Rights of the Land or Building Owner in Case the Contractor Does Not Deliver the Building on Time

As in all contracts, in construction contracts, the parties must fulfill their contractual obligations as agreed in the contract. In construction contracts, the main debt of the contractor is to complete the construction and deliver it on time. If the contractor cannot deliver the construction on time, she/he will be responsible for this delay. If the parties have agreed on a certain date in the contract, the construction must be completed on that date, or if they haven’t, the construction must be completed in an objectively reasonable period of time. In the event that this period is exceeded, the owner of the land or building acquires the right to make some demands from the contractor.

In this bulletin, we have focused on the subjects that the landlord or the owner of the building can make from the contractor in case the contractor does not fulfill his obligation to deliver the construction on time, the delivery of the construction is delayed, and the conditions under which these rights can be exercised.

1. Legal Characterization of Failure to Fulfill Construction Delivery Debt on Time

Failure of the parties to fulfill their obligations in a timely manner in a debt relationship is called “default” in law. When both the creditor and the debtor of the debt relationship fail to fulfill their obligations arising from the contract, they may lapse into default. This is called “default of the creditor” or “default of the debtor”, depending on the title of the defaulting party in the debt relationship. The default of the debtor comes to the fore when the debtor does not fulfill the debt at all or properly. As a rule, the default situation and the consequences arising from it do not arise spontaneously. The debtor’s default and the other party’s ability to exercise its rights due to default depends on the creditor giving a notice to the debtor and giving the debtor a period of time to pay the debt, and the debtor’s inability to perform his/her debt within this period. In the event of a real default, the debtor does not do so while still in a position to pay or fulfill the debt. If she/he does not fulfill the debt within the time given with the warning letter, the creditor becomes able to use one of her/his optional rights arising from the law against the debtor.

A warning is a warning to the debtor to pay the debt, and it may also include remedies to be resorted to in case of non-payment. In some cases, the debtor defaults without the need for a warning and the creditor can directly exercise the rights arising from the default against the debtor.

In contracts that impose debts on both parties, such as construction contracts in return for land share, when the debtor defaults in paying the debt, the creditor has three optional rights and can choose only one of them. The rights in question;

  • Execution of the debt agreed in the contract and the right to demand compensation for delay,
  • The right to demand compensation for positive damages by waiving the exact performance of the debt in the contract,
  • The right to demand compensation for negative damages by returning from the contract.

In construction contracts, if the contractor party delays in fulfilling its obligations under the construction contract, the debtor defaults in accordance with the default rules, and in this case, the owner of the land or building also has the above-mentioned rights. Default of the contractor may occur at the completion of the construction or the delivery of the construction. Default in the delivery of the construction occurs when the construction cannot be delivered to the owner of the land or the building when the time comes, and the delivery period determined by the contract or otherwise is exceeded even though the construction is completed. The default situation at the completion of the construction, on the other hand, arises in the fulfillment of the debts during the construction of the construction, although the delivery period of the construction has not passed yet. This situation is regulated in article 473 of the Turkish Code of Obligations and For more information on the subject, you can review our article titled “What Can the Building or Land Owner Do If the Contractor (Contractor) Doesn’t Fulfill the Obligation to Complete the Construction on Time?” in the blog section of our website. In this bulletin, only the delays in the “delivery of construction” process and their consequences are discussed.

2. Rights and Authorities of the Land or Building Owner in case the Construction is Not Delivered on Time

2.1. The Right of the Land or Building Owner to Claim the Delivery of Construction and Delay Compensation

In the event that the construction is not delivered on the agreed date, the owner of the land or building may, as a rule, request the delivery of the construction from the contractor. If the owner of the land or building did not choose one of the ways to withdraw from the contract or abandon the performance, it is considered that she/he is still waiting for the delivery of the construction. In case the owner of the land or building prefers to wait for the delivery of the construction arising from the construction contract, she has the right to demand delay compensation from the contractor for the delayed period. The parties may have determined the delay compensation and the amount to be paid in this case by foreseeing the delay situation when making the contract. If there is such a determination, the amount in the contract can be claimed as delay compensation. However, it should be noted that, in valid construction contracts in return for land share, even if there is no provision in the contract for delay compensation, the owner of the land share has the right to demand delay compensation over the current rental price.

