Construction contracts in exchange for flats can be terminated by mutual agreement of the parties. However, if the parties disagree or cannot reach an agreement regarding termination, legal remedies must be taken to terminate the contract. The conditions of termination must be evaluated by the court and these conditions must be proven. If the conditions of termination are accepted by the court, the construction contract in return for flat may be terminated by court decision. A party does not have the authority to terminate the contract by unilateral declaration of will.
Termination of the construction contract in exchange for flats can occur in two ways: by agreement between the parties or by court decision. Both options involve complex legal procedures because they require resolving disputes between the parties. How the termination occurs is of great importance in terms of its consequences and the rights and receivables that the parties may claim.
As a result of terminating a construction contract in exchange for flats, the parties must reach a definitive solution regarding property rights, costs, compensation and other details. Therefore, it is extremely important for the parties to seek legal advice and resolve the dispute effectively.
1) What is a Construction Contract in Exchange for Flat?
Construction Contract in Exchange for Flat is a type of work contract from a legal perspective. In this type of contract, the land owner undertakes the obligation to transfer a certain part of his land to the contractor in order to obtain the flats he will receive in accordance with the contract, while the contractor gains the right to own a certain amount of independent section and land share.
The main reason why this type of contract is preferred is that it offers the opportunity to own a house on their own land, if the land owners do not have sufficient financial resources or technical knowledge to carry out the construction works.
2) Form Requirement for Termination of Construction Contract in Exchange for Flats
Since construction contracts in return for flats contain various obligations for both land owners and contractors, termination of the contract is subject to certain formal conditions. In order for the contract to be terminated validly, it must be made officially, that is, through a notary or by court decision.
3) How to Terminate Construction Contracts in Exchange for Flats?
There are ways to terminate construction contracts in exchange for flats, such as mutual agreement of the parties or court decision. Termination of the contract can be carried out in cases where one party does not fulfill its obligations.
Termination by Agreement of the Parties
The construction contract in exchange for flats can be terminated by mutual agreement between the parties. When the parties agree on termination, the contract ends. However, in this case, if there is a dispute regarding details such as compensation to be paid as a result of termination, court action may be taken.
Termination by Court Order
If one party believes that the contract should be terminated for a valid reason and the other party does not agree with this idea, a court decision is required to formally terminate the contract. The parties cannot unilaterally terminate the construction contract in exchange for flats at their own will.
Therefore, if the land owner or contractor wants to terminate the contract for a valid reason, alleging that the other party has not fulfilled its obligations, it can only do so by applying to the court."
4) Termination of the Contract by the Land Owner
Withdrawal from the Contract and Termination Due to Contractor's Default (TBK Article 125/2)
In cases where the contractor does not start the work within the period specified in the agreement, delays the work or it is not possible to complete the work within the specified period, the land owner may terminate the contract without waiting for the specified period. If the start of work is not specified in the agreement, the start date must be on the date of the contract.
The land owner may grant time to the defaulting contractor for the immediate performance of the work, demand compensation by ceasing to carry out the work as is, or terminate the contract. He/she must immediately notify the contractor of the claim for compensation or termination of the contract.
Withdrawal and Termination of the Contract Due to the Understanding that the Contractor Will Not Complete the Construction on Time (TBK Article 473/1).
Return and Termination (TBK Article 473/1)
1st paragraph of Article 473 of the Turkish Code of Obligations titled "Starting and Executing Business";
If it is clearly understood that the contractor will not be able to complete the work at the agreed time, according to all estimates, due to the contractor not starting the work on time or delaying the work contrary to the provisions of the contract, or a delay caused by a reason that cannot be attributed to the owner, the owner may withdraw from the contract without having to wait for the day determined for delivery.
It is expressed as follows. As can be understood from this article of law, if the contractor does not start the work on time, delays the work, and it becomes clear that the work cannot be completed within the time specified in the contract, the land owner has the right to terminate the contract before the delivery date arrives.
Withdrawing from the Contract and Termination in Exchange for Compensation (TBK Article 484)
It is stated in Article 484 of the Turkish Code of Obligations titled "Termination for Compensation" as follows:
"The owner may terminate the contract, provided that he pays for the part done before the completion of the work and compensates all the damages of the contractor."
According to this provision of law, the land owner can terminate the contract by paying the cost of the part constructed before the completion of the building and covering all damages of the contractor. However, legal doctrine is of the opinion that the land owner cannot exercise this right when the construction is completed or very close to completion.
Withdrawal and Termination from the Contract Due to Defective Construction (TBK Article 475/1)
If the building built by the contractor is defective, the law offers some options to land owners. One of these options is for the land owner to exercise his right to terminate the contract.
