Tenants who entered into sublease agreements for officetels, relying on the name of the Korea Construction Technology Association, are at risk of losing security deposits totaling 10 billion won. This situation arose after the leasing company, Sovereign State, invested the deposits in an electric vehicle charging business, leading to corporate debts exceeding 30 billion won. As the lease was terminated due to unpaid rent, the burden fell entirely on the tenants, but the first-instance court did not recognize the association's liability for damages. The tenants have appealed, claiming they were misled by the association's public institution status.
In November of last year, the Seoul Central District Court ruled partially in favor of 25 residents of Sovereign State in a damages lawsuit. The court accepted all claims against the Sovereign State corporation and most claims against individuals Choi and Yoo, except for some delayed damages. While this ruling opened a path for tenants to recover their deposits, the reality is that recovering the funds is nearly impossible due to Sovereign's lack of repayment capacity.
The victims also sought legal accountability from the Korea Construction Technology Association, the primary landlord, arguing that the association had completed the registration of the leasehold rights for Sovereign and had neglected its management and oversight duties despite being aware that tenants were residing in each unit. They contend that the association failed to take action despite recognizing the financial difficulties and rent arrears of Sovereign, allowing tenants to mistakenly believe that Sovereign's financial situation was stable.
In anticipation of the court denying the association's direct liability, the tenants filed a preliminary claim for the association to pay them 2 billion won, which Sovereign owes to the association as a security deposit. This claim aims to allow tenants to exercise the right of subrogation to receive compensation proportionate to their losses.
However, the first-instance court dismissed the tenants' claims. The court noted that while the lease agreement stipulates that the sublease deposit cannot exceed 80% of the main lease deposit, this clause is intended solely to protect the association's rights and does not impose a duty on the association to manage or supervise the total amount of sublease deposits. The court concluded that the association only needed to verify the documents submitted by Sovereign and was not obligated to investigate whether the information matched the actual property status.
Furthermore, the court did not accept the tenants' argument that the association should have been aware of Sovereign's fraudulent activities. Although the association requested and received documentation regarding the sublease agreements, Sovereign submitted forged contracts, making it impossible to ascertain the actual deposit amounts. The court determined that the association could not have reasonably anticipated document forgery based solely on the absence of a broker's seal or the deletion of tenant personal information.
Instead, the court differentiated the liability for damages among the real estate agents involved based on their level of negligence. Agents who disclosed that the transaction involved a sublease were held responsible for 20% of the damages, while those who failed to disclose the sublease or could not provide evidence of showing the contract with the association faced liability of 30% to 40%.
The court also clarified the liability of the Korea Association of Realtors and Seoul Guarantee Insurance, which had contracts with these agents. Rather than holding these organizations directly liable for damages, the court ruled that they must pay the damages up to the limits of the individual agents' insurance coverage. The court found that the obligations of these associations and the insurance companies were jointly linked to Sovereign's liability for returning the sublease deposits and the damages owed by Sovereign's representatives and agents. Consequently, the victims can now seek compensation not only from Sovereign and the agents but also from the real estate association and the insurance company within the total range of damages.
The investigative team at Aju Economy inquired about the future response plans and measures from the institutions that have been held liable for damages in light of this ruling. The Korea Association of Realtors stated regarding their liability and future response, "An appeal is currently underway, and once the appeal results are finalized, the final amount of damages will be determined according to the court's ruling. When the ruling is confirmed, claimants can submit the necessary documents to receive compensation from the insurance fund, and any further actions, including whether to appeal, will depend on the outcome of the appeal." Regarding the disposition of the agents found liable, they added, "Members whose qualifications and registrations are canceled according to the bylaws will lose all rights against the association."
Last November, a representative from the Korea Association of Realtors stated, "Numerous lawsuits involving agents have arisen, making it difficult to accurately grasp the situation," but it appears they are now taking steps to understand the matter and respond to the appeal process.
Seoul Guarantee Insurance (SGI) commented, "Due to the varying conditions of individual contracts and the financial transaction information involved, we cannot provide specific details at this time. However, if a claim for insurance is received, we will comprehensively verify the occurrence of an insurance event and the facts, and handle it according to relevant laws and internal procedures."
Meanwhile, a request for information disclosure regarding administrative actions against the real estate agents found liable for illegal activities was submitted to the Gangnam District Office, but the office decided to keep the information confidential. The Gangnam District Office stated in writing, "This matter is related to ongoing civil litigation between the parties," and expressed concerns that disclosing information related to the ongoing trial could unduly influence the proceedings or outcomes. They also cited the potential harm to legitimate interests if such information were made public, as it pertains to corporate and organizational trade secrets.
This case has highlighted the legal and systemic limitations of sublease agreements. Under the Housing Lease Protection Act, subtenants cannot directly assert rights against the original property owner. Even with proper registration and confirmation, the priority right only operates within the limits of the sublessor's rights, and subtenants are not eligible to apply for a leasehold registration order. The Special Law for Victims of Jeonse Fraud also sets requirements based on direct contracts with landlords, such as confirmation and leasehold registration, which often excludes subtenants from relief. As a result, there is currently no institutional safety net for subtenants to recover their deposits in emergency situations like auctions.
It took two years for the court to recognize Sovereign's liability. However, the ruling confirms that winning a case does not equate to recovering damages. Victims are left without substantial relief from the courts or current laws in the face of threats that exploit the gaps in the sublease system. The structural void that has exacerbated the 10 billion won in damages remains unaddressed as the case continues to drag on.
* This article has been translated by AI.
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