Controversy over the liability period for defects in public leases converted to sale [Special contribution]

Public rental housing is housing pursuant to Article 2, Paragraph 1 of the Housing Act that is supplied for the purpose of conversion to sale after being leased or leased pursuant to Article 2, Paragraph 1 (a) of the Special Act on Public Housing. After the mandatory rental period has passed, it can be converted to sale with approval, and tenants who meet certain requirements can be given priority for conversion to sale.

If a defect occurs in public rental housing, according to Articles 36 and 37 of the Apartment Housing Management Act, the tenant, etc. may request compensation for the defect from the project operator. In the past, tenants of public rental housing before conversion to sale did not have the right to demand repairs for defects from construction companies, even though they actually held the right to conversion to sale. With the new establishment of Article 36, Paragraph 2 of the former Apartment Housing Management Act (before it was amended by Act No. 14853 on February 10, 2018), it became possible to exercise the right to claim defect repairs for the first time.

The fact that tenants of public rental housing can request repairs for defects is a welcome development in terms of tenant protection. However, when public rental housing is converted to sale, there is a problem in that the project entity's liability for defects is extended for an excessively long period of time, resulting in unreasonable results.

According to Article 9-2 of the old Multi-unit Building Act (before it was revised by Act No. 12738 on June 3, 2014), ‘the exclusion period for defect repair claims shall be calculated from the date of delivery to the unit owner for the exclusive use portion, and from the date of use inspection or approval for use for the shared portion.’

This regulation shall enter into force six months after its promulgation in accordance with Article 1 of the Supplementary Provisions. However, in accordance with Article 3 of the Supplementary Provisions, the previous provisions shall apply with respect to collateral liability for buildings sold before the enforcement of the above Act. Therefore, the starting date for the exclusive portion of public rental housing sold after June 19, 2013 is the date of delivery to the first unit owner after conversion to sale.

The project entity already had an obligation to repair defects to tenants even before conversion to sale pursuant to Article 36, Paragraph 2 of the old Apartment Housing Management Act (before it was amended by Act No. 14853 on February 10, 2018). In the end, due to the new Article 9-2 of the old Apartment Building Act, it is no different from having the lessee again bear the same defect warranty liability for a building that has been used for a long time as for a newly sold building. From the business entity's perspective, they have no choice but to complain because they will be burdened with compensation obligations for an excessively long period of time.

In relation to this, some project entities argue that even after public rental housing is converted to sale, the starting date of the exclusive defect liability period should be regarded as the time of ‘first delivery after construction.’ This is based on the Supreme Court's decision in May 10, 2012, 2011Da66610, etc., which ruled that “even in the case of a complex building converted to sale after lease, the exclusion period for defects liability will be said to start from the time the complex building is delivered by lease, not from the time of sale conversion.”

The above Supreme Court decision states, “The proviso to Article 671, Paragraph 1 of the Civil Act, which is applied mutatis mutandis to Article 9 of the Act on the Ownership and Management of Old Apartment Buildings (before it was amended by Act No. 7502 on May 26, 2005), uniformly sets the exclusion period for defect security liability to 10 years after ‘delivery’ without considering the type of defect or the time of occurrence of the defect. Article 9 of the former Apartment Building Act and the Civil Act “In light of the provisions of Articles 667 to 671, it is reasonable to interpret the above ‘delivery’ as meaning ‘the first delivery after construction,’ regardless of the causal relationship of the delivery.”

However, this court's opinion is that after Article 9-2 of the old Apartment Building Act (before it was revised on June 3, 2014, Act No. 12738) was newly established, the Supreme Court's 2018Da245184 decision on April 29, 2020, etc. states that “in the case of units converted to sale, the date of delivery to the unit owner” in Article 9-2, Paragraph 2, Item 1 of the Revised Apartment Building Act The meaning appears to have naturally changed as the ruling was made to the effect that “it is appropriate to interpret the meaning as ‘the date when occupation began as a unit owner’ rather than ‘the date of first delivery as a lessee.’”

In the future, it is expected that the conflict between project entities and subdivision owners surrounding public rental housing for the purpose of conversion to pre-sale will further intensify. A total of 74,574 houses are scheduled to be converted to sale after public rental for 10 years from 2019. There is an increasing number of cases requesting repair of defects in public rental housing that has been converted to sale to the Defect Review Dispute Mediation Committee established in accordance with Article 39 of the Apartment Housing Management Act.

The Ministry of Justice, Ministry of Land, Infrastructure and Transport, and the Board of Audit and Inspection are also aware of this problem. There is a need to revise related laws, including Article 9-2 of the Apartment Building Act, as soon as possible.

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