1. Background
Under the current law, it is mandatory to include a clause in the sale contract stating that "if the developer is subject to a corrective order or an administrative fine, the buyer may terminate the contract." Following a Supreme Court ruling which held that according to the literal text of the contract, a buyer can terminate the contract if the developer receives a corrective order—regardless of the severity of the violation—there has been a surge in related lawsuits. This is driven by collective termination demands from buyers seeking to back out of contracts due to declining asset values of non-residential buildings, such as officetels and commercial shops.2. Details of Regulation
Previously, buyers could terminate the sale contract whenever a developer was subject to a corrective order or an administrative fine, regardless of the underlying reason. Going forward, the circumstances under which termination is permitted will be restricted to a specific scope.
- In the case of corrective orders: Contract termination is allowed only when the developer receives a corrective order due to the content of the sale advertisement differing from the approved sale report.
- In the case of administrative fines: Contract termination is allowed only when the developer faces an administrative fine for: failing to fulfill the obligation to publicly announce a corrective order, failing to notify buyers of such an order, failing to submit or report required materials, submitting/reporting false data, or refusing, obstructing, or evading an investigation or inspection.
Additional grounds for contract termination will be introduced by adopting relevant clauses from the Fair Trade Commission's Standard Apartment Supply Contract. These additions permit termination when: "the defects are severe or there is a significant discrepancy from the actual constructed building, move-in is delayed by more than 3 months past the scheduled date due to the developer's fault, or the transfer of ownership registration is impossible due to double-selling."
