Supreme Court: "Forest Service Chief's Approval" Not a Validity Requirement for National Forest Lease Transfer Contract

Supreme Court, Seocho-dong, Seoul.

[Asia Economy Reporter Choi Seok-jin, Legal Affairs Specialist] The Supreme Court has ruled that even if the transfer of the national forest lease rights was made without the approval of the Forest Service Chief, it cannot be asserted against the state, but the contract between the parties remains valid.

The Supreme Court's 2nd Division (Presiding Justice Min Yoo-sook) overturned the lower court's ruling that had ruled in favor of plaintiff A in the appeal of a land delivery lawsuit filed against B, demanding eviction from a building within a quasi-protected national forest where A had usage rights, and remanded the case to the Suwon District Court on the 7th.

Quasi-protected national forests is a collective term for national forests other than those designated as "protected national forests" by the Forest Service Chief for academic reasons or cultural heritage value.

The court stated, "The lower court regarded the Forest Service Chief's approval as a validity requirement for the transfer contract in this case and judged the transfer contract invalid. Based on this, it accepted the plaintiff's request for eviction from the management house in this case," adding, "This lower court ruling contains an error in misunderstanding the legal principles regarding the validity and conditional nullity of the transfer contract, which affected the judgment," explaining the reason for reversal and remand.

A's father, C, leased 6,292㎡ of forest land located in Paltan-myeon, Hwaseong-si, Gyeonggi Province, from the Suwon National Forest Management Office of the Forest Service in December 1998 for industrial use (artificial breeding of wild birds) with usage and profit rights.

C built a management house and operated a pheasant farm, and the co-lessee, his son-in-law, transferred his co-lease rights to D in March 2001 with approval from the Suwon National Forest Management Office.

C, who renewed the lease contract with D and continued operating the pheasant farm, entered into a contract in 2012 to transfer the joint lease rights on the land and the entire farm, including the management house, to E for 100 million KRW, and transferred possession of the management house he occupied to E.

Initially, when C contracted with E, he agreed to transfer the lease rights to E's wife, so in March 2014, he applied to the Suwon National Forest Management Office for approval to transfer the lease rights to E's wife's name, but the application was rejected due to "lack of boundary markers on the leased land."

In May 2015, C attempted to apply for transfer approval again, but the co-lessee D, who had received the lease rights from the son-in-law, did not consent, so approval was not obtained.

Meanwhile, B had taken possession of the management house subject to this eviction lawsuit from E in 2015.

After C passed away in August 2017, his son A obtained approval for name change due to inheritance from the Suwon National Forest Management Office in January 2018 and succeeded to C's lease rights. He then filed a lawsuit against B, exercising the civil law right to exclude interference, demanding eviction.

In court, A argued that the transfer contract of lease rights between his father C and E was invalid because it did not receive approval from the Forest Service Chief.

Article 25(1) of the National Forest Act (Restrictions on Transfer of Rights and Name Changes) stipulates that "When a person who has received a lease of national forest intends to transfer the rights or change the name, approval from the Forest Service Chief must be obtained." The issue in the trial was whether such approval is a validity requirement for the transfer of lease rights.

Previously, the first and second instance courts ruled in favor of A.

The first trial court noted that ▲ Article 25(1) of the National Forest Act requires approval from the Forest Service Chief for transfer or name change of rights by a lessee of national forest, and Article 26(1)(4) stipulates that if violated, "the lease may be canceled and the whole or part of the leased national forest may be returned," ▲ national forests are state-owned forest lands managed comprehensively and efficiently by the Forest Service through regular surveys and 10-year plans, and even in cases of lease, appropriate state management is necessary, ▲ if a transfer contract without the Forest Service Chief's approval is considered valid, there is a risk of undermining the state's management rights over national forests, and thus judged the "effect of transfer contracts without approval" as "conditional nullity."

In other words, a national forest lease transfer contract without the Forest Service Chief's approval is initially invalid, but if approval is later obtained, it becomes valid retroactively from the time of contract conclusion.

The court also stated, "A contract in a state of conditional nullity ceases to be conditionally null not only when the administrative agency issues a disapproval but also when both parties express refusal to cooperate in the approval application, and then becomes definitively invalid."

In this case, when C tried to obtain approval for the second time, the co-lessee D expressed refusal, so the transfer contract between C and E became definitively invalid.

Ultimately, the court ordered B to vacate and ruled that the litigation costs be borne by defendant B.

The second trial court also agreed with the first trial's judgment.

However, the Supreme Court's judgment differed.

The court, citing Supreme Court precedents, stated, "The lease of general property under the National Property Act by an institution delegated with management and disposal authority is a civil contract made by the state or local government as an economic entity on an equal footing with the other party, so civil law provisions apply to the rights relationship as a principle."

It continued, "This also applies to quasi-protected national forests, which are general properties under the National Property Act," and "Since the lease contract concerning quasi-protected national forests is a civil contract concluded by the state as an economic entity on an equal footing with the lessee, unless there are special laws regulating the rights relationship, civil law provisions on leases apply."

The court also pointed out, "Quasi-protected national forests, which are general properties under the National Property Act, are national forests other than protected national forests and have relatively less public characteristics as national property."

It added, "The National Forest Act requires approval from the Forest Service Chief when a lessee of quasi-protected national forests transfers rights, but it does not separately stipulate the effect of a transfer without approval nor does it provide penalties for unauthorized transfers. Considering these circumstances, the requirement for approval is intended to ensure the leased land is used according to the lease purpose and to efficiently manage quasi-protected national forests by grasping the lease status, not to make approval a validity requirement that denies the effect of the transfer itself if absent."

Finally, the court concluded, "Unless there is a special law restricting the effect of a transfer of rights by a lessee of quasi-protected national forests to a third party, it is reasonable to regard the transfer contract as valid, just as in civil law leases where a leasehold transfer contract without the lessor's consent is valid."

A Supreme Court official stated, "In the retrial, based on the legal principles clarified by the Supreme Court, it will be necessary to examine whether the plaintiff has the right to demand eviction against the defendant and whether the defendant has lawful possession, assuming the lease transfer contract between the deceased (C) and the third party (E) is valid, and then re-judge the plaintiff's claim."

He added, "This ruling clarifies that the approval of the Forest Service Chief required for the transfer of general property lease rights under the National Property Act is not a validity requirement for the transfer contract, and that existing precedents apply to unauthorized transfers of national forest lease rights, thus for the first time clearly ruling that unauthorized national forest lease transfer contracts, like civil law leases, cannot be asserted against the state but are valid as contractual obligations between the transferor and transferee."