The first paragraph of Article 475 of the Turkish Code of Obligations titled "Optional Rights of the Business Owner" is as follows:
"In cases where the contractor is responsible for the defect in the work, the owner can use one of the following options. If the work is defective to the extent that the owner cannot use it or cannot be forced to accept it due to equity, or if it is contrary to the provisions of the contract to the same extent, withdraw from the contract..."
5) Contractor's Termination of the Contract
Withdrawal and Termination from the Contract Due to Unforeseen Situations (Turkish Code of Obligations Article 480/2)
If the events that were not foreseen by the parties at the time of the conclusion of the contract, or were foreseen but ignored, will prevent or make extremely difficult the execution of the work for the determined price, the contractor has the right to request the court to correct the contract in accordance with the new conditions. However, if this is not possible, the contractor also has the right to terminate the contract. Examples of unforeseen situations include earthquake, flood or fire.
The contractor needs a court decision to correct or terminate the contract terms. The contractor cannot achieve these results with a unilateral declaration of will. If termination is not necessary according to the current conditions, the court may decide to increase the fee. For example, if the construction is now close to completion, the court may simply decide to increase the fee.
Right of Withdrawal and Termination from the Contract Due to Default of the Land Owner (Turkish Code of Obligations Article 125/2)
The land owner has obligations arising from the construction contract in exchange for flats. The land owner has obligations such as delivering the land appropriately and transferring his land share. However, if he does not fulfill these obligations on the specified date, he will be in default. The contractor may grant a period of time for the same performance against the defaulting land owner, waive the same performance and demand compensation, or terminate the contract.
Right of Withdrawal and Termination from the Contract Based on Creditor Default (Turkish Code of Obligations Article 125/2)
Creditor default means when the debtor makes a proper offer of performance, but the creditor rejects it without a valid reason. This situation may also occur in construction contracts in exchange for flats. For example, although the contractor has completed the independent sections, received occupancy and made the independent sections completely ready for delivery, if the land owner refuses to take delivery of these independent sections, the creditor will be in default.
In case of creditor default, the debtor can be relieved of his debt by making a notification that the damages and expenses will be borne by the creditor. However, an application must be made to the court to determine the place of delivery. In this way, the debtor can terminate his debt by a method where the damages and expenses are borne by the creditor.
6) Contractor's Default Conditions in the Flat Construction Contract in Return for Land Share
If a debt payment date has been determined and the debtor does not make the payment despite this date, the debtor is in default. In construction contracts in exchange for flats, the contractor's delivery obligation is determined based on a certain date. Therefore, if the contractor does not deliver the flats even though the specified delivery date has passed, the contractor will also be in default. However, certain conditions must be met for the contractor to default.
The Contractor's Debt Must Be Due
In construction contracts in return for flats, the contractor's primary obligation is to complete the independent sections and deliver them to the land owner. If the parties have determined a date for the delivery of independent sections in the contract, the debt becomes due when this date comes. If the parties have not determined a period in the contract, the debt becomes due upon notification by the land owner after a reasonable period of time has passed for the contractor to complete the construction.
Performance of the Debt Must Be Possible
In order to be able to talk about a default situation in construction contracts in exchange for flats, it must be possible to fulfill the debt. Impossibility of performance can be both material and legal. If performance becomes impossible, there is no default.
The impossibility of construction may arise from the immovable property or from a legal reason. For example, situations such as zoning legislation that prevents construction on the land can be given as examples of legal impossibility. The contractor's economic difficulties are not considered a legal obstacle.
However, if a party causes this impossibility through its own fault, it is responsible for the damages suffered by the other party.
Sending a Warning
As a general rule, before a party can declare default, a notice must be sent to the other party. However, if a certain payment date is specified in the contract and this date is not met, default occurs automatically and there is no need for a further warning. In construction contracts in exchange for flats, it is generally determined when the parties' debts must be fulfilled, so the contractor can generally default without sending a warning.
The Creditor Should Not Be İn A State Of Default
Creditor default refers to the situation where the debtor's proposal of performance is rejected by the creditor without a justifiable reason, even though the debtor has duly made the performance offer. In construction contracts in exchange for flats, there is a possibility that the land owner may fall into creditor default. For example, if the contractor has completed the independent sections, obtained occupancy and made them completely ready for delivery, but the land owner avoids taking delivery of these sections, creditor default occurs.
In this scenario, the reason why the contractor cannot fulfill its obligation to perform on time is the default of the land owner. Therefore, it is not possible to talk about the contractor's default.
