Court Rules Moa Town Joint Developer Contract Invalid... Handa General Construction Loses First Trial

Northern Seoul District Court Orders Return of 734.03 Million Won
"Violation of Mandatory Rule: No Written Consent from Association Members"
Rules in Favor of Myeonmok Station Area 3-1 Association

The Myeonmok Station 3-1 District Street Housing Redevelopment Association (Myeonmok Station 3-1 District Association) in Jungnang District, Seoul, has won the first trial in a lawsuit seeking the return of unjust enrichment, amounting to over 700 million won, against its joint developer, Handa Construction.

This is the first ruling in a dispute over the joint developer contract model for Moa Town project sites, and is expected to have repercussions for the 122 Moa Town project sites designated across Seoul.

An area in Jungnang District densely packed with low-rise, aging multi-family and multi-household residential buildings. Provided by Jungnang District.

According to the industry on April 29, the 12th Civil Division of the Seoul Northern District Court (Presiding Judge Kim Jungtae) ruled partially in favor of the Myeonmok Station 3-1 District Association in a lawsuit against Handa Construction and its former CEO, Mr. Kim, for the return of unjust enrichment. The court ordered Handa Construction to pay the association 734.03 million won plus 12% annual interest calculated from September 26 of last year until the date the payment is completed. However, the claim against Mr. Kim was dismissed.

The court considered the joint implementation contract signed between the association and Handa Construction on June 22, 2023, to be void. Article 25, Paragraph 1, Item 1 of the “Special Act on the Maintenance and Improvement of Vacant and Small-Scale Housing” (Small-Scale Housing Maintenance Act) requires that, when an association jointly implements a redevelopment project with a third party, members must go through a consent process by writing their name and affixing a fingerprint on a written consent form. A copy of identification must also be attached.

The court stated, “This provision is mandatory,” and explained, “The selection of a joint developer and execution of a joint implementation contract without going through this form of written consent is invalid.” While the Myeonmok Station 3-1 District Association approved the selection of Handa Construction as a joint developer at a regular general meeting in May 2023, it did not go through a separate written consent procedure.

On the intent behind the strict procedural requirement, the court explained, “It is to ensure the authenticity of the members’ decision-making and to strictly limit the selection process for joint developers, since they will be substantially executing the redevelopment project, in order to prevent the project from being poorly managed.”

As the contract was deemed invalid, the 734.03 million won paid by the association to Handa Construction in July 2023 was considered unjust enrichment and must be fully returned. This amount corresponds to 70.78% of the 1.037 billion won joint implementation service fee set at the founding general meeting, and was paid in a lump sum at the early stage of the project, even before the project implementation plan was approved. The association has argued that this payment was excessive.

However, the court did not accept the association’s other claims. The assertion that Handa Construction did not have construction business qualifications under the Framework Act on the Construction Industry, and the claim that it violated the obligation to register as a professional redevelopment project management company, were both dismissed.

The court explained, “This contract is not a service outsourcing contract, but an agreement to jointly implement the project,” and concluded that “the obligation to register as a professional redevelopment project management company under Article 102 of the Urban Redevelopment Act does not apply.” The court also noted differences from typical service contracts, such as the payment being set at 2.1% of revenue and the agreement to negotiate the cost bearer when unclear.

The Myeonmok Station 3-1 District (7,434.70 square meters) is one of the projects located within the Moa Town project area (88,040 square meters around 152-1 Myeonmok-dong) designated by Seoul City and Jungnang District. Moa Town is a core redevelopment policy of Seoul Mayor Oh Sehoon, which redevelops old low-rise residential areas of 100,000 square meters or less using small-scale methods such as street housing or voluntary housing redevelopment. As of the end of January this year, 122 sites have been designated in Seoul, with Jungnang District having the largest number, at 16 sites.

Jeon Seongmin, the attorney representing the plaintiff, stated, “The significance of this ruling is that the judiciary has, for the first time, identified procedural flaws in the joint developer model adopted by many Moa Town project sites.” Handa Construction is reportedly planning to appeal the ruling.

Meanwhile, it is being raised that similar disputes may arise at other project sites where joint developers were selected solely by general meeting resolution without following the written consent procedure.

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