[Taemin Ryu's Real Estate A to Z] Do You Have to Pay a Penalty if 'Land Transaction Permission' Is Not Granted?

Principle of 'Flexible Nullity' in Sales Contracts
Contract Principal Can Be Refunded Even Without Land Transaction Permit
Sales of Land and Buildings Together Are Generally Null and Void
Auctions, Inheritance, and Gifts Are Not Subject to Transaction Permits

[Asia Economy Reporter Ryu Tae-min] Recently, Seoul Mayor Oh Se-hoon designated major reconstruction complexes as land transaction permission zones as part of measures to stabilize housing prices, causing increased confusion in housing sales contracts in those areas. Representative zones include Apgujeong District, Yeouido District and nearby complexes, Mokdong New Town, and Seongsu Strategic Maintenance Area. On real estate-related online communities, anxious questions have been continuously posted, such as whether buyers who fail to obtain land transaction permission after agreeing with sellers and proceeding with contracts will not be able to get their already paid deposits back or will have to pay penalties.

When a land sales contract is concluded in a land transaction permission zone, it is considered invalid until permission is granted by the competent authority. Once permission is obtained, the sales contract becomes valid retroactively from the contract date. This situation is legally called "conditional invalidity." If permission is not granted during the conditional invalidity period, the sales contract becomes null and void, and the seller is obligated to return the deposit to the buyer in full.

Attorney Eom Jeong-sook of Beopdo Comprehensive Law Office advised, "Including a clause in the contract specifying the maximum period for permission confirmation or a special provision stating that the contract is effective only if land transaction permission is obtained can help minimize disputes."

There are cases where contracts for both land and buildings are concluded within permission zones, but permission is not granted for the land. In principle, both land and building sales become invalid in such cases. However, if there are special circumstances where only the building is purchased without land transaction permission, the building sale alone can be valid.

If a sale is conducted without land transaction permission, it is subject to imprisonment of up to two years or a fine of up to 30% of the land acquisition price. However, not all transactions require permission just because the area is designated as a permission zone. In Seoul, land transaction permission is required only if the area exceeds 18㎡ in residential zones or 20㎡ in commercial zones.

Separate permission is not required when acquiring land through Onbid public auctions conducted by the Korea Asset Management Corporation or auctions under the Civil Execution Act. Similarly, permission is not required for inheritance or gifts where no consideration is exchanged, or when returning land due to cancellation of name trust.