Termination of the construction contract in exchange for flats means the termination of the agreement between the parties to the contract. When this termination occurs, its impact on the past or future has various consequences on the rights and obligations of the parties. In particular, issues such as the condition of the constructed and uncompleted real estate, the compensation for the labor and materials spent by the contractor, and the outcome of the losses of the land owners are among the consequences of termination.
7) Consequences of Termination of Construction Contract in Exchange for Flats
Termination of the construction contract in exchange for flats means the termination of the agreement between the parties to the contract. When this termination occurs, its impact on the past or future has various consequences on the rights and obligations of the parties. In particular, issues such as the condition of the constructed and uncompleted real estate, the compensation for the labor and materials spent by the contractor, and the outcome of the losses of the land owners are among the consequences of termination.
Termination with retroactive effect through withdrawal from the contract and its consequences
The first way to terminate construction contracts in return for flats is to withdraw from the contract. In case of termination by withdrawal from the contract, the effects of the contract will be erased retroactively. In this case, it will be considered as if the contract had never been made.
In order for the land owner to exercise his right to withdraw from the contract, the contractor must not fulfill the obligations he has undertaken or must be in default by not delivering the real estate on time. In addition, according to the established Supreme Court decisions, a large part of the construction must not be completed yet in order for the contract to be terminated with retroactive effect.
The consequences of reneging on the contract are regulated in the Turkish Code of Obligations No. 6098. Accordingly, in case of withdrawal from the contract, the parties can request back the actions they have previously performed. Due to this nature of reneging on the contract, when construction contracts in return for flats are terminated with retroactive effect, the land owner can take back the land he transferred to the contractor in the title deed, and the contractor can claim the price up to the part of the construction.
Termination of the Agreement with Future Effect and Its Consequences
A second method for terminating construction contracts in exchange for flats is to terminate the contract prospectively. This type of termination aims to eliminate the future effects of the contract. In order for the contract to be terminated with prospective effect, unlike the case of withdrawal from the contract, the completion level of the construction must be above 90%.
On this issue, the 23rd Civil Chamber of the Supreme Court of Appeals in its decision numbered 2015/5183, Decision no. 2018/3243;
“The issue of whether the termination of the contract will be prospective or retroactive must be determined based on the final status of the construction during the trial phase. "In order to decide on the termination of the contract with prospective effect, the construction level must be above 90% and acceptable."
He decided that the contract cannot be terminated with prospective effect in constructions below 90%. The main purpose of this regulation is to prevent the withdrawal of the contract for any reason from significantly affecting the rights of the contractor, in cases where the contractor has completed the construction to a large extent. In case of termination of the contract with prospective effect, the contractor retains its right to the land share or the independent sections it has built, depending on the rate at which the construction is completed.
In case of prospective termination of such a contract, the contractor may obtain land shares or independent unit rights in return for the completed parts of the construction, while the land owner may claim damages such as loss of rent due to delayed or incomplete delivery and other damages incurred due to the contractor's faults.
Construction contracts in exchange for flats, which are frequently used for the renewal of risky areas or risky buildings, especially in urban transformation processes, come to the fore with this regulation. There are special regulations and practices for the termination of contracts for buildings included in urban transformation projects. To get detailed information on the subject, you can review our article titled Termination of Construction Contracts in Exchange for Flats regarding Urban Transformation.
The Court in Charge and Competent in Disputes Regarding the Termination of the Construction Contract in Exchange for the 8th Floor
Dispute Resolution;
In resolving disputes arising from construction contracts in exchange for flats, the competent court is determined according to the nature of the incident and the nature of the dispute.
The Court in Charge;
As a general rule, the court responsible for disputes arising from construction contracts in exchange for flats is the Civil Court of First Instance. However, if the dispute is of a commercial nature and one of the parties is a merchant (has a license to trade), the competent court will be the Commercial Court of First Instance.
Authorized court;
In disputes arising from construction contracts in exchange for flats, the competent court is determined according to the type and subject of the dispute. This determination is made based on the following basic criteria:
1. Court of Location of the Immovable Property: If the dispute is related to the location of the immovable property that is the subject of the contract, the competent court will be the court where that immovable property is located.
2. Court of Residence of the Defendant: If the dispute is related to the place of residence of the defendant, the competent court will be the court at the place of residence of the defendant.
3. Court of Place of Execution of the Contract: If the dispute is related to the place of execution of the contract, the competent court will be the court of the place of execution of the contract.
The competent court should be determined by paying attention to these criteria according to the nature of the dispute and its location.