Even Winners of Illegal Subscription Can Get Their Deposit Back

Seoul High Court Rules Forfeiture of Penalty Fees Unfair
Excessive Sanctions Violating Housing Laws
Less Favorable Than Fair Trade Commission's Penalty Fee Regulations

[Asia Economy Reporter Onyu Lim] An appellate court ruling has declared the practice of developers confiscating the deposit of apartment fraudulent subscription winners as a penalty fee to be unfair.

According to the legal community on the 22nd, the Seoul High Court recently ruled in favor of plaintiff A, a buyer of a fraudulent subscription sales right, in an appeal demanding the return of the penalty fee from developer B. This overturned the lower court's decision, which had held that the penalty fee clause was exempt from the obligation to explain terms and conditions.

Apartment fraudulent subscription refers to cases where brokers purchase subscription savings accounts and apply on behalf of the subscription holder, or where general applicants win by forging documents or using fictitious addresses. The court stated, "If the obligation to explain the penalty fee clause is not fulfilled, its validity is not recognized, so the developer must return the penalty fee to the sales right buyer."

The court viewed the penalty fee confiscation clause as an excessive sanction that violates housing laws requiring full refund of the sales price even in cases of fraudulent subscription. It also judged that the clause was more disadvantageous to the buyer than the penalty fee regulations set by the Fair Trade Commission's standard terms and conditions. Furthermore, the penalty fee clause in the supply contract was not specially marked with symbols, colors, or bold and large fonts to make it easily recognizable, so the developer could not be considered to have fulfilled the detailed explanation obligation.

Previously, in October 2018, when the Ministry of Land, Infrastructure and Transport requested local governments to cancel sales contracts for 257 cases of apartment fraudulent subscriptions, developers canceled the fraudulent subscription sales rights but did not return the deposit to the contract holders under the name of penalty fees.

Attorney Han Yoo from Moon Seongjun Law Office, who represented the case, said, "Developers tried to take unfair advantage by riding on the government's strong crackdown stance on fraudulent subscription sales rights, but this is an unfair abuse of power," adding, "Following the district court, the higher court's ruling that 'confiscation of penalty fees is unfair' has put a brake on the developers' unfair practices."