The owner of the land or the building can always request the delivery of the construction and the delay compensation, until the statute of limitations expires, in case the contractor delays in delivery. However, waiting for long periods and requesting the delivery of the construction from the contractor at an inappropriate time is not accepted as it does not comply with the rules of honesty and goodwill. Likewise, it has been accepted by the Supreme Court decision that accepting the fixed delay indemnity specified in the contract as binding if a long period of time has passed would be contrary to the rule of good faith. It is possible to change the amount of delay compensation according to the decision.

Fulfilling the issues agreed in the contracts is in accordance with the principle of keeping the promise made. Because this is the requirement of truth and honesty. Therefore, in our case, since the defendant has agreed to pay compensation – penal clause – due to the late delivery of the work and for the whole of the late delivery period, he has to pay it to the plaintiff in full. Avoiding this would be contrary to the contract and the rules of integrity and honesty. However, the unprivileged application of this rule may in some cases result in violation of the rules of accuracy and trust. For this, an unforeseen reason must bring the fulfillment of all or one of the conditions of the contract to such an extent that it is unbearable and destructive for one of the parties.

The claimant’s request for all compensation covering the entire delay period cannot be qualified as an abuse of right. The claimant benefits himself by exercising a lawful contractual right. However, it is not possible to say that this right is used with the intention of harming the defendant. It should not be overlooked that the plaintiff demands compensation for the loss incurred due to late delivery.

2.2. The Right of the Owner of the Land or Building to Request Compensation for Positive Damages by Waiving the Delivery of the Construction

In the event that the contractor delays the delivery of the construction, the owner of the land or the building may give up the delivery of the construction and notify that she/he wants the damages to be covered. This notification must be made “immediately”. To put it more clearly, if the contractor, who was given a time-out with a warning, could not complete the construction within this period, the owner of the land or building should declare that he gave up the completion and delivery of the construction subject to the contract at the end of the period. In this case, the contractor’s obligation to complete the construction and deliver will expire. Now the contractor’s debt is not the delivery of the construction, but the compensation debt, which means the payment of some money. The amount of compensation to be paid to the land or building owner should be in the amount to cover all the damages arising from the non-performance of the construction performance in the contract. This is called positive damage in law. Covering the positive loss means not obtaining the expected benefit from the contract, in other words, the increase in the assets that would have occurred if the contract had been performed and the payment of money equal to the material amount of the difference in the current situation. In this context, if the owner of the land or building had completed the construction, It is possible to claim damages from the contractor within the scope of positive damage, such as rental fees, delay penalty, labour and material cost, the difference between the sale value of the construction on the delivery date and the sale value if it is delivered at a later date, loss of use-value. The amount of positive damage and therefore the compensation that may be entitled is calculated according to the date when the owner of the land or building gave up the delivery of the construction.

2.3. The Owner’s Right to Withdraw from the Construction Contract and Claim Negative Damages

Withdrawing from the contract means terminating the contract with unilateral notice and with retrospective effect. If the owner of the land or the building wants to use his right to withdraw from the contract, if the construction is not delivered within the period given to the contractor for the delivery of the construction, he/she must notify immediately at the end of the period. It should be understood from the concept of immediate that notification should be made as soon as possible.

In case of revocation of the contract, it requires the return of the things previously given, since the contract is invalidated from the date of its conclusion. Because there are things that are made or given based on an invalid contractual relationship. It is possible for them to be requested according to the provisions of unjust enrichment.

On the other hand, the owner of the land or building, who uses her/his right to withdraw from the contract, can also demand compensation for the damages that are called negative damages and arising from the invalidity of the contract.  Negative damage refers to the losses arising from the failure of the belief that the contract will be valid and fulfilled.

