Supreme Court: Real Estate Agents Must Check and Disclose Rights of Other Units with Collective Mortgages in Multi-Unit Dwellings

When a collective mortgage is established on a multi-unit dwelling, the Supreme Court has ruled that a licensed real estate agent has a duty, when brokering a lease contract, to check and explain not only the rights related to the specific unit in question but also the rights of other units within the same building. This is the first precedent to clearly define the scope of the real estate agent's duty to check and explain matters related to collective mortgages on multi-unit dwellings.

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The Civil Division 2 of the Supreme Court (Presiding Justice Kwon Youngjun) on December 4 overturned the lower court's ruling that had found against the plaintiffs in an insurance claim lawsuit filed against the Korea Association of Realtors regarding the return of a lease deposit for a multi-unit dwelling, and remanded the case to the Seoul Central District Court (2024Da305087).

[Facts]

Landlord A constructed a building consisting of a multi-unit dwelling and an officetel, and established a maximum secured claim mortgage of 1.8 billion won with a bank. Subsequently, the plaintiffs, Corporation B and Mr. C, each leased a unit with a deposit of 60 million won, and the lease contracts were brokered by licensed real estate agent D. D indicated the building as a 'single-family house' on the property disclosure statement and only recorded the existence of the 1.8 billion won mortgage. D did not check the rights or lease status of other units within the same building.

Later, as the building went through a voluntary auction, Corporation B did not receive any distribution, and Mr. C received only 25 million won. The plaintiffs then claimed that the real estate agent failed to fulfill the duty to check and explain, resulting in damages, and filed a claim for compensation against the Korea Association of Realtors, which operates an insurance program covering such liabilities.

[Issue]

While a 'multi-household dwelling' is a single-family house with unified ownership of the entire building, a 'multi-unit dwelling' has separate ownership for each unit. For example, when brokering a lease contract for Unit A in a multi-unit dwelling, Unit B, which is subject to a collective mortgage together with Unit A, is not the subject of the brokerage. The issue was whether, in relation to the possibility of recovering the lease deposit for Unit A, the agent must also check and explain the rights related to Unit B.

[Lower Courts]

The first trial court ruled that D had a duty to check and explain the lease status of other units, partially ruling in favor of the plaintiffs.

However, the appellate court found that D had fulfilled the duty as a real estate agent by checking and explaining the existence of the mortgage on the property in question, and that, unlike multi-household dwellings, in the case of multi-unit dwellings, there is no obligation to check and notify the lessee about the lease status of other units when brokering a lease contract. Therefore, D was deemed to have fulfilled all professional obligations as a real estate agent.

[Supreme Court Ruling]

The Supreme Court overturned and remanded the case. The Supreme Court held that when brokering a lease contract for a multi-unit dwelling, if there is a collective mortgage established on other units owned by the landlord, the licensed real estate agent has a duty to provide the lessee with accurate and diligent information regarding the rights necessary to assess whether the lessee can properly recover the lease deposit from the proceeds of the auction of the subject property, excluding the amount apportioned to the subject property.

The Supreme Court stated, "The licensed real estate agent must not only check and explain the rights related to the collective mortgage as indicated in the real estate registry of the subject property to the lessee, but also check and explain any prior rights indicated in the real estate registries of other units owned by the landlord that are subject to the collective mortgage." The Court added, "When the same person owns several units in a multi-unit dwelling, it is highly likely that there are tenants in those other units as well. Therefore, the licensed real estate agent must check with the landlord whether there are tenants who have entered into lease contracts and reside in those other units, and if so, request information regarding the lease deposit, lease period, and termination date, confirm this information, explain it to the lessee, and provide the relevant documentation."

The Court continued, "Even though it should have been clear that there were a significant number of tenants in other units subject to the collective mortgage in this case, there is no evidence that D requested and checked information on the existence of tenants, lease deposits, lease periods, and termination dates for each unit, explained this to the plaintiffs, provided the relevant documentation, or recorded such information in the 'actual rights status or unregistered rights' section of the property disclosure statement and delivered it to the plaintiffs." The Court concluded, "Therefore, it is highly likely that D violated the duty to check and explain as a licensed real estate agent, either intentionally or negligently, while brokering each of the lease contracts in this case."

An Jaemyung, Law Times Reporter

※This article is based on content supplied by Law Times.