Supreme Court: Regional Housing Cooperatives Must Have 'Significant Changes' to Allow Member Contract Cancellation

Conflicting Rulings in 1st and 2nd Trials on 'Significant Change of Circumstances'... Supreme Court "Lack of Evidence"

[Asia Economy Reporter Heo Kyung-jun] The Supreme Court has ruled that in the case of a regional housing association project, where apartments are constructed and sold to association members, members cannot cancel their contracts unless there is a 'significant change in circumstances' that makes it impossible to proceed with the project, even if the project is delayed contrary to the contract.

The Supreme Court's First Division (Presiding Justice Park Jung-hwa) announced on the 25th that it overturned the lower court's ruling in favor of plaintiff A, who filed a lawsuit against a regional housing association promotion committee in Seoul seeking the return of unjust enrichment, and remanded the case to the Seoul Central District Court.

Mr. A signed a membership contract with the promotion committee and paid 40 million won in July 2018 and 51.2 million won in October 2018 as contract deposits to a fund management trust company, and then paid 29.1 million won in January of the following year as the first interim payment.

When recruiting members, the promotion committee had advertised that the apartment construction would start in December 2020 and move-in was scheduled for February 2023. However, as the schedule was continuously delayed, Mr. A filed a lawsuit claiming the contract was invalid, canceled, or terminated and demanded a refund of the payments made.

The rulings in the first and second trials were divided. The first trial did not recognize grounds for contract cancellation and rejected Mr. A's claims. The second trial also ruled that there were no grounds for invalidity or cancellation of the membership contract but accepted Mr. A's additional claim for contract termination.

Mr. A argued that "even after three years since the contract, the association establishment approval was not obtained, and most of the funds for securing the project site were paid as service fees, resulting in insufficient funds to secure the site, making it impossible to proceed with the regional housing association project," citing this as a reason for change in circumstances to justify contract termination.

However, the Supreme Court found that there was no proof of a significant change in circumstances based on the conditions at the time the contract was formed. It stated that the regional housing association project involves many variables during its progress, and delays in the initially expected project schedule could be reasonably anticipated to some extent.

Additionally, the fact that the promotion committee appointed a new representative in March last year and signed contracts for business feasibility review services also influenced the ruling. The court judged that since the promotion committee appeared to be making efforts to proceed with the project, it could not be concluded that the project had become impossible to continue.

The court stated, "Contract termination due to change in circumstances can only be recognized if the circumstances underlying the contract at the time of its formation have changed significantly, making it no longer acceptable to maintain the contract. Since there is insufficient evidence regarding this, contract termination due to change in circumstances cannot be recognized."

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