"We trusted the developer..." Seocho residence buyers in tears at Supreme Court of Korea [Seocho Samgeori]

[Financial News] "The staff clearly (and falsely) advertised that actual residence was possible, but now they say the deposit cannot be refunded..."
The Supreme Court of Korea has ruled that buyers who signed contracts after being told by the developer and its staff that a residential-style lodging facility could be used as a home cannot get their deposits back. The court noted that, despite the false advertising about being able to live there, the contracts explicitly stated that residential use was prohibited and included a clause in which the buyers agreed not to raise any objections.
The First Petty Bench of the Supreme Court of Korea, presided over by Justice Rho Tae-ak, recently overturned a lower court ruling that had partially sided with four buyers, including a person identified by the surname Joo, who had sued developer A in a lawsuit seeking restitution of unjust enrichment over a residential-style lodging facility in Seocho District, Seoul. The Supreme Court of Korea remanded the case to the Seoul High Court, it said on the 16th.
The buyers signed contracts between January and February 2021 for units in a residential-style lodging facility in Seocho District and each paid deposits ranging from 40 million to 80 million won. Such residential-style lodging facilities are often marketed as "residences" or serviced residences, and they are lodging facilities where cooking is allowed but residential use is prohibited. The buyers filed suit, arguing that the developer had falsely advertised at the time of contracting that "actual residence is possible" and demanding the return of their deposits.
The court of first instance ruled against the plaintiffs, finding that the developer was not responsible for causing the misunderstanding that the residential-style lodging facility could be used as a home.
The first-instance court pointed out that the contract clearly stated that the building was a residential-style lodging facility, not a housing unit, and that the buyers had signed acknowledging this when they entered into the contracts. The contract also stated that "any disadvantages arising from using the property for purposes other than as a residential-style lodging facility shall be borne by the plaintiffs, and the defendant and others shall not be liable for such matters."
The appellate court reached a different conclusion. It found that the developer had indeed engaged in false advertising during consultations and other interactions, and ordered the developer to pay the four plaintiffs 175.3 million won in deposits plus delay damages. The appellate court stated, "Through advertisements and consultations with staff of the sales agency, the property was widely promoted as a place where 'you can actually live,' and even when the likelihood greatly increased that use for purposes other than lodging would be prohibited, these changed circumstances were not disclosed to the plaintiffs."
In January 2021, the Ministry of Land, Infrastructure and Transport (MOLIT) issued an administrative notice of proposed legislation to require that sales materials for residential-style lodging facilities clearly state that they cannot be used as housing and that a lodging business registration is required. In May of that year, the law was further amended to require operators of such facilities to file lodging business registrations. Thus, at the time the plaintiffs were signing their contracts, the prohibition on using residential-style lodging facilities for residential purposes had been codified into law.
The Supreme Court of Korea again overturned the appellate ruling. Citing the clause in the contract stating that "the plaintiffs recognize that the building in this case is a residential-style lodging facility and may not raise any objections," it held that interpreting the developer’s conduct as having induced the buyers’ trust or mistake regarding the possibility of residential use was contradictory.
The Supreme Court of Korea noted, "Although words such as 'residential' and 'living' did appear in some of the promotional materials," it also found that "at the same time, phrases such as 'its legal use is a lodging facility' and 'lodging business and real estate leasing business' provided detailed information that distinguished it from ordinary residential buildings."
The court further held that the buyers themselves could be regarded as having entered into the contracts while recognizing that the property could not be used for residential purposes. The Supreme Court of Korea stated, "The appellate court’s conclusion that the defendant, as the contracting party, induced the plaintiffs’ trust or mistake regarding the possibility of residential use appears to contradict the parties’ understanding and motives as reflected in the contract and other dispositive documents in this case."
hwlee@fnnews.com Reporter Lee Hwan-joo Reporter