Turkey: Parties' Responsibilities Upon Termination Of The Construction Agreement For Land Share

I. INTRODUCTION

Construction Agreement in Return for Land Share ("Agreement") is concluded between the contractor and the land owner. According to the Agreement, the contractor is obligated to construct a building on the land that owned by the land owner. In return, the land owner promises the delivery of the titles to the newly constructed independent sections of the building to the contractor according to the previously agreed ratio.

This type of Agreement is not specifically regulated in the Turkish law. However, the type of agreement can be described as a mixed type contract, as it includes the contractor's obligations to create a specified end product and the promise to transfer title to real estate. Accordingly, the contractor offers to do a specified work and the land owner is obliged to deliver a constructed independent part of the building instead of paying a price for contractor's work.

II. CONSTRUCTION AGREEMENT IN RETURN FOR LAND SHARE

In the mixed type agreements, the related provisions are applied based on the type of performance causing the dispute. In other words, if a dispute arises in relation to the construction work, the dispute will be resolved according to the provisions embedded in the Law No. 6098 Turkish Code of Obligations ("Code") regarding construction agreements. However, if the case of the dispute is related to delivery or transfer of immovable property, the provisions of sales agreement which is regulated under the Code will be applied for this dispute.

On the other hand, the Agreement can be mutually terminated or it can be unilaterally terminated if one of the parties act against their contractual or legal obligations. In this case, it is important to identify the impact of this termination on the parties.

It can be considered that the contractor is under a continuous performance per the Agreement since it takes a long time for the contractor to complete the construction obligation. In fact, the contractor's obligation is a non-continuous performance obligation since the contractor's only contractual obligation is the construction of the building. Termination of contracts for non-continuous performance impacts the future whereas termination of contracts for non-continuous performance have retrospective impacts. Accordingly, the Supreme Court accepts that the Agreement has a non-continuous action debt relationship although there are those who defend the opposite view in the doctrine. In the event of its termination, the Agreement will have a retrospective effect.

In the light of these issues, the Agreement may be terminated by one party if the other party fails to fulfil its obligations. In this case, the party who terminates the Agreement can use the right to void the agreement, which is granted in Article 125 of the Code. It can be stated that the legislator assumes that the debtor is in default by its fault when issuing these alternative rights under this article. In this case, the party who is claiming not to be in fault will have to prove it.

In addition, it is important to determine which of the positive or negative damages can be claimed within the scope of the right to return for the agreement that regulated in article 125/2 of the Code. The negative damage can be demanded when the agreement is invalid, terminated effectively in the past and rescission. On the other hand, positive damage can be claimed in case of violation of the agreement. Therefore, since the termination of the Agreement has an effective result in the past, the party returning from this agreement will only be able to claim the negative damages.

In other respects, if it is not possible for the contractor to complete the work in due time, the land owner will be able to use the Article 473 of the Code by using the right to void the agreement. This approached is referred to as the default of the prioritized debt in the doctrine. If the contractor has an enough time to complete it, the land owner cannot use the right to void the agreement due to slow work or late start of contactor. As a matter of fact, the Court of Supreme accepts that it would not be possible to void the agreement based on the above reasoning according to the bona fide rule regulated in Article 2 of the Turkish Civil Code numbered 4721.

As stated above, all the rights and obligations pertaining to the Agreement will be revoked as of the termination of the Agreement since the termination works retrospectively. In this case, during the performance of the agreement, there will be no basis for any of the acts performed by the parties on the agreement. In the event of such a situation, the parties can claim all the earnings they have made regarding the agreement from the other party in accordance with the provisions of the unjust enrichment.

In fact, unjust enrichment is regulated under Article 77 of the Code. Within the scope of this article, the person who is enriched, with no reason, by someone else's assets or work, is obliged to return this enrichment. This article should be evaluated within the scope of Agreement. However, the execution of this provision will differ based on specifics of this Agreement, since the performance of the parties is not based on cash. In this case, for example, if the land owner has registered in the title deed on behalf of the contractor and due to the reason that the transaction subject to registration remains without reason, it is possible to state that the registration process will become a wrongful registration. Hence, the land owner can initiate a case in regard to the correction of wrongful registration.

III. CONCLUSION

As a result, although the Agreement type is not specifically regulated in the law, any dispute on the matter can be resolved by applying the terms of Agreement. This Agreement includes many different legal regulations in terms of responsibilities of the parties and may have a retrospective effect based on its form of termination. In this regard, rights and obligations of the parties should be well determined and the agreement should be drafted in a way to allow parties to compel the other to undertake the performance of the contract.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.