Builder (Building) Pledge

In construction contracts, the contractor party is obliged to deliver a work, and the land or business owner is obliged to pay a fee for this delivery. As a rule, it is a debt that must be paid with the delivery of the work for the land or business owner to be paid. However, it is not always possible for the contractor to collect the receivables she/he is entitled to. They have a legal right to eliminate such risks and to ensure that contractors or subcontractors can collect their receivables. This is called a statutory right of pledge, a Builder pledge, or a building pledge.

In this bulletin, it is emphasized who owns this right of pledge arising from the law, which we will preferably refer to as the builder’s pledge, and the protection provided by this right to the contractor and other builders.

1. What is a builder pledge?

Builder pledge is a type of pledge that “contractors, subcontractors or craftsmen” who increase the value of the real estate are authorized to have installed on the real estate in order to secure their construction receivables, by contributing to the construction, improvement or renovation of the building (construction) by giving material and labor or simply labor on it The purpose of a Builder pledge is to secure construction receivables (fee), and to obtain some kind of guarantee. Contractors or sub-contractors involved in the construction of a building (other contractors authorized by the main contractor to perform a certain work) and craftsmen (for example, people who work in construction works such as electricians, carpenters, masons, installers who do electrical works of the construction) can claim a Builder pledge on the real estate they have built, participated in the construction or repair of the Builder pledge In this way, they take that immovable as a pledge as the guarantor of their wages due to construction.

2. Who Can Claim the Builder Pledge?

The right to demand the registration of the builder pledge belongs to the building (construction) creditors. The Court of Cassation made the following determinations about who falls within the scope of the definition of building creditors;

Building creditors refer to contractors, subcontractors and craftsmen working under a contract of work in the construction, repair, expansion and replacement of a building. The first group of building creditors is the contractors and craftsmen who have a contract of work with the real estate owner. The owner of the immovable, the contractors and the craftsmen are held responsible for the construction receivables from them, in addition to the contractual relationship, as per the law, and are obliged to give pledge to these people. The second group of building creditors consists of subcontractors and craftsmen who do not have a direct contractual relationship with the real estate owner. The contractual relationship of these persons is the main contractors who have signed a work contract with the immovable owner. These persons have committed the construction work to the contractor with a separate work contract. Although there is no direct contract of work between them, the owner of the immovable is held responsible for the construction receivables of the subcontractor from the contractor, and is obliged to give a pledge to the subcontractor. Since the subcontractor’s receivable from the contractor is separate and independent from the contractor’s receivable from the immovable owner, the subcontractor’s right to request a building pledge registration is a separate and independent right from the contractor’s right to request a building pledge registration. Thus, it is possible to establish two separate legal pledges on the same real estate.[1]

As can be seen, even if there is no direct contract of work between the immovable owner and the subcontractor, the immovable owner is responsible for the building receivables of the subcontractor from the contractor as per the law and is obliged to give his/her a pledge. The legal pledge obligation of the immovable owner is not only against the building creditors who are a party to the contract for the building receivables for which he/she is responsible due to the contractual relationship, but also against the non-contractual building creditors for the building receivables for which he/she is responsible as per the law. The legal pledge liability of the immovable owner cannot be limited to the creditors and creditors of the building for which he/she is responsible due to the contractual relationship.[2]

3. What are the Terms of the Builder Pledge?

The conditions for the establishment of the builder pledge, which are regulated in the articles 892 and the following of the Turkish Civil Code, are summarized as follows in the decision of the 15th Civil Chamber of the Supreme Court,  numbered 2014/4356 E., 2014/6677 K.;

  • Existence of a building receivable
  • The receivable is not contentious, that is, the receivable has been accepted by the owner of the immovable or has been decided by the court.
  • Failure to provide sufficient assurance by the owner
  • Request for registration within 3 months at the latest from the completion of the work undertaken

What is meant by the construction receivable, which is the first condition, will be born due to labor alone or to contribute to the structure with both labor and material. Therefore, since it is stated that it is necessary to contribute to a construction with both material and labor or only labor, it should be said that the “labor” condition is valid in both cases. Sellers who contribute to construction only by selling building materials do not have the right to demand a builder pledge.

