[Ryu Taemin's Real Estate A to Z] Construction Company Suspension and Deregistration... Will There Be Any Issues with Upcoming Residential Complexes?

If Contracted and Construction Started Before Administrative Disposition, Construction Can Continue by Law
Contractors Have Right to Terminate Contract... Multiple Terminations Expected in Reconstruction Complexes

On the morning of the 19th, officials from the Ministry of Employment and Labor and the police are conducting a search and seizure at the headquarters of Hyundai Development Company in Yongsan-gu, Seoul, in connection with the collapse accident at Hwajeong I-Park in Seo-gu, Gwangju. (Photo by Yonhap News)

[Asia Economy Reporter Ryu Tae-min] Recently, attention has been focused on administrative sanctions against HDC Hyundai Development Company (Hyundai Development), the construction company involved in the Gwangju apartment collapse accident. With possibilities ranging from a business suspension of up to 1 year and 8 months to deregistration, concerns are rising that contracts for apartments under construction by Hyundai Development may be canceled one after another.

Legally, even if administrative sanctions are imposed on a construction company, existing construction sites can continue operations. Article 14, Paragraph 1 of the Framework Act on the Construction Industry stipulates that if a construction business operator receives a business suspension or deregistration sanction, construction projects for which contracts were signed before the sanction or for which permits were obtained under relevant laws and regulations before the sanction may continue to be carried out.

Experts particularly note that administrative sanctions such as business suspension or deregistration are generally not recognized as valid reasons for contract termination. Attorney Kim Ye-rim of Deoksu Law Firm explained, “While administrative sanctions may affect the brand awareness or reputation of an apartment, it is difficult to see them as restricting the scheduled progress of construction, so they are unlikely to be accepted as grounds for contract termination.”

However, these legal provisions only mean that it is not a violation for a construction business operator who has been suspended or deregistered to continue existing construction contracts; it does not mean that the contracting parties are obligated to continue the construction. If the construction contract explicitly states that registration as a construction business is a prerequisite for the contract, the contractor may rescind or terminate the contract on the grounds of deregistration.

Moreover, even if there is no such agreement in the contract, the contractor has the legal right to terminate the contract. Article 673 of the Civil Act stipulates that the client may rescind the contract at any time before the contractor completes the work, provided compensation for damages is paid, thus guaranteeing the right to freely terminate the contract. However, if the contract is terminated without just cause, there is a high possibility of having to pay damages.

Within the industry, it is expected that demands for contract termination will increase, especially in reconstruction and redevelopment complexes. Unlike general sale contract applicants who find it difficult to change construction companies, reconstruction and redevelopment associations can terminate contracts through general meetings. In fact, following the Gwangju apartment collapse accident, public criticism has intensified, and reconstruction complexes in the metropolitan areas including Seoul and Anyang, as well as Gwangju, are rapidly considering contract termination with construction companies.

This content was produced with the assistance of AI translation services.