When Exercise of Rights Is Denied as Abuse of Rights

A significant portion of recent court cases in South Korea involves property buyers seeking to terminate presale contracts for officetels and similar units. While various reasons are cited on the surface, the underlying motivation is often the declining real estate market, where completing payment and moving in would result in losses.

Contract termination is certainly possible when buildings have serious defects. However, recent litigation trends show buyers seeking contract termination even for minor defects, rather than requesting repairs or compensation—an unusual phenomenon.

Buyers commonly cite violations of the Building Sale Act by developers, resulting in corrective orders or fines from authorities. Unlike apartments, smaller buildings such as officetels are covered under the Building Sale Act, which includes provisions protecting buyer rights. A key protection requires developers to include contract termination clauses allowing buyers to cancel if developers receive corrective orders.

Most officetel presale contracts include such termination clauses. However, the Building Sale Act does not consider the severity of violations or whether immediate corrections were made, nor does it specify time limits for exercising termination rights. Consequently, buyers who purchased during market upswings now refuse final payments years later, exercising termination rights just before occupancy dates.

Lower courts have tended to interpret termination grounds narrowly, ruling that contract termination years after purchase is unreasonable for minor violations. However, the Supreme Court recently ruled that termination clauses in presale contracts based on the Building Sale Act must be interpreted literally, regardless of the severity of violations.

Nevertheless, the Supreme Court ruling should not be interpreted to mean buyers can terminate contracts without limitation whenever developers receive corrective orders or fines, even after building completion. In one notable case, a developer had recruited buyers without filing required pre-sale reports and was fined for violating the Building Sale Act. The presale contract allowed termination if the developer was fined.

Despite this, the court rejected the termination claim. The reasoning: buyers had already completed ownership registration, achieving the contract's purpose. Moreover, buyers had participated in the illegal pre-sale process to secure preferred locations, business types, and pricing advantages. The court found that exercising termination rights after completion and registration constituted an abuse of rights contrary to principles of justice.

Some may question what is wrong with exercising rights according to contracts and law. Consider this illustrative case: A, who had emigrated abroad, owned a house in Korea where his elderly father and younger sibling's family lived. A sued to evict them. His father was elderly with chronic illness and no alternative residence; his sibling also suffered from hepatitis and had limited resources. Meanwhile, A lived comfortably abroad with no urgent need for the property. The Supreme Court ruled A's exercise of ownership rights constituted abuse of rights contrary to principles of justice.

In another case, B owned land adjacent to a condominium. B installed steel pipe structures and concrete planters along the boundary, causing inconvenience to condominium guests and damaging the property's aesthetics. While the lower court found the exercise of rights legitimate, the Supreme Court ruled it exceeded legitimate boundaries and constituted abuse of rights.

Claims of rights abuse and violation of good faith principles are not easily accepted. Lower and higher courts often reach different conclusions on such matters. However, experienced attorneys actively raise such arguments when literal application of contract terms or legal provisions would lead to unreasonable outcomes—and courts sometimes accept them.

In a case handled by this author, C School Foundation obtained hotel construction permits for its land and transferred ownership to a trust company. When Chairman D violated conditions for disposing of the foundation's basic assets and committed illegal acts, the construction permit was revoked, and the foundation recovered land ownership. When the trust company continued occupying the land, the foundation sued for unjust enrichment.

The court rejected the foundation's claim. It ruled that the trust company's unjust enrichment obligation arose from the foundation chairman's illegal acts, and the foundation owed the trust company damages. Under these circumstances, pursuing unjust enrichment claims constituted abuse of rights contrary to principles of justice.

In summary, even when a buyer becomes liable for unjust enrichment due to a seller's illegal acts voiding a sale contract, the seller's exercise of unjust enrichment claims against the buyer constitutes abuse of rights violating good faith principles. Such precedents in real estate disputes, where exercising valid rights is deemed abuse of rights, are not uncommon. Importantly, courts only rule on such matters when attorneys actively argue and prove these points.