In order for the receivable not to be contentious, either the construction receivable of the owner must be accepted or the existence of the receivable must be proven by a court decision. If the owner denies the existence of the receivable, first of all, a court decision must be taken in this regard. The following determinations are included in a decision given by the Supreme Court regarding the acceptance of the claim;

“In the concrete case that is the subject of the lawsuit, the claimant contractor’s receivables arise from the manufacture and assembly of windows-doors in accordance with the contract signed with the defendant dated 30.06.2016. The plaintiff did not have his/her receivables finalized by filing a lawsuit against the defendant, who is responsible for the debt. However, with the petition dated 27.09.2019, the defendant informed the court that he/she accepted the claimant’s receivable amounting to 217,000,00 TL at the stage of appeal, but the petition could not be evaluated by the court. This statement of the defendant contractor is in the nature of acceptance in accordance with Article 895 of the TCC. It is a statement that should be evaluated at every stage, considering the nature of the acceptance and its impact.
In that case, the work to be done by the court should consist of making a decision by evaluating the defendant’s petition dated 27.09.2019 and the ownership of the immovables, whether the conditions in Article 893 and the following articles of the TCC are met in the concrete event that is the subject of the lawsuit.[3]

If the owner is assured, the builder pledge cannot be established. Because in this case, the guarantee shown already guarantees the building receivables.

Claiming the builder pledge is possible from the date of commencement of work. However, the Builder pledge must be requested within 3 months, at the latest, from the date of the actual completion of the works. This period is final and disqualifying, and the request must be made within this period for the establishment of a pledge. The period is valid for the application and registration of the pledge is not required during this period.

4. Registration of Builder pledge

A builder pledge is a legal type of pledge that is subject to registration. The registration is done by stating that there is a “Builder pledge” in the considerations of the pledge rights of the land registry (TST Art. 35). The builder pledge can be registered in the land registry from the moment she undertakes to supply materials or work, depending on the contract of work.

Since the acquisition and loss of limited real rights on the immovable is possible by registration in the land registry, the builder pledge is also a right that must be registered in the land registry. It is sufficient for the contractor to make the registration request alone. At this stage, the owner’s consent for registration is not required. In the establishment of a builder pledge, unlike a normal pledge, no pledge agreement is required for registration. Because the builder pledge is not a contractual pledge, it is a legal pledge. Since the right of pledge arises directly from the law, it is not necessary to have a separate pledge agreement. Instead, the contractor has to prepare some other documents for registration. The documents in question must prove the existence of the building claim, its acceptance by the creditor or its confirmation by a court decision, or that registration is allowed by the owner.

“The contractor pledge is one of the legal pledges subject to registration (TMY Art. 893/III). In the registration of the contractor’s pledges, it is stated that there is a “Builder pledge” in the considerations of the pledge rights of the land registry (TST Art. 35). The legal pledge rights of the contractor can be registered in the land registry, starting from the moment she undertakes to work or supply materials depending on the contract of work.
In the registration request, it must be done within three months of the completion of the work undertaken (TCC Art. 895/I,II). This period is a final term and at the end of three months, the right to request registration ceases. However, in order for the registration to be made, the receivable must be accepted by the owner of the immovable or decided by the court (CCP Art. 895/III).[4]

5. What is Temporary Registration? What Does It Do?

Temporary registration is an opportunity to give priority to the person who wants to have the builder pledge established in terms of the pledge date, and to prevent loss of rights in the trial processes that may take a long time. Temporary registration is requested by agreement with the owner or, if this is not possible, through a lawsuit from the court. The person who puts the temporary registration annotation can also claim this right to the next bona fide right holders who take over the immovable. In other words, even if the owner of the real estate changes, the Builder pledge is also valid against the new owner.

