Rising construction costs trigger additional contribution risks in renewal projects

Attorney Kim Ye-rim warned that reconstruction and redevelopment projects face significant legal and economic risks, including rising construction costs that now frequently exceed 10 million won per pyeong. These surging costs are being passed to association members, who may face mandatory additional contributions once a general meeting passes a resolution.

As prices for newly built apartments rise, more demand is shifting toward urban renewal projects such as reconstruction and redevelopment. However, relying solely on expectations of deregulation carries significant legal and economic risks. These projects are fraught with unpredictable variables, including licensing issues, disputes over membership qualifications, and additional contributions resulting from rising construction costs.

According to an analysis by attorney Kim Ye-rim shared by KB Real Estate TV, there is a growing trend of requests for legal consultation during the early stages of projects rather than a surge in litigation caused by economic downturns. Resolving legal procedures and regulations during the initial phases—from forming a promotion committee to establishing an association—is the first step that determines the success or failure of a project. "In the case of reconstruction and redevelopment sites, you should consider legal consultation essential," Kim explained, noting that participants must prepare for various legal disputes that arise in the early stages.

Licensing Invalidity and Commercial Negotiations: 'Critical Variables' Slowing Progress

The most critical points obstructing the progress of renewal projects are licensing and negotiations with stakeholders. Kim warned that if a license is canceled or declared invalid, a fatal situation can occur where the entire project stage must revert to the beginning. Notable examples include cases where association establishment approval was invalidated just before construction began, or where the establishment of an association was canceled due to issues with obtaining consent through "split ownership" during the formation stage.

Negotiations with multi-use facilities, such as commercial buildings or churches, are also cited as major causes of delay. In reconstruction projects specifically, unlike redevelopment, business compensation is often not legally set separately, which can lead to conflicts with commercial tenants that stall the project. "Solving problems through early negotiation is a capability of the association," Kim explained, adding that in high-profit areas like the Gangnam Area, cooperation is sometimes secured by guaranteeing apartment pre-sale purchase rights to commercial association members. Conversely, in successful commercial areas, conflicts may arise with tenants who do not wish to relocate due to issues regarding premium values.

Conflicts during the relocation stage also cannot be ignored. To prevent disputes with occupants who refuse to vacate within the relocation period, associations typically proceed with mass eviction lawsuits. While there was once a perception that resisting relocation was profitable, it is becoming increasingly difficult to engage in such "holdout" tactics as compulsory execution through legal procedures becomes more possible, along with an increased risk of being ordered to return unjust enrichment or facing criminal penalties. "It is practically difficult to be the last person to hold out," Kim added, noting that compulsory execution is possible once legal procedures are followed.

Surging Construction Costs and Additional Contributions: "Examine the Renewal Plan First"

The issue that triggers the most sensitive reaction from association members is undoubtedly the "additional contribution." As construction costs have recently surged, conflicts between contractors and associations are intensifying. While contractors and associations used to negotiate construction costs at reasonable levels, there is an increasing number of cases where the construction cost per pyeong exceeds 10 million won in recent contracts, increasing uncertainty regarding the scale of future contributions. "Recently, construction contracts are being signed at over 10 million won per pyeong," Kim reported regarding the current situation on the ground.

Kim advised, "Information regarding expected additional contributions is already included in the renewal plan establishment stage," and urged members to "meticulously examine the project's feasibility by comparing the surrounding new apartment market prices with the total input costs." She emphasized that because the current structure of renewal projects involves rising costs while sale prices do not rise at the same rate, the increase in construction costs is inevitably passed on to the association members. If the additional contribution reaches an unmanageable level, members may choose to become subjects of cash liquidation by not applying for an apartment during the application stage.

A key point of caution is the method of determining additional contributions. Even if an individual member does not agree to every decision, the obligation to pay the additional contribution arises once a resolution is passed at a general meeting. "Since the additional contribution is considered resolved once a general meeting reaches a decision, you must pay it," Kim explained.

"Ignoring Consent Requests Risks Cash Liquidation"... Precautions for Members

Because renewal projects are conducted through collective decision-making, it is difficult for the opinions of minority members to be reflected, and there is a risk of being marginalized during the decision-making process. Kim emphasized that members should not neglect various notices and newsletters sent during the project process.

As project periods lengthen, requests for consent regarding various items or the dismissal of association heads occur frequently. Ignoring these simply because they are perceived as a nuisance can lead to unexpected disadvantages. The most important thing to watch for is the "application for apartment purchase." If a member fails to apply within the designated period or fails to update their address in time to receive notices, they may unintentionally be classified as a subject for cash liquidation. "Because so many items and newsletters are exchanged, cases occur where members miss the application for apartment purchase by neglecting them," Kim advised, stating that members must carefully review all materials if they wish to receive an apartment.

Ultimately, successful participation in a renewal project requires meticulousness in closely checking the resolutions decided by the association and not missing essential administrative procedures to protect one's own rights.

Source: original video (YouTube)