January 2007

VALIDITY OF BUILDING CONTRACTS IN RETURN FOR APPARTMENT FLATS

Either local, or foreigner, one of the most important legal issues concerning the contractors offering services in construction industry is the validity issues of building contracts, which they might face during the jobs they undertake in return for appartment flats. Before examining this subject in details, briefly defining the concepts of “contract” and “building contract in return for appartment flat” might be appropriate.

Upon Turkish Obligations Code (OC) article 1, a contract is formed with the mutual and apposite consent declaration of the parties. The consent’s decleration can be either explicit or implicit. The contracts might also be formed with the acceptance of an offer by the opposite party; that is, if the opposite party faces an offer to conduct something with an explicit acceptance or a taciturnity which might be as well accepted as acceptance, a contract is formed when the will of mutual parties oriented towards the same goal is united. Contracts and legal transactions are not subject to any form, unless otherwise stated at the law. However, at any instance when it is required by the law or when the soundness of any contract is made subject to the form clause for the benefit of parties (OC article 22/2), the form is a must for the validity of the contract.

Building contracts in return for appartment flats, in other words, storey building contracts in return for land, is a sub-type of construction contracts. As for the construction contracts, a contract is formed between the business owner and the contractor, when their mutual will about conducting the business meet. Therefore, the construction contracts are not subject to due form. On the other hand, if any conflict occurs about the existance of a contract which is made without due form, the party claiming the existance of the contract should prove its own claim, according to the provisions of Turkish Code of Civil Procedure (CCP) article 288 et seq. That is, according to CCP article 288, if the value of any job conducted by the contractor exceeds 400 Turkish Liras, then the contractor can only prove the existance of a contract between himself and the business owner with a written document or an oath to be proposed to the opposite party.

As for the building contracts in return for appartment flats, which is a special type, the contractor assumes to offer a section of the building to be built by his own materials to the landowner, whereas the landowner undertakes to transfer a certain share of the land on which the construction shall take place, at the title deed. The contract includes an obligation to construct a building for the contractor as well as an obligation to transfer certain shares to the contractor for the landowner; such contracts form a special type, which unites building contracts and selling promise contracts in its constitution.

As for the contractor’s obligation, there isn’t any formal requirement; however, as for the landowner, upon the provisions of OC 22/2, 213 and Turkish Civil Code (CC) article 706 (article 634 before 2002 alteration) the promise of transferring the shares should be established with an official act. Therefore, the building contracts in return for appartment flats should be executed at the notaries in form of an official act. A contract executed at the notary is formed when the parties declare their uniting consents to the notary and these declarations are presented in form of a contract by the notary. Otherwise, if a contract executed by the parties by themselves is certified by the notary or the parties have the clauses of a contract written at the notary, such contracts shall not be qualified as official acts, as it is required by the law. About this issue, an exemplary decision of the 15th Chamber of Turkish Supreme Court, 14.5.1990 D., # 989/4811-990/2181, it is cleary stated as follows: “The contract between the parties is about building in return for appartment flats, which includes real estate sale promise and for its validity, ex officio execution in front of a notary is obligatory, upon the provisions of OC 213, CC 634, Title Deed Act article 26 and Notaries Act article 60. However, the aforementioned contract is noticed to be executed in form of a signature certification. Any stipulated damage or compensation based on an invalid contract shall be claimed, which is not binding for the parties.”

However, in some cases, an invalid building contract in return for appartment flats is accepted to be binding for the parties, if some certain conditions are proven to be present and therefore, the interests of contractor who fulfills his obligations are protected. We may list these conditions as follows:

1. Complete fulfillment of mutual acts: After the complete fulfillment of mutual acts derived from a contract, any of the parties cannot claim the reparation of its own acts, based on the contract’s being incompatible with the due form. Because, such an act shall not be compatible with the objective good faith rule, as it is stated at 2nd article of Turkish Civil Code. Upon the basic principles of civil law, everybody should act with good faith when using his/her rights and discharging his/her liabilities.

2. Total or partial completion of the building by the contractor. If the contractor totally or partially completes the building on the land handed over to him based on a formally invalid contract, the landowner abstains to share assignation at the title deed or claims the invalidity of the contract between himself and the contractor, this shall not be compatible with the good faith (honesty) rule. As for the landowner who does not react during when the contractor finishes a major section or totally completes the building considering the contract is valid and then, who wishes to abstain from fulfilling his own obligation claiming the invalidity of the contract, such an act shall not be protected by the jurisprudence.

3. Transition of the land share in the name of contractor. Based on a building contract in return for appartment flats, executed incompatibly with the formal rules and which is considered invalid in legal point of view, if the complete land or the shares promised to be transferred via the contract are transited to the contractor, this fact shall render the invalid contract be binding for the parties.

4. Mutual and partial exercise of the acts between parties. For a building contract in return for appartment flats which is executed without respecting the formal rule, claiming its invalidity after the contractor begins the construction at the land and the landowner transfers some of the promised shares to the contractor, such an act shall not be compatible with the good faith rule stated at 2nd article of CC. At a Supreme Court decision related with this subject, it is clearly stated as follows: “It is understood that, on the land handed over by the defendant, the contractor had begun the construction and the independent section shares about the stores on the ground floor were transited to the people, to whom the contractor sold the stores, at the title deed. For any contract including mutual acts, if the parties partially exercise their acts based on a invalid contract, then the invalidy of the contract can no longer be claimed.” (Turkish Supreme Court 15th Chamber, 20.11.1986 D., # 986/266-3930.)

The execution of building contracts in return for appartment flats in form of an official act being included at the concept of public order, any judge who is confronted with a conflict about building works in return for appartment flats is obliged to check ex officio whether the contract is compatible with the formal clauses. Upon the well-settled case law of Turkish Supreme Court, the ex officio consideration and examination of this issue by judge is in accordance with the judge’s duty; because these contracts also include the sale promise of a real estate.

In respect to the information given above, we think it is highly appraisable to conclude that the contractors insisting on having the contract executed at the notary in form of an official act shall be helpful in solving a possible dispute about the validity of the contract, between them and the business owners.