The lawsuit to be filed for temporary registration must be directed to the owner of the immovable. The lawsuit must be filed in the court where the immovable is located in accordance with the rules of jurisdiction.

“As for whom the lawsuit will be directed to, the person against whom the building pledge will be registered is the owner of the immovable. For this reason, the case regarding the establishment of a building pledge should be directed to the owner of the immovable. Those other than the owner do not have the capacity to be a party (passive hostility) in the case.”[5]

It is stipulated in Article 12 of the CCP No. 6100 that the lawsuits regarding the same of the real estate should be filed in the court of the place where the real estate is registered in the land registry. Since this rule of jurisdiction regarding the filing of lawsuits regarding the real right on the real property or which may lead to a change in the ownership of the real right in the court of the place where the real estate is located, is related to public order and has the nature of a definitive jurisdiction, the court of the place determined by the authorization agreement will not be authorized.”[6]

When starting work, the amount of the contractor’s receivable is not clear and the immovable is not accepted by the owner, Pursuant to the provisions of Articles 48 and 50 of the TCC’s 1011 and Land Registry Regulation, the request for provisional annotation regarding the registration of the builder pledge is made to the court. If the court considers that the existence of the right subject to the annotation can be accepted by listening to the parties or by examining the file, makes the annotation decision, and in the decision, the duration and content of the annotation in terms of effect are determined; If necessary, a period of time is given to apply to the court.

Pursuant to Article 1022 of the Turkish Civil Code, real rights arise with registration in the land registry, and take their order and dates according to the registration. For these legal reasons, the temporary annotation enables the contractor to take turns in order to benefit from the legal pledge, according to articles 896 and 897 of the Turkish Civil Code.
For the reasons explained above, the temporary annotation and registration of the contractor
pledge may be requested through litigation unless there is an agreement between the contractor and the immovable owner. If the parties cannot agree on the amount of the contractor’s receivable and the guarantee that can be shown, they can file a temporary annotation lawsuit considering the possibility of prolonging the process for the registration of the contractor pledge and the finalization of the decision. In this case, the temporary annotation made as a result of the temporary annotation decision, as explained above, in cases where the contractor pledge is accepted by the court or the owner, the final registration of the pledge that has come into existence as of the temporary registration date is made with the date and journal number of the temporary annotation to be canceled and ensures that it is in order. In that case, the temporary annotation case has the same conditions as the case for the registration of the contractor pledge in terms of other conditions.

When the concrete event is evaluated together with the explanation and the rules mentioned above, the plaintiff, who has a contract of work with the other defendant employer, who has rented the property belonging to the owner, is not a subcontractor, but a contractor. The contract is with the tenant, who is the owner of the business, and there is no contract between the her/him and the owner. There is no contract of work between the owner and the tenant. The claimant contractor’s receivables arise from the productions made in accordance with the contract made with the defendant company, which has leased the immovable property belonging to the defendant association. Contracts only create rights and obligations between the parties. If the plaintiff has a receivable arising from the contract, the addressee and debtor of this receivable is the defendant business owner, who is a party to the contract. The plaintiff did not declare her receivables by filing a lawsuit against the employer who is responsible for the debt, and the claimant’s receivable from this defendant was not accepted by the defendant association of the immovable owner.

Although the lawsuit was filed with a legal pledge registration request and the court decided to accept it partially, it is not possible to accept the request since there is no owner’s statement regarding the acceptance of the receivable, nor has it been decided by the court. Pursuant to article 893 of the Turkish Civil Code, on the grounds that only subcontractors who are creditors from the owner or contractor have pledge registration rights, the claimant is not a subcontractor and the plaintiff is in the position of the contractor, the owner of the business is a creditor from the tenant, and she/he does not have the title of legal pledge creditor against the owner, even though it was necessary to reject the case, the decision had to be reversed for the benefit of the appellants, as it was not correct to make a written decision.[7]

If the Builder pledge is placed with a temporary registration annotation, it will give rise to the terms and consequences of the final Builder pledge, effective from the date of the temporary registration, with the subsequent registration.

