[Exclusive] Priority Allocation Instead of Public Bidding... Controversy Over Preferential Distribution of Reserved Units at Jamsil Raemian I-Park

Proposal to Grant Priority Allocation of Two Reserved Units
Recognition for Contribution to Park Land Donation Exemption and Excess Profit Reclamation Waiver
Residents Consider Filing Injunction to Prohibit General Meeting

The reconstruction association of Jamsil Raemian I-Park (formerly Jamsil Jinju Apartment) in Songpa-gu, Seoul, is facing controversy over a proposal to grant priority allocation of reserved units to certain companies as compensation for their contributions to the redevelopment project. Association members are protesting, claiming that allocating common property to outside companies as a special favor infringes on their property rights. There are also criticisms that even if the reserved units are sold at the highest price for general sales, the amount is still significantly lower than the current market value for sale rights, making it a "fire sale."

Perspective view of Jamsil Raemian I-Park. Provided by Samsung C&T Corporation and HDC Hyundai Development Company

Priority Allocation Pushed, With Specific Buildings and Units Designated

According to the redevelopment industry on August 5, the Jamsil Raemian I-Park reconstruction association plans to convene its 5th board of delegates meeting on August 8, where it will propose an agenda item titled "Priority Allocation of Reserved Units Due to Exemption from Excess Profit Reclamation, etc." This proposal includes granting a 84m² unit at the highest general sale price (1.9037 billion KRW) as a priority allocation to a certain law firm and a redevelopment project management company. The association has even specified the exact building and unit numbers for allocation.

Reserved units are surplus units held by the association, the project implementer, to prepare for issues such as unallocated shares or future lawsuits. Typically, about six months before project completion, the association disposes of these units through public bidding, often awarding them to the highest bidder starting from a minimum bid price set by the association.

The association cited the companies' contributions as the reason for the priority allocation. In the past, these companies helped resolve park area issues that had stalled the project during Seoul City's review process and contributed to the successful convening of the management disposition general meeting. Previously, Seoul City had required the association to secure at least 3m² of park area per household for complexes with over 1,000 households during its review of the Jamsil Jinju reconstruction project. Later, the Ministry of Government Legislation issued an authoritative interpretation stating that the Jamsil Apartment District Development Master Plan was established before the Urban Park Act took effect (October 2005) and was therefore not subject to the regulation, allowing the association to avoid the requirement.

The association believes that Law Firm A played a key role in persuading the Ministry of Land, Infrastructure and Transport and the Ministry of Government Legislation to issue this interpretation. As a result, the association claims to have saved approximately 276.2 billion KRW in land value (1,381 pyeong) and 750 billion KRW in reconstruction levies by being exempted from the Urban Park Act. Through the general meeting agenda, the association stated, "We previously agreed that if these tasks were successfully completed, we would propose the priority allocation of reserved units at the general meeting."

For Redevelopment Project Management Company B, the association cited its support in ensuring the successful convening of the management disposition general meeting ahead of the implementation of the reconstruction excess profit reclamation system. At the time, some association members occupied the site, making it difficult to proceed with the meeting, but the company managed ballot boxes and secured cooperation from relevant departments, allowing the meeting to proceed as planned. The association stated, "An emergency general meeting was dramatically convened, and the management disposition plan was submitted on December 26, 2017," adding, "As a result, we were able to apply for a management disposition plan that reflected the exemption from park land donation and thus were exempted from the reconstruction excess profit levy."

"Infringement of Members' Property Rights"... Injunction to Prohibit General Meeting Under Review

Jamsil Raemian I-Park Complex Blueprint. Provided by Raemian and I-Park

The Residents' Association (Ipyehyeop) claims that the association's arbitrary disposal of reserved units, instead of using public bidding, constitutes an infringement of property rights. They argue that designating specific buildings and units for certain companies amounts to preferential allocation. If the proposal passes the board of delegates, the final decision will be made at the general meeting, and residents are considering filing an injunction to prohibit the general meeting from being held.

Member A of the association stated, "The association is using the exemption from the excess profit reclamation system as a justification for compensation, but this was achieved with costs borne by all members, numbering in the thousands. I cannot accept the association's method of rewarding specific companies by transferring members' assets under the guise of their contributions." He also emphasized, "Since reserved units are the association's property, it is only fair to sell them through public bidding in the future and use the proceeds to reduce members' contributions."

Even if the association applies the highest general sale price to the reserved units, it is only about half the current market value. Last month, a high-floor 84m² sale right for this apartment complex was traded at 3.5547 billion KRW. Compared to the highest general sale price (1.9037 billion KRW), this suggests a minimum market profit of 1.6 billion KRW.

Legal Community: "Possible Violation of Urban Redevelopment Law"... Association: "Legal Review Conducted"

There are also concerns that the association's arbitrary disposal of reserved units may violate the law. Under current law, allocating reserved units to third parties without public bidding may be illegal. According to Article 79 of the Urban and Residential Environment Improvement Act (Urban Redevelopment Act), Article 67 of its Enforcement Decree, and Article 54 of the Housing Act, when allocating reserved units to persons other than association members or landowners, the supply must comply with the timing, conditions, and procedures for housing supply contracts as stipulated by the Ministry of Land, Infrastructure and Transport. The law also stipulates that recipients must meet the eligibility and supply priority criteria set by the Ministry.

Jamsil Jinju Reconstruction Site. Asia Economy DB

Kim Yerim, managing attorney at Law Firm Simmok, explained, "According to the current Enforcement Decree of the Urban Redevelopment Act, arbitrarily allocating reserved units to third parties who are not association members is potentially illegal. If the proper procedures are not followed and arbitrary allocation occurs, the allocation itself could be invalidated."

On the other hand, the association maintains that it has conducted a thorough legal review. Ban Seongyong, president of the Jamsil Jinju Apartment association, stated, "We have reviewed (the possibility of illegality) to the best of our ability. The intent of the proposal is to provide (the reserved units) to those who have contributed to the operation of the association." He added, "The process must go through the board of delegates and then the general meeting, and we are currently at the board of delegates stage. Since the general meeting is the decision-making body, execution is only possible if approved at the residents' general meeting."