1. Overview of the case

A reconstruction association established to demolish existing tenements and construct an apartment building and a neighborhood living facility entered into a contract for reconstruction work with a general contractor, N, around July 2008, under which the general contractor agreed to be transferred 10 out of 30 newly constructed apartment units and the entire neighborhood living facility in exchange for payment of the construction price.

 

The apartment building was fully constructed around May 2015, but the general contractor had not received the completion certificate from the competent government office for a long time due to its violation of the building law by constructing and selling an office building in the place where the neighborhood living facility was supposed to be located. In the meantime, the registration of ownership preservation in the name of the rebuilding association was completed at the request of the court following the creditors' application for an injunction against real estate disposal and foreclosure. Since 2014, creditors continued to apply for forced and voluntary auctions of the real estate, and several auction proceedings were initiated.

 

However, on March 18, 2022, the judicial assistant of the Seoul Central District Court decided to cancel all the auction proceedings and dismiss the auction applications on the grounds that the auction proceedings were initiated based on the title preservation registration in violation of the Urban and Residential Environment Maintenance Act and its registration procedures.

 

2. Our argument and role

 

In response, our attorneys filed an appeal with the Seoul Central District Court on behalf of the creditors who had applied for the arbitrary auction of the properties, arguing that (i) the auction court does not have the authority to determine the invalidity of the registered deeds for each of the properties in this case, and therefore, the decision of the judicial assistant on the premise that it can determine otherwise is illegal; (ii) since the reconstruction association acquired the ownership of the building in question in the first place, the registration of the preservation of ownership in the name of the reconstruction association by the court’s request is valid; and (iii) the application for auction by the keun-mortgagee of the land before the separate ownership of the collective building was established was legal.

 

On June 22, 2023, the appellate court accepted the arguments set forth in (ii) above and reversed the first instance decision for the following reasons: when a project developer receives approval for the completion of an improvement project and notifies of the transfer, it is required to register the land and buildings directly and collectively pursuant to Article 56 of the former Urban Maintenance Act and Article 5 of the former Urban and Residential Environment Maintenance Rules, but, as in this case, if the building is completed and the building can become an object of ownership, but the transfer notification has not yet been made, the registration procedure under the former Urban Maintenance Act cannot be said to apply, and therefore, if there is a request for registration of a restriction on disposal from the court, there is no restriction on the registrar of deeds to register the preservation of ownership of the building ex officio as a prerequisite for registering the restriction on disposal, and the registration of preservation of ownership by the court’s request is legal.

 

In response, the reconstruction association appealed to the Supreme Court. However, on January 8, 2024, the appeal was dismissed and the decision of the appellate court was affirmed.

 

3. Significant of the decision

 

Article 56(1) of the former Urban Maintenance Act (now Article 88 of the Urban Maintenance Act) (Registration Procedures and Restrictions on Changes in Rights) stipulates that “the project developer shall, without delay, request or apply for registration of the land and buildings at the competent district court or registry office upon notification of transfer pursuant to Article 54(2).” In the absence of a clear Supreme Court ruling on this, there have been views that, in consideration of the public nature of a reconstruction project, it is not possible to register the preservation of ownership rights in the name of a reconstruction association by a court's request, regardless of whether a transfer notification has been made, and that only registration by request or application by the reconstruction association, which is the project developer, is possible. There are also cases in which relevant registration precedents are understood of the same effect.

 

However, this ruling is significant as it is the first precedent to clarify that the old Urban Maintenance Act only applies to cases where there is a transfer notice, but not to cases where the transfer notice is not made because the completion approval has not been received. However, just like this case, when the title is registered under the Urban Maintenance Act, the existing mortgage registration is transferred at the same time in accordance with Article 88(3) of the same Act. There have been cases in which reconstruction associations have delayed the notification of transfer for a long period of time to evade liability and continued to enjoy the use of the property, but this case has made it possible to prevent such bad practices.

 

□ Attorney in charge: Son Heung-soo