2.4. Right to Request Payment of Expenses and Damages by Completing the Construction to Someone Else

The right of the owner of the land or building to have the construction completed by someone else, at the contractor’s expense, is regulated in Article 113 of the Code of Obligations. According to the relevant article, if the contractor fails to fulfill her/his obligation to build, the creditor may request permission for the construction to be built by herself/himself or by someone else, at the contractor’s expense. In this case, all kinds of compensation rights are also justified. When requesting permission, the owner of the land or building may also request that an amount in advance be paid to her/him for expenses. If he/she wishes, he/she can claim the costs with a lawsuit to be filed later.

Permission to complete the construction or have someone else complete it, also known as the permit to perform, is requested from the court. The missing work items and the necessary expenses for their completion will be calculated by the court-appointed expert during the trial process. The Contractor cannot demand payment in installments or make a payment after the completion of the work, with the bet that this amount may be paid in the future.

In the event that the owner of the building attempts to complete the missing works by seizing the construction directly without applying to the court for a registered performance permit, the contractor does not have the right to demand the costs that he has not yet actually incurred to be collected from the contractor.

It may be decided that all transactions that are required to be carried out by the contractor but not fulfilled shall be carried out by the land owner at the contractor’s expense.”[1]

“Article 477/3 of the TCO numbered 6098, which was in force on the date of the lawsuit, rules that “If the defect in the work is discovered later, the employer must notify the contractor without delay; if he does not notify it, he is deemed to have accepted the work”.

2.5. Demand for Loss of Rent

The contractor is obliged to pay the damages arising from the late delivery of the construction. Damages incurred due to non-delivery of the construction on time also include actual damage and lost profit. In this context, loss of rent incurred in the period from the date when the construction is due to the actual delivery to the owner of the land or building may also be requested.

In order for the land or building owner to claim the rental loss from the contractor, he/she must not have returned from the construction contract. If she/he has returned from the contract, she/he cannot claim the loss of rent at the same time. Loss of rent is akin to a penalty for delay. As stated above, the delay penalty can be requested when the owner of the land or building still wants the delivery of the construction. Even if it is not determined in the contract that the loss of rent will be paid in case the delivery of the construction is delayed, the owner of the land or the building may claim the loss of rent from the contractor within the scope of this penalty, as per the law, since the owner of the land has a legal right to compensation without delay (TCO article 125). If there is a provision in the construction contract that both the penalty clause and the loss of rent will be paid in case of late delivery of the construction, it is possible to request both separately. However, if there is no such provision in the contract, the rental loss amount can only be as much as the portion exceeding the penalty. To put it more clearly, if there is no provision in the contract that both will be paid, if there is an amount of delay in excess of the penal clause (for example, loss of rent), the penal clause and the amount exceeding this amount, otherwise only the penalty clause can be requested.

“The lawsuit is about the collection of the delay compensation arising from the construction contract in return for the land share and the determination of whether the defendant contractor is obliged to pay the agreed penal clause and the amount of the penal clause. Even if there is no provision in the contract for delay compensation, in case the contractor delays in delivery, pursuant to Article 106/II of BK 106/II, the land owner may request delay compensation from the contractor in construction contracts in return for land share, not less than the monthly current market rent. When the concrete event is evaluated together with the explanation made above and the rules mentioned, for the delay compensation, the Plaintiff has requested for the time being to collect 1,000,00 TL from the defendant with commercial default interest from the date of the lawsuit, to determine whether the defendant is liable to pay a penal clause and to determine the amount of the penal clause  due to the failure of the execution of the construction contract in return for the plaintiff’s land share. Since the court decided that the case was not filed pursuant to Article 30 of the Fees Law, due to the failure to pay and renew the fee within the definite period given to the plaintiff’s attorney in terms of the penal clause request, it was appropriate to decide on the delay compensation, which is the other demand of the plaintiff. Upon the default of the plaintiff land owner, the defendant’s testator contractor is right to demand compensation for delay since it is not necessary to make a reservation in order to be requested in delivery in accordance with Article 106/II of BK No. 818 in force on the contract date and Article 125/I of TCO No. 6098, which entered into force as of the date of the lawsuit. However, if the claimant cannot file an indefinite debt lawsuit, since she is in a position to determine the amount of compensation she may demand according to the current market rate, since the amount to be determined by the plaintiff in this way is not the amount determined in a binding manner in the contract, it is possible to file a partial lawsuit even in the period when CCP 109/2 is in force, since there is no binding certainty for the other party. As a matter of fact, while the plaintiff claimed 1,000,00 TL for delay compensation, since the amount of compensation that can be claimed was determined as 7,526.78 TL by expert examination, it is clear that there is no certainty that prevents a partial lawsuit from being filed. In this case, it is possible for the plaintiffs to file a partial lawsuit, as there is no material certainty that prevents the filing of a partial lawsuit, since it is possible and valid to correct the request upon the report received, it is not wrong for the court to have decided by considering this correction.”[2]

