Hello, I am Attorney Bae Ki-hyung of Cheongchul Law Firm.

When defects arise in a completed building, the client (project owner) or an apartment council of occupants' representatives often demands "full demolition and reconstruction" whenever any part of the work deviates even slightly from the design drawings, and claims enormous defect repair costs.

For example, even where a minor change in finishing materials or a tiny gap has no effect whatsoever on the building's structural safety or core functions, restoring it exactly to the drawings may require tearing down perfectly sound walls and relaying pipes, generating costs of hundreds of millions of won. The contractor admits the mistake, but the repair cost it must bear is so harsh compared with such a trivial fault that it cannot help feeling wronged.

Today I will explain, together with Supreme Court precedent, the doctrine of the "excessive repair cost defense," which allows a contractor to limit its liability to a reasonable amount of damages instead of enormous reconstruction costs when the repair cost demanded is wildly out of proportion to the degree of the defect.

The Excessive Repair Cost Defense – The Proviso to Civil Code Article 667(1) and the Standard for Calculating Damages

[Question] If the client demands full demolition and reconstruction costs for a minor defect that does not materially affect the safety or function of the building, must the contractor pay the entire amount, which can reach hundreds of millions of won?

[Answer] No. Where the defect is not important and its repair would require excessive cost, the contractor need not pay the full reconstruction cost (defect repair cost); it need only compensate the "decline in exchange value (market price difference)" of the building or the "difference in construction cost."

In principle, when a completed work under a contract for work has defects, the client may, under Civil Code Article 667 (민법 제667조), demand that the contractor repair the defects or pay damages in lieu of repair.

However, the proviso to Civil Code Article 667(1) (민법 제667조 제1항 단서) sets out an explicit exception: "Provided, that this shall not apply where the defect is not important and its repair would require excessive cost." In other words, spending far more than the flaw is worth to fix a trivial blemish is a socio-economic waste, so the law bars the client from demanding the repair itself or "damages equal to the repair cost" in such cases.

On this point, the Supreme Court has clearly set out the specific scope of damages and the standard for calculating them as follows.

1. Determining Whether the Defect Is Important

Courts assess the importance of a defect by examining whether it relates to structural elements of the building (columns, load-bearing walls, etc.), whether it substantially impairs the building's function as a residence, and whether it poses a safety risk of bodily harm. A mere aesthetic or dimensional discrepancy unrelated to the building's safety or essential function is likely to be classified as an "unimportant defect."

2. Determining Whether Repair Requires Excessive Cost

The excessiveness of the cost is determined by weighing the cost of repairing the defect against the benefit the client would gain from the repair. Typical examples are cases where repair is possible only by ripping out perfectly sound tiles or destroying structures.

3. Limitation of Damages (Difference in Exchange Value or Construction Cost)

The Supreme Court holds that where a defect is not important and, at the same time, its repair would require excessive cost, the client may claim only the "ordinary damages" caused by the defect. Such ordinary damages are, "absent special circumstances, the difference between the exchange value the work would have had if built without defects and its exchange value in its current defective state" (Supreme Court Decision 97Da54376, March 13, 1998 (대법원 1998. 3. 13. 선고 97다54376 판결)). Furthermore, where calculating the difference in the market price (exchange value) of the entire building is practically impossible, as with apartment finishing-material defects, the "difference between the construction cost of building without defects and the construction cost in the defective state" is recognized as the amount of damages.

Practical Key – Defend with the Difference in Exchange Value or Construction Cost, Not Reconstruction Costs

A contractor should not simply accept the figure and give up when an appraiser comes back with an enormous reconstruction cost.

In litigation, the contractor should actively point out that the defect is an "unimportant defect" with no effect on the building's safety or function, and argue as a matter of law that the full-repair method is excessively costly so that the proviso to Civil Code Article 667(1) (민법 제667조 제1항 단서) must apply. Furthermore, a defense strategy of requesting a supplementary appraisal so that the appraiser calculates the "difference in construction cost" or the "decrease in exchange value" instead of demolition and reconstruction costs is of primary importance.

Conversely, a client or council of occupants' representatives can recover the full defect repair cost without reduction only by proving that the defect is not a mere aesthetic issue but an "important defect" directly tied to function and safety.

Because the method of calculating defect repair costs and the assessment of excessiveness is an area where meticulous analysis of construction appraisals intersects with sophisticated legal argument, a specific legal review is needed from the earliest stage of the dispute.

Drawing on a deep understanding of the complex mechanics of construction appraisal practice and the law of defect liability, Cheongchul Law Firm provides optimal defense solutions to clients facing unfair and excessive defect repair cost claims. If you are struggling with excessive reconstruction demands or damages claims, please consult the experts at Cheongchul Law Firm.

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Attorney Bae Ki-hyung worked at the Defense Installations Agency and in the construction and real estate team of a major law firm, providing legal advice on every stage of government contracts and construction projects, including public works, large-scale construction, defense facility projects, and SOC construction projects, and has extensive experience and skill in resolving related litigation. Please feel free to contact us whenever you need assistance with public works, private construction projects, public procurement contracts, state property, local government property, or public property.

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