Reconstruction Contribution Bombshell: Legal Checkpoints Union Members Must Confirm

The burden of additional contributions is surging, centered on major reconstruction complexes in Seoul. As cases of contributions—expected to be tens of millions of won in the early stages of a project—soaring to hundreds of millions of won at the management and disposal plan stage continue to occur, the aftereffects of rising construction costs and increased financing costs are being passed on to union members entirely. In some complexes, even the so-called 'contribution reversal phenomenon' is being mentioned, and cases of giving up occupancy rights are also occurring.

In relation to this, attorney Seon Yu-ju of Daeryun LLC (limited) explained, "Contribution disputes are often directly linked to the validity of the management and disposal plan and the legality of the project cost calculation process," adding, "Before receiving an enormous contribution notice, it is most important to carefully check the relevant legal procedures at an early stage." The following is a Q&A with attorney Seon.

Q. On what basis is a contribution determined, and why do additional contributions increase?
A. When establishing a management and disposal plan, a contribution is calculated by subtracting the recognized value of existing assets (rights value) from the union member sale price of the apartment the member newly receives. Article 74, Paragraph 1, Item 6 of the Act on the Improvement of Urban Areas and Residential Environments (hereinafter the Urban Improvement Act) stipulates that the management and disposal plan must include the estimated amount of the improvement project cost and the corresponding scale and timing of union member contributions. The problem arises when the total project cost surges due to the contractor's construction cost increases, increased financing costs from rising interest rates, and frequent design changes during project progress. When the total project cost increases, the proportional rate falls and union members' rights value also decreases, and that difference is passed on as additional contributions (Urban Improvement Act Article 74, Paragraph 1, Item 6).

Q. What should a union member who has received notice of an additional contribution check first?
A. Just because you received notice of an additional contribution, you should not immediately decide whether to pay. First, confirm the reason for the increase and the calculation basis, and examine whether the procedures required under the Urban Improvement Act were lawfully carried out. The key is the requirements for the finalization of the obligation to pay an additional contribution. Precedent holds that "for the obligation to pay an additional contribution to arise definitively for union members, there must be approval of a change to the management and disposal plan, or at least an explicit resolution at the union general meeting on the breakdown of the improvement project cost by union member." Article 45, Paragraph 1, Item 8 of the Urban Improvement Act specifies the 'breakdown of the improvement project cost by union member' as a matter for general meeting resolution, and Item 10 of the same paragraph stipulates that the establishment and modification of the management and disposal plan is also a matter for general meeting resolution. A general meeting to modify the management and disposal plan requires at least 20 percent of union members to attend in person (Urban Improvement Act Article 45, Paragraph 10), and if the improvement project cost increases by 10 percent or more, the consent of at least two-thirds of union members is required (Urban Improvement Act Article 45, Paragraph 4). In addition, you must also check whether it is subject to construction cost verification under Article 29-2 of the Urban Improvement Act. When at least one-fifth of union members request it, or when the construction cost increase rate is 10 percent or more for contractor selection before authorization of the project implementation plan, or 5 percent or more for selection thereafter, verification of the construction cost must be mandatorily requested from an improvement project support agency such as the Korea Real Estate Board (Urban Improvement Act Article 29-2, Paragraph 1). This is a core defensive procedure through which the appropriateness of the construction cost calculation can be objectively verified.

Q. What problems arise if one cannot pay or refuses the contribution?
A. If you default on the contribution, late-payment interest accrues and relocation and interim payment loans may be restricted. If non-payment is prolonged, procedures for loss of union member status or cancellation of the sale contract may proceed according to the union's articles of association, and in the worst case you may become subject to cash liquidation. Since unconditionally refusing payment without going through lawful procedures may result in unexpected disadvantages, it is important to review lawful legal responses and whether to pay together when there is a dispute. Deciding on funding measures and rights-protection measures by consulting an expert from the early stages is the safest way to protect your assets.

Q. If you determine there is a problem with the procedure, what legal responses are possible?
A. The core of an additional contribution dispute is the legality of the procedure rather than the amount itself. An additional contribution collected without approval of a change to the management and disposal plan, or without a general meeting resolution on the breakdown of contributions by union member, constitutes a gain without legal cause and becomes subject to a claim for return of unjust enrichment. If there is a defect in statutory procedures such as the general meeting resolution or construction cost verification, a lawsuit to confirm the invalidity of the general meeting resolution (party litigation) may be considered. If approval of a change to the management and disposal plan has been publicly announced, a lawsuit to cancel or confirm the invalidity of the management and disposal plan (appeal litigation) must be filed, and in the case of a cancellation lawsuit it must be filed within 90 days from the date of the announcement of approval (Administrative Litigation Act Article 20), and it is advisable to file an application for suspension of execution in parallel if necessary. However, since after the transfer announcement takes effect there is no longer a legal interest in contesting the invalidity of the management and disposal plan, it is important to obtain relief promptly before the transfer announcement.

Reporter Lee Dong-oh (canon35@mt.co.kr)

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