Another issue is that in order to claim the loss of rent, the owner of the land or building must not have any fault in the late delivery of the construction, and must not have defaulted in fulfilling her/his own debts. The rent to be paid for the delay period will be determined according to the current rental price. If there is a determination on this subject in the contract, the written price is considered valid for the rental. However, if the price in the contract is lower than the current market price, payment of the current price may also be requested.

In the main case, the plaintiff’s claim for rental compensation due to late delivery was rejected by the Court on the grounds that it was not possible to demand it because it was not possible to determine exactly how long the tenant of the leased property would be found and whether it would be found immediately. In the contract dated 23.05.2011 signed between the parties regarding the sale of the independent section, which is the subject of the lawsuit, it was stated that the entire building would be completed in full at the title deed delivery on 30.07.2011and the delivery date was determined as 30.07.2011. It should be noted right away that in contracts that impose debts on both parties, the creditor may optionally request compensation for the damage incurred from the defaulting debtor within the framework of TCO 125 (former BK 106. et al.) due to the same performance and delay, or for the positive damage by refusing to perform the same, or for the negative damage by terminating the contract. In a concrete dispute, the plaintiff requests compensation for the loss incurred due to late delivery by keeping the contract alive. In this case, the plaintiff has the right to claim damages according to the Articles of TCO 125 (former BK 106 et al.). Considering that the plaintiff may demand rental compensation due to late delivery, a decision should be made by the court according to the result of the examination, while a decision to reject the request with a written reason is against the procedure and the law and requires reversal.”[3]

Conclusion

In construction contracts, the contractor is expected to deliver the construction delivery debt as agreed in the contract and on time. The responsibility of the contractor who does not comply with these obligations arises. If the contractor delivers the construction late, she/he will be liable to compensate for the damages arising from it. In case of late delivery, the owner of the land or building has some rights against the contractor. The owner of the land or building, who can choose and use one of these that is suitable for her situation, should make the necessary warnings and notices in this process and use her/his rights in a timely manner. This is also very important in terms of litigation processes. For this reason, professional legal consultancy is important both in the pre-litigation period and during the litigation process.

You can contact our team for more detailed information and consultancy.

Best Regards.

Solmaz Law and Consultancy Team.

References

İlker Hasan DUMAN, (2021), İnşaat Hukuku, Seçkin Yayıncılık, Ankara, s. 523-564.

Erhan GÜNAY, (2021), Arsa Payı Karşılığı İnşaat Yapım Sözleşmesinden Kaynaklanan Uyuşmazlıklar, Seçkin Yayıncılık, Ankara, s.101-110.

23rd Civil Chamber of the Supreme Court, 28.03.2017, 6308/967.

15th Civil Chamber of the Supreme Court, 2019/3047 E., 2020/2498 K.

3th Civil Chamber of the Supreme Court, 2020/6106 E., 2020/7511 K. 

[1] 23rd Civil Chamber of the Supreme Court, 28.03.2017, 6308/967.

[2]15th Civil Chamber of the Supreme Court, 2019/3047 E., 2020/2498 K.

[3]3th Civil Chamber of the Supreme Court, 2020/6106 E., 2020/7511 K.

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