Residents of Nammyung The Rau, a public rental apartment complex in Muge-dong, Gimhae, Gyeongnam, who were unable to recover their rental deposits due to the construction company's bankruptcy, have ultimately filed a lawsuit against the rental company.
On the 10th, residents of Nammyung The Rau held a press conference in front of the Gyeongnam Provincial Police Agency and announced that on the 4th, they filed a complaint against the CEO and an employee of Nammyung Industrial Development, the company in charge of the Nammyung The Rau rental business, for alleged fraud under the Act on the Aggravated Punishment of Specific Economic Crimes.
According to the residents, 309 out of 824 tenant households were listed as plaintiffs, and the total amount involved in the lawsuit is estimated to exceed 47.1 billion KRW.
Residents of Nammyung The Raou, a public rental apartment in Mugae-dong, Gimhae City, Gyeongnam, are urging investigation and strict punishment of the rental company. Photo by Se Ryeong Lee
Attorney Lee Heeyong, the legal representative of the tenants, stated, "The rental company was in a state of complete capital impairment in 2022 and 2023, with liabilities exceeding assets," and argued, "If we had known this, we would not have entered into the lease contracts."
He explained, "The rental company had an obligation to inform the counterparty of its financial status at the time of the contract based on the principle of good faith, but failed to disclose its insolvency. As a result, tenants believed the company was sound and paid the rental deposits without suspicion."
Tenant and plaintiff, identified as Mr. A, said, "This case exploited the fact that it is difficult for tenants to assess the financial status of a public rental construction company that has received support from the Housing and Urban Fund at the time of contract."
He added, "The rental company had been overdue for a long time on the special repair reserve that it was required to regularly deposit with Gimhae City, but Gimhae City did not inform the tenants. Since the relationship between Gimhae City and the rental company is also suspicious, we request a thorough investigation and a travel ban on the representative."
Namyeong The Raou, Public Rental Apartment in Mugye-dong, Gimhae-si, Gyeongnam. Photo by Se Ryeong Lee
Nammyung The Rau in Muge-dong is a public rental apartment complex managed by Nammyung Industrial Development, a subsidiary of Nammyung Construction, with occupancy beginning in February 2017.
Nammyung Construction, once the eighth-largest mid-sized construction company in the Gyeongnam region, experienced a liquidity crisis after failing to recover construction costs during a housing cooperative project in Haman and ultimately went bankrupt after being unable to cover promissory notes worth 1.24 billion KRW.
Nammyung Industrial Development applied for corporate rehabilitation proceedings at the Changwon District Court in December 2023 and received a decision to commence corporate rehabilitation in February 2024.
Attorney Lee stated, "The rental company leased out numerous homes while its intention or ability to return the rental deposits was at least questionable, and eventually filed for rehabilitation with the court. Tenants are now in a situation where they do not know when or from whom they will be able to recover their deposits."
He added, "Some tenants have renewed existing contracts or signed new contracts with increased deposits, but the largest number?49 households?signed new contracts in 2022 and 2023. The deposits from new households alone amount to 9 billion KRW."
He emphasized, "This is a completely new type of suspected rental fraud case, and a compulsory investigation is necessary to determine how the rental deposits received by the company were used."
He also stated, "To prevent similar incidents in the future, there should be a law requiring all public and private rental apartment operators to disclose their asset status so that counterparties can decide whether to enter into lease contracts."
An official from Gimhae City explained, "It is true that the rental company has not paid the special repair reserve since 2022. During this time, the city has imposed the highest possible administrative penalty, a fine, and has continuously demanded payment."
He further explained, "Under the standard lease agreement, rental business operators are not obligated to disclose information about assets such as the special repair reserve, and if the local government were to notify tenants, it could be considered clear interference with the rental business operator. Therefore, we have taken all possible administrative actions. The overdue special repair reserve will be collected at the time of conversion to ownership."
He added, "Although the deposits can be recovered, tenants must be extremely anxious as it is unclear when this will happen. If an investigation is conducted, our city will actively cooperate to help resolve the issue as smoothly as possible."
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