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

The Myeonmok Station Area 3-1 Street Housing Redevelopment Association (the Association for Myeonmok Station Area 3-1) in Jungnang-gu, Seoul, has won its first trial in a lawsuit demanding the return of unjust enrichment of over 700 million won against its joint developer partner, Handa General Construction.

This is the first court ruling in a dispute over joint developer contracts for Moa Town projects, and it is expected to have ramifications for the 122 other Moa Town project sites designated across Seoul.

Last year, Ryu Kyunggi, Mayor of Jungnang District, who attended the housing development experts' forum, is speaking. Jungnang District is where the most Moa Town-style developments are being carried out in Seoul. Provided by Jungnang District.

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According to the industry on April 29, the 12th Civil Division of the Northern Seoul District Court (Presiding Judge Kim Jungtae) on April 23 ruled in favor of the Association in part in its lawsuit against Handa General Construction and former CEO Mr. Kim, ordering, "Handa General Construction shall pay the Association 734.03 million won and interest at an annual rate of 12% from September 26 last year until full payment." However, the claim against Mr. Kim was dismissed.

The court found the joint implementation contract signed between the Association and Handa General Construction on June 22, 2023 to be invalid. Article 25, Paragraph 1, Subparagraph 1 of the 'Special Act on the Maintenance and Improvement of Vacant Houses and Small-Scale Housing' (Small-Scale Housing Maintenance Act) stipulates that when an association implements a redevelopment project jointly with a third party, the consent procedure must involve members writing their names and affixing fingerprints on a written consent form. A copy of their ID card must also be attached.

The court stated, "This provision is mandatory," and added, "Selecting a joint developer and signing a joint implementation contract without going through this written consent process is invalid." Although the Association approved the selection of Handa General Construction as a joint developer at its regular general meeting in May 2023, no separate written consent procedure was carried out.

Explaining the strict procedural requirement, the court said, "The intent is to ensure the authenticity of the members’ decision-making and, since the joint developer will be substantially carrying out the redevelopment project, to strictly limit the selection process so as to prevent the project from being poorly managed."

As the contract was ruled invalid, the 734.03 million won that the Association paid to Handa General Construction in July 2023 was deemed unjust enrichment and must be fully returned. This amount accounts for 70.78% of the 1.037 billion won in joint implementation service fees set at the inaugural general meeting. Since it was paid in a lump sum at the early stage of the project-before even obtaining project implementation approval-the Association had long argued that the payment was excessive.

However, the court did not accept the Association’s other arguments. The claims that Handa General Construction lacked the qualifications of a construction business operator under the Framework Act on the Construction Industry, and that it violated the obligation to register as a specialized redevelopment management company, were both dismissed.

The court explained, "This is not a service delegation contract, but rather an agreement to jointly implement the project," and therefore, "the obligation to register as a specialized redevelopment management company under Article 102 of the Urban Redevelopment Act does not apply." The court pointed to the fact that the fee was set at 2.1% of sales and that responsibility for costs was to be determined through consultation if not otherwise specified, as aspects that differed from a typical service contract.

Myeonmok Station Area 3-1 (7,434.70㎡) is one of the project sites within the Moa Town zone (an area of 88,040㎡ around 152-1 Myeonmok-dong) designated by Seoul City and Jungnang District. Moa Town is a flagship redevelopment policy of Seoul Mayor Oh Se-hoon, which bundles together old low-rise residential areas of less than 100,000㎡ for small-scale development methods such as street housing and self-redevelopment. As of the end of January this year, 122 sites had been designated across Seoul, with Jungnang District leading the city with 16 ongoing projects.

Jeon Sungmin, attorney for the Association, stated, "This ruling is significant in that the court has, for the first time, confirmed procedural flaws in the joint developer method adopted by many Moa Town project sites." Handa General Construction is reportedly planning to appeal the decision.

Meanwhile, there are concerns that similar disputes may arise at other project sites where joint developers were selected solely by general meeting resolution without properly following the written consent procedure.

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