- 11 types of unfair terms used in standardized contracts
The Fair Trade Commission (“FTC”) announced eleven types of unfair terms frequently used in standardized contracts for real estate transactions. The eleven types of unfair terms are the ones providing (1) a party’s unilateral right to terminate a contract on a discretionary basis; (2) excessive penalties; (3) excessive late fees; (4) unfair waiver of the duty to restitute; (5) right to unilaterally appoint a property management company; (6) prohibition against raising any claim concerning incorrect information in the advertisement; (7) that a purchaser shall bear all costs and expenses with respect to all unrented places regardless of the reasons therewith; (8) prohibition against raising any claim with respect to the changes concerning the schools to be established nearby; (9) right to postpone official registration for the protection or transfer of property ownership; (10) exclusion of separate agreements; and (11) unfair venue.
- Legal risks associated with the use of unfair terms in standardized contracts for real estate transactions
The terms which fall under the unfair contract terms set forth in the Regulation of Standardized Contracts Act (the “Act”) shall be nullified as a matter of law.
FTC may advise a business which uses unfair terms in standardized contracts to take corrective measures including deletion or revision of the terms. In case the business is in a market-dominating position, FTC may order the business to take corrective measures (Article 17-2 of the Act). The business which refuses to comply with FTC’s order of correction is subject to criminal punishments (Article 32 of the Act).
FTC may prepare a standard contract form applicable to a certain industry (“Standard Contract Form”) and advise the businesses or business associations in the industry to use the Standard Contract Form. In case the businesses or business associations which were advised to use the Standard Contract Form use any contract form which is different from the Standard Contract Form, such businesses or business associations must explicitly indicate to their client the terms which are different from the terms in the Standard Contract Form. Also, such businesses or business associations are not allowed to use the designated mark for the Standard Contract Form in their contracts (Article 19-3 of the Regulations). The businesses or business associations which violate these requirements shall be subject to penalties as set forth in the Act (Article 34 of the Act).
- Businesses need to review their contract forms to confirm their compliance with the Act in consideration of the FTC’s announcement
If a business currently uses contract forms which are different from FTC’s Standard Contract Form in real estate transactions involving apartment supply contracts, commercial real estate sales contracts, residential lease contracts or department store lease contracts, etc., the business need to review and revise its contract forms in consideration of the FTC’s recent announcement summarized above.