Introduction

I recently facilitated a real estate sales contract for a client looking to purchase an office building. The property in question was owned by an elderly individual suffering from a critical illness. There were many factors to consider to ensure the buyer would safely receive full ownership regardless of any changes in circumstances. I had to utilize the practical knowledge I gained in the real estate brokerage field, as well as the legal expertise I had accumulated while continuously providing legal advice at law firms and corporations.

Due to a change in circumstances among the parties involved, the sales contract was not finalized. However, a draft sales contract, which underwent detailed review, remains. It incorporates solutions prepared for anticipated situations. I am sharing this in this article, believing its contents could serve as a useful reference for readers.

Factual circumstances at the time of the buyer's request for purchase advice

The land and building (hereinafter referred to as "the subject property") that the buyer requested to purchase was owned by an elderly person over the age of 80 (hereinafter referred to as "the owner"). The owner was hospitalized due to a critical illness. The owner would occasionally fall into a coma. The condition was such that it was impossible to know whether the death would occur in a few days or a few months.

The owner expressed their intention to sell the property to their children while they were conscious. Consequently, while the children were pursuing the sale, they connected with my client (hereinafter referred to as the "Prospective Buyer"). The Prospective Buyer requested my advice regarding the purchase of the property.

I issued an initial advisory opinion to the prospective buyer advising them to reconsider purchasing the property. This was because there was a possibility that the sales contract would be invalidated due to the owner's status, even if it were concluded. I judged that it would be even more risky under the current system, where the public credibility of real estate registration is denied, even if the transfer of ownership registration to the prospective buyer were completed.

However, the prospective buyer told me that they were determined to purchase, stating that the seller had accepted all the terms of the transaction, including the purchase price they had proposed. I was not in a position to refuse their advice. On the contrary, it was a situation that required a very meticulous and professional review. After careful consideration, I presented solutions for each of the following scenarios.

Presenting solutions tailored to each owner's situation

a. Preparation for the owner's constant state of unconsciousness

The owner was already in a state of intermittent unconsciousness. Therefore, it was inevitable for the seller to conclude the sales contract through an agent. In principle, the granting of this agency authority is sufficient if the owner signs and seals the power of attorney while conscious. However, if the owner is in a state of constant unconsciousness, there was a potential for problems in proving the existence and scope of lawful agency authority. (The same applies in cases of intermittent unconsciousness.)

I proposed granting agency authority for the conclusion of a sales contract through a notarized power of attorney from a notary office authorized by the Ministry of Justice. This involves a notary visiting the hospital where the owner is hospitalized while the owner is conscious, confirming the owner's capacity to make decisions and their intention to grant the relevant agency authority, and then notarizing the power of attorney. By keeping this notarized power of attorney on hand, there is no need to worry even if someone challenges the validity of a sales contract concluded by a designated agent while the owner is in a perpetual unconscious state. Furthermore, the registrar will not raise any issues regarding the existence of agency authority during the procedure for transferring ownership registration following the sales contract.

B. Death of the owner prior to the application for registration of transfer of ownership after the conclusion of the sales contract

What happens if the owner dies after a sales contract is concluded but before the application for registration of ownership transfer is filed? In principle, the heir, as the comprehensive successor, has an obligation to fulfill the owner's sales contract. Under Article 27 of the Real Estate Registration Act, the heir, as the comprehensive successor, may apply for the registration of ownership transfer to the buyer. However, if the heir refuses, the prospective buyer must file a lawsuit to proceed with the performance of the sales contract and the registration, thereby wasting time and money. To address this, I have proposed the following solution.

① All heirs shall sign and seal the sales contract as witnesses; ② If the owner dies after the conclusion of the sales contract but before the application for registration of transfer of ownership, all heirs shall immediately perform the sales contract; and ③ If the heirs refuse or delay performance, they shall jointly and severally pay the buyer an amount equivalent to double the received deposit as a penalty for breach of contract. In addition to the penalty, establishing a special clause stipulating that the heirs are jointly and severally liable to compensate the buyer for actual damages incurred due to default will create strong enforcement power. In this case, it is essential to obtain a Family Relations Certificate in advance to identify all co-heirs.

Additional remarks

In the field of real estate brokerage and advisory services, unpredictable changes in circumstances frequently occur right up until the moment the contract is signed. In particular, significant fluctuations, such as the owner's deteriorating health or death, can pose fatal legal and financial risks to the buyer.

A safe transaction begins with assuming the worst-case scenarios and meticulously securing legal safeguards within the solid vessel of a contract. Although this particular transaction did not go through, I hope the situational solutions I prepared will serve as a reference for readers dealing with owners in critical condition or facing similar situations.