Strengthening the Role and Responsibility of Maintenance Project Trust Companies... Standard Contract and Enforcement Regulations Finalized

Prohibition on Fundraising Using Resident Trust Real Estate as Collateral

The government has initiated the establishment of regulations for trust-type redevelopment projects, which have caused market confusion due to insufficient enforcement rules.

On the 28th, the Ministry of Land, Infrastructure and Transport announced that it will finalize and distribute the standard contract and enforcement regulations to ensure the stable promotion of trust-type redevelopment projects.

The view of Hanyang Apartment in Yeouido, Yeongdeungpo-gu, Seoul, undergoing a trust-type maintenance project. Photo by Jo Yongjun jun21@

Under the new standard contract and enforcement regulations for trust-type redevelopment projects, trust companies must directly perform construction project management (PM·CM) as project implementers (with the trust company bearing the costs when services are executed).

Additionally, trust companies participating in redevelopment projects are required to present their responsibilities and participating personnel to residents, and during critical periods for gathering residents' opinions?such as the landowners' general meeting and the public notice period for the management disposition plan?trust company personnel must be exclusively assigned on-site.

Regarding project financing, it is clearly stipulated that trust companies must directly procure the necessary funds for the project, including initial project costs and construction costs, and it is prohibited to finance project costs by using real estate entrusted by residents as collateral.

Currently, construction companies convert bid deposits into loans to use as initial project costs; however, going forward, conversion of project funds will be fundamentally prohibited (with exceptions only when the construction company consents).

The method for calculating trust fees includes various approaches in the standard plan, such as applying a cap or fixing a flat rate, in addition to a simple rate method, encouraging residents to set trust fees in a manner suitable to the characteristics of each project.

Furthermore, the Ministry of Land, Infrastructure and Transport plans to improve the process following recent controversies over the selection of a preliminary trust company (tentative name) before district designation at Mokdong New Town Complex 7.

When agreements with trust companies are made before the designation of the project implementer, it will be legislated that a certain percentage of resident consent must be secured for the trust-type promotion, and the trust company must undergo a public recruitment process or other procedures that allow for public discussion.

Considering the time required for legal amendments, the Ministry will recommend the Korea Financial Investment Association to apply these improved procedures when selecting new trust companies.

Moreover, transparency in projects will be enhanced, and the responsibilities of trust companies as project implementers will be strengthened.

If trust company executives or employees violate criminal laws such as bribery during project implementation, they will be regarded as public officials and subject to penalties. Similar to the union method, a new penalty provision will be introduced imposing imprisonment of up to two years or a fine of up to 20 million won for violations of prior approval rules in general meetings.

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