household, one-home' status should be considered at what point in time. If the timing for judging one-household, one-home status is seen as the ownership transfer registration time, it would create a practical constraint requiring one to complete the registration of their new home only after having sold the reconstructed apartment, making it quite impactful.

To summarize the facts of this case:

l   The housing reconstruction project association (the plaintiff, hereinafter 'the association') in the D area of Gangseo-gu, Seoul obtained approval for establishment from the competent district mayor (the defendant) on April 3, 2017. Subsequently, on August 3, 2017, the entire area of Seoul was designated as a speculation heating district.

l   Mr. F, who is a member of the association and owns a multi-family dwelling (hereinafter referred to as 'House No. 1') within the maintenance area, entered into a contract to sell House No. 1 for 990 million won to Mr. B and Mrs. C on March 26, 2018 (hereinafter referred to as 'the first sales contract'). The contract included a special clause confirming that Mr. F meets the requirements for 10 years of ownership, 5 years of residency, and one-household, one-home, and that there was no obstruction to the transfer of membership rights by Mr. B/C.

l   On the same day (March 26, 2018), Mr. F and his husband Mr. G entered into a contract to purchase another house (hereinafter referred to as 'House No. 2') for 528 million won from Mr. H.

l   Significant timing difference: Mr. F and his wife completed the ownership transfer registration for House No. 2 (the newly purchased house) on April 30, 2018, before completing the ownership transfer registration for House No. 1 (the original house they lived in) on June 26, 2018. As a result, Mr. F temporarily became a two-home owner for about 2 months.

l   The association applied for the modified approval of establishment including Mr. B and Mrs. C as members, but the district office stated on August 1, 2018, that “Mr. F was a two-home owner (at the time of registration for House No. 1), hence, according to Article 39(2) of the Urban Maintenance Act, Mr. B and C cannot be members,” thus issuing a modification ruling excluding them (hereinafter referred to as 'the ruling in question').

l   In response, the association filed a lawsuit seeking the cancellation of the refusal of membership grant to Mr. B and Mrs. C.

The Seoul Administrative Court, in its ruling on December 3, 2019, in case 2019Guhap61700, judged that “If a member owning real estate in the maintenance area had met the duration of ownership and residency requirements specified in each subparagraph of Article 37(1) of the Enforcement Decree of the Urban Maintenance Act as a one-household, one-home individual when performing acts causing a change in rights such as sale or donation concerning the subject house, it would fulfill the criteria for 'transferor' as set forth in the exception provision, so it would be reasonable to view that the acquirer can obtain membership status even after the approval for the establishment of the association,” thus ruling in favor of the plaintiff.

In other words, the reference point for judgment under Article 39(2)(4) of the Urban Maintenance Act is not at the 'registration time' but rather at the 'contract signing time.'

This ruling signifies that the determination of 'one-household, one-home' status should be based on the contract signing time, citing the legislative intent of the relevant clause of the Urban Maintenance Act. Namely, Article 39 of the Urban Maintenance Act aims to restrict speculative demand for real estate within speculation heating districts while not excessively constraining union members who have owned and lived in their homes for extended periods when they transfer a home to move to another. Therefore, it is deemed reasonable to recognize an exception in the case where one accidentally becomes a two-home owner depending on the timing of the registration of the new home and the sold home. Furthermore, it was pointed out that, legally, the transferor's status arises at the time of the cause of the act such as a sales contract, independent of the effectuation timing of ownership transfer (i.e. registration time), and the acquirer determines the transaction conditions based on this status. Lastly, it was determined that if the strict application were based on the registration time, even in cases where one becomes a temporary two-home owner due to arbitrary circumstances like the temporal difference between the contract and registration, the inheritance of membership status would be impossible, which is inconsistent with legislative intent and unjustly limits the transferor's freedom to relocate while causing unpredictable substantial damage to the acquirer, rendering it unreasonable.

The ruling of the Seoul Administrative Court 2019Guhap61700 is significant in that it clearly defined the judging criteria time for the exception of membership inheritance of 'one-household, one-home' during the transfer of reconstructed apartments in speculation heating districts as the 'contract signing time,' thereby presenting a rationale for reasonable legal interpretation consistent with the complex reality of real estate transactions. It is expected that this will reduce cases where honest transferors and acquirers suffer due to unpredictable circumstances and enable more stable transactions.

Nevertheless, the regulations related to reconstruction remain complex, and the interpretations may vary by individual case. In particular, in real estate transactions involving large sums of money, a single minor mistake can lead to significant losses, so it is essential to consult legal professionals enough before proceeding with related transactions to minimize legal risks. Our law firm promises to provide the optimal solution for your successful real estate transactions based on rich experience and expertise.

Cheongchul Law Firm is composed of only attorneys from large law firms such as Kim & Chang, Gwangjang, TaePyungyang, Sejong, and Yulchon, as well as from corporate legal teams, and is operated by a team of specialized attorneys related to the case rather than a single attorney. Cheongchul provides comprehensive solutions for the entire business rather than just resolving specific issues and focuses on achieving what clients want. If you need help accomplishing your goals, please feel free to contact Cheongchul.