“When we evaluate in terms of material certainty, In the aforementioned case file, although a temporary building pledge annotation was made pursuant to TMK 893 and its continuation articles, and it was stated in the justification part of the final decision that the temporary annotation would turn into a final annotation with the finalization of the provision, and an action was taken in this direction with a letter written in the land registry after the finalization, it has been decided to reject the lawsuit filed against the land owner out of enmity, and since no provision has been made regarding the collection of the price, and that the requested building pledge request has been accepted and turned into a final pledge, no judgment has been made against the land owner; It is not possible to accept that the provision stating that the temporary pledge annotation stated in the justification section has turned into a final pledge has become final against the land owner and constitutes a final judgment. Because, in accordance with Article 297 of the CCP, the demands of the parties must be met in the conclusion part of the provision, the debts imposed on the parties and the rights granted to them must be shown. In accordance with Articles 24 and the following of the EBL, the rights and obligations taken into consideration during the execution of the judgment will be taken as basis. In the aforementioned provision, the lawsuit filed against the landowner was dismissed due to hostility, and there is no provision established against her/him. Despite this situation, although there is no provision about the land owner in the final decision in terms of price and pledge establishment, it was not correct to write to the land registry directorate to declare that the pledge has turned into a definitive pledge, with the mention that the judgment has become final. It is justified in claiming compensation for its purposes as it has been converted into what is being sold to build upon this writing.”[8]

Conclusion

Builder pledge refers to the pledge established on the building in order to secure the construction receivables of the people who participate in the construction, repair or development of the construction with their efforts. Since the Builder pledge is registered in the land registry and is a type of pledge arising from the law, all the conditions sought in the Turkish Civil Code and the Land Registry Regulation must be fulfilled. It is especially important that the registration request is made within the 3-month period of disqualification.

Although it is not known much in practice, the existence of such a legal right is an important issue that guarantees that the construction creditors will receive wages. Knowing the legal rights and using them properly provides important conveniences to those concerned.

We remind you that you can ask for help from our team for more detailed information and consultancy on the subject, and we wish you a healthy day.

Best Regards.

References

İlker Hasan DUMAN, (2021), İnşaat Hukuku, Seçkin Yayıncılık, Ankara.

15th Civil Chamber of the Supreme Court, 2015/5673 E., 2016/2437 K.

15th Civil Chamber of the Supreme Court, 2014/4356 E., 2014/6677 K.

15th Civil Chamber of the Supreme Court, 2020/1844 E., 2021/2753 K.

15th Civil Chamber of the Supreme Court, 2021/3280 E., 2021/1178 K.

15th Civil Chamber of the Supreme Court, 2021/3280 E., 2021/1178 K.

20th Civil Chamber of the Supreme Court, 2016/7284 E., 2016/8894 K.

15th Civil Chamber of the Supreme Court, 2016/1924 E., 2016/3111 K.

15th Civil Chamber of the Supreme Court,  2019/3159 E., 2020/2838 K.

[1]15th Civil Chamber of the Supreme Court, 2015/5673 E., 2016/2437 K.

[2]15th Civil Chamber of the Supreme Court, 2014/4356 E., 2014/6677 K.

[3]15th Civil Chamber of the Supreme Court, 2020/1844 E., 2021/2753 K.

[4]15th Civil Chamber of the Supreme Court, 2021/3280 E., 2021/1178 K.

[5]15th Civil Chamber of the Supreme Court, 2021/3280 E., 2021/1178 K.

[6]20th Civil Chamber of the Supreme Court, 2016/7284 E., 2016/8894 K.

[7]15th Civil Chamber of the Supreme Court, 2016/1924 E., 2016/3111 K.

[8]15th Civil Chamber of the Supreme Court,  2019/3159 E., 2020/2838 K.

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