"Hard to Recognize Mistaken Belief in Residential Use of Accommodation Facilities"... Supreme Court Overturns Down Payment Refund Ruling

Sales Ads Used 'Residence' Terminology,
But Accommodation Facility Details Also Provided
Supreme Court: "Contract Signed With Awareness of Residential Use Restrictions"
Lower Court Ruling Overturned and Case Remanded

The Supreme Court has overturned a lower court ruling in a lawsuit filed by buyers seeking a refund of their down payments, claiming they signed contracts believing they could use residential-type accommodation facilities (such as residences) as housing.

The court determined that even if some expressions such as "residence" were used in sales advertisements, it is reasonable to view that the buyers signed the contract recognizing that the building is an accommodation facility and that there were clear restrictions on residential use, as these were explicitly stated.

According to the legal community on March 16, the First Division of the Supreme Court (Presiding Justice Noh Taeak) overturned the previous ruling, which had partially ruled in favor of five buyers in their unjust enrichment claim against the developer The Giesel, and remanded the case to the appellate court for further review.

The plaintiffs had signed contracts and paid down payments in January 2021 for units in the Seocho Royum Giesel residential-type accommodation facility, located in Seocho District. Later that month, the Ministry of Land, Infrastructure and Transport announced plans to improve regulations by requiring sales notices to explicitly state "residential use not allowed, lodging business registration required" in response to the increasing use of such facilities as housing. When the relevant law was amended in May of the same year, the buyers demanded cancellation of their contracts and refund of their down payments, arguing that the developer's promotion of potential residential use had misled them.

The court of first instance ruled against the plaintiffs, but the appellate court sided with some of them. The appellate court found that the sales advertisements and consultations with sales agents gave the impression that actual residence was possible and that the buyers had not been properly informed even as the likelihood of prohibiting non-lodging use of such facilities increased.

However, the Supreme Court's judgment differed. The Court determined that while terms such as "residence" or "residential" appeared in some promotional materials, the differences between the building and residential structures were explained in detail. The materials also described the facility's legal status as an accommodation facility, stated that lodging business and real estate leasing were permitted, clarified that comprehensive real estate and capital gains taxes would not be subject to additional levies, specified that there were no resale restrictions, and explained that regulations for owning two homes in one household did not apply—all characteristics of residential-type accommodation facilities.

The court also noted that the contract cover page explicitly stated the building's use as a "residential-type accommodation facility," and Article 22 of the contract stipulated that any disadvantage arising from use for purposes other than a residential-type accommodation facility would be borne by the buyer, with the developer bearing no responsibility.

The Supreme Court stated, "Since the introduction of the system, residential-type accommodation facilities have been classified as business facilities under the Building Act, and their use for residential purposes without a change of use is prohibited by law." The court concluded, "It is logical, consistent with experience, and in line with common social knowledge to view that the parties to this contract signed with the understanding that the building could not be used as a residence." The Court further stated that it was difficult to recognize the buyers' claims for contract cancellation due to mistake and ruled that the lower court had misunderstood the law.

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