Definition

A construction contract can be defined as a contract in which the contractor undertakes to complete and deliver a structure or part of it at their own risk for a fee.

As for the construction contract in return for land share, it can be defined as a contract that imposes obligations on both parties, where the project owner undertakes to transfer their shares in the land to the contractor in return for the contractor’s commitment to build on the land.

Accordingly, the contractor is obliged to complete the construction and deliver the resulting independent sections to the project owner – the landowner. If the project owner is paying a fee, then the paid fee substitutes for the land share.

Conditions for Contractor Default and Construction Contracts

Contractor Default

The contractor’s performance obligation is to complete the construction subject to the contract under the conditions stipulated in the contract and deliver it within the specified time. For the contractor’s obligation to end with the delivery, as a rule, the work must be done according to the Zoning Law and regulations, in accordance with the permit, and completed in full according to the contract and under the control of the project owner.

Conditions for Contractor Default in Terms of Construction Contracts

According to Article 117 of the Turkish Code of Obligations, the debtor of a due debt falls into default upon the creditor’s notice. However, in addition to this, it is also necessary that the performance of the debt is not impossible and that the creditor is ready to accept the performance.

Contractor’s Debt Becoming Due

According to Article 90 of the Turkish Code of Obligations, unless the time of performance is agreed by the parties or understood from the nature of the legal relationship, every debt becomes due at the moment it arises. However, since the existence of construction is not in question at the time of the birth of the debt in construction contracts, the time for the determination of the due date needs to be known.

If the due date is not agreed upon in the contract, Article 90 of the TCO does not apply, but this does not give the contractor the right to deliver the construction at any time.

In construction contracts where the delivery date is not specified, or in construction contracts in return for land shares, a reasonable period is determined by evaluating the details of the work and objectively considering all conditions. At the end of the determined period, the debt does not become due automatically; it becomes due only after the project owner serves notice to the contractor.

Possible Performance of Delivery Obligation

One of the conditions for the contractor to be in default is that the performance of the debt is possible on the due date. However, if performance is impossible, default is not in question. Impossibility of performance can be defined as the impossibility of obtaining the performance of the existing debt by forced execution by the creditor.

However, if the debtor can perform at their discretion, and the creditor cannot ensure the performance, then the impossibility of performance does not exist. Impossibility of performance can also exist as legal impossibility. For example, declaring the area where the construction is to be done as a protected area is a legal impossibility.

Contractor’s Non-Performance of Delivery Obligation

To accept that the contractor is in default, the fundamental condition is the non-performance of the debt, that is, the non-delivery of the construction to the project owner. Even if the construction is delivered with deficiencies, if the project owner does not accept the deficient performance, the contractor is still in default.

For the performance of the debt to be deemed to have taken place, the construction must be delivered to the project owner without any deficiencies. If the contractor delivers the construction to the project owner with minor defects, this does not give the project owner the right to refuse the performance of the debt.

In this case, the project owner should resort to warranty against defects provisions instead of contract termination provisions. Here, it is necessary to distinguish between incomplete work and defective work. According to this, non-compliance with the contract, if it can be corrected without damaging the existing works, is considered incomplete work; however, if correcting non-compliance with the contract requires damaging the previously done work, it is considered defective work.

Project Owner’s Notice

The contractor, who is the debtor of the debt, can only fall into default upon the project owner’s notice, who is the creditor. This is regulated in Article 117 of the TCO. The content of the notice should include the project owner’s declaration to the contractor to fully complete and deliver the construction.

Unless otherwise stipulated in the contract, the notice can be made orally or in writing. However, for proving the existence of the notice in future disputes, it is more appropriate for it to be made through a notary. If both parties are merchants, according to Article 18/3 of the Turkish Commercial Code, the notice should be made by a notary, registered mail, telegram, or by using a secure electronic signature with a registered electronic mail system.

Although the law stipulates that the notice should be made in one of the specified forms, it is not clearly understood from the wording of the article whether this is a validity condition or a condition of proof.

If it is accepted as a validity condition, the notice made contrary to the validity condition will not be valid, and consequently, the notice given will not be valid either. However, if it is accepted as a condition of proof, the invalidity of the notice will not be an issue, only the limitation of evidence for proving will be in question.

In the reasoning of the law, it is stated that the form in the provision is not a validity condition but a condition of proof. It is mentioned that the absence of a valid reason for the validity condition and the rapid development in technology are the grounds for this. Therefore, it is necessary to accept the form stipulated in the said paragraph as a condition of proof.

No Hindrance to Contractor Default

The construction contract is a contract that imposes obligations on both parties. In the construction contract, which is a mutual contract, the contractor can avoid performance by claiming the inability to perform as stated in Article 98 of the TCO.

That is, “In a mutual contract, if one party becomes unable to perform their debt and especially if they go bankrupt or if the enforcement against them remains inconclusive, and thus the right of the other party is endangered, the other party may refrain from performing their debt until the performance of the counter-debt is secured.” According to this provision, the contractor may apply this article if the performance of the shares of land or payment to be received from the project owner according to the contract is endangered.

In other words, if the performance of the project owner’s obligation is endangered after the contract is concluded, it would be against fairness to require the contractor to perform the construction obligation. In this case, the contractor has the right to request a guarantee from the project owner and to perform the construction obligation only under these circumstances.

If the project owner provides the necessary guarantee, the contractor’s right to avoid performance ceases. However, for the contractor to avoid default by asserting this defense against the project owner, certain conditions are necessary. Accordingly, the contractor must be obliged to perform before the project owner and the project owner must have fallen into the inability to perform after the construction contract is concluded.

The project owner’s bankruptcy, request for concordat, being indebted, or suspension of payments are indicative of the inability to perform. In these cases, the project owner’s inability to perform is certain, and thus the contractor’s default will not be in question by asserting this defense. The main aim of the article is to give the contractor the right to avoid performing their obligation if the performance of the project owner’s obligation is endangered.

Interim payments may have been agreed upon according to the contract between the contractor and the project owner. Thus, the contractor will be able to finance the construction. That is, it may have been agreed that the payment corresponding to the part of the construction created up to that point will be made step by step according to the stages the construction reaches.

Likewise, in construction contracts in return for land shares, it may have been agreed that certain shares of land will be transferred to the contractor as the construction reaches certain levels. Here, the project owner is obliged to fulfill these payments or land shares step by step as interim payments, and if there is a delay in these interim payments, the contractor may assert this defense and avoid performing their obligation. That is, if the project owner fails to fulfill their obligation, the contractor will avoid default.