The proliferation of urban transformation schemes, large-scale housing projects and construction contracts in return for flats has made it ordinary for the acquisition of real property to take place through a contract concluded with a contractor. In almost all such contracts the contractor undertakes the date on which the building is to be delivered. Where the undertaken day passes and delivery has still not taken place, persons who have purchased the property or have had it built under a contract in return for flats are entitled to seek from the contractor, within the statutory framework, the losses arising from that delay.
The Contractor’s Default in Delivering the Property
In contracts for the purchase of real property and in construction contracts in return for flats, the contractor is the obligor of the obligation of delivery, while the person purchasing the property or having it built is the obligee of that obligation. The contractor, bearing the capacity of obligor, must transfer the property to the obligee on the date indicated in the contract, that is, when the term falls due. If delivery does not take place on that date, the obligation becomes due and the obligee acquires the right to demand that the property be transferred to them.
The Requirement of Formal Notice for Default
Even though the obligation of delivery becomes due upon the arrival of the term, as a rule a formal notice by the obligee is required for the obligor to fall into default. Article 117(1) of the Turkish Code of Obligations No. 6098 (TBK) expresses that rule as follows:
Turkish Code of Obligations No. 6098, Art. 117(1)
“The obligor of an obligation that has fallen due falls into default upon the formal notice of the obligee.”
There are, however, also cases in which default arises without a formal notice being required. A definite term having been fixed by the parties, its being clear within the framework of the rules of good faith that the obligation will not be performed, or it having been agreed in the contract that no formal notice is required, all fall within this category. Unless there is a situation contrary to the rules of good faith, no separate formal notice need be served in these cases.
Formal Requirements for the Notice of Default
As a rule, no formal requirement is laid down in respect of a notice sent for the purpose of placing the obligor in default. Even so, giving notice through a notary or by another written means removes to a significant extent the problems of proof that may arise later.
The position is different in commercial relationships. Under the Turkish Commercial Code No. 6102 (TTK), notices between merchants aimed at placing the other party in default may be sent by only one of four means: registered letter, telegram, through a notary, or by the registered electronic mail system with a secure electronic signature.
The Legal Basis of the Claim for Loss of Rent
Where the property is delivered after the agreed day and the contractor falls into default, foremost among the losses arising for the purchaser or the employer is loss of rent. The loss of rent suffered in the period between the date envisaged for delivery and the date on which actual delivery took place may be sought from the contractor.
This head of loss is assessed within the scope of delay compensation under Article 125(1) of the TBK:
Turkish Code of Obligations No. 6098, Art. 125(1)
“Where the obligor in default has not performed the obligation within the period granted, or where a situation exists that does not require a period to be granted, the obligee is at all times entitled to demand performance of the obligation and damages by reason of the delay.”
Accordingly, where the contractor fails to perform the obligation of delivery in time, the person who is to take over the property may claim that the losses caused by the delay be made good under the heading of delay compensation; loss of rent is among those losses. One point must, however, be underlined: the ability to claim loss of rent depends on the purchaser or the employer not having withdrawn from the contract concluded with the contractor. If the contract has been withdrawn from, a claim for loss of rent produces no result.
Where No Delay Compensation Is Agreed in the Contract
It is possible for the contract signed with the contractor to provide for the payment of a contractual penalty and for delay compensation covering loss of rent against the possibility of late delivery. Even where there is no such clause, there is no obstacle to claiming loss of rent.
According to the decision of the 15th Civil Chamber of the Court of Cassation of 21.09.2020, case no. 2019/3047, decision no. 2020/2498;
“Turning to the statutory provisions as regards the claimant’s claim for payment: under Article 106(1) of the Code of Obligations No. 818, in force at the date of the contract, and Article 123 of the Turkish Code of Obligations No. 6098, in force at the date of the action, where one of the parties to a contract imposing mutual obligations falls into default, the other may grant an appropriate period for performance of the obligation, or may request the judge to grant an appropriate period, and, having placed the other party in default, may then exercise the elective rights set out in Article 106(II) of the Code of Obligations and Article 125 of the TBK. Where the situations not requiring the grant of a period, set out in Article 107 of the Code of Obligations and Article 124 of the TBK No. 6098, are present, the obligee may exercise the rights arising from default without granting a period. Even where the contract contains no provision as to the payment of delay compensation, in the event of the contractor’s delay in delivery the landowner may, pursuant to Article 106(II) of the Code of Obligations, claim delay compensation from the contractor, which in construction contracts in return for a land share shall be not less than the monthly market rent.”
The Action for Loss of Rent Arising from Late Delivery
If the contractor has not transferred the property on the delivery date undertaken by the contract, the loss of rent arising in the period between the agreed date and actual delivery may be sought from it. Since that loss is, as explained above, regarded as delay compensation within the meaning of TBK Art. 125(1), it may be raised by way of an action.
The sequence generally followed in the proceedings is as follows: first the comparable rental value of the property is established by court-appointed experts in the field; the amount of compensation that may be sought from the contractor is then calculated on the basis of that data.
The Courts with Subject-Matter and Territorial Jurisdiction in the Loss of Rent Action
The decisive matter in determining the court with subject-matter jurisdiction is whether the property was acquired, or had built, in the capacity of a consumer or within the framework of a commercial relationship.
Where the property has been purchased or had built in the capacity of a consumer, subject-matter jurisdiction in loss of rent actions belongs to the consumer courts. However, Article 73/A of the Consumer Protection Act No. 6502 has made mediation a procedural requirement in respect of disputes heard before the consumer courts. Accordingly, where the requirement does not fall within the scope of an exception, the stage of mandatory mediation must be completed before the action is brought. For detail on the subject, our note entitled Mandatory Mediation in the Consumer Courts may be consulted.
Where the property has been acquired in connection with the commercial enterprises of both parties, or where a situation exists in which jurisdiction is conferred on the commercial court by statute, the dispute is heard before the commercial courts.
As regards territorial jurisdiction, the general rules of the Code of Civil Procedure No. 6100 apply and the court of the place where the obligor is situated is regarded as having general jurisdiction.
Independent Legal’s Assessment
In late delivery files the first heading determining the fate of the claim is when default arose. Where a definite term has been agreed in the contract, default occurs without any need for a formal notice; otherwise the starting date of the compensation is tied to the moment the notice served reaches the other party. Since this distinction directly affects the sum that may be claimed, it should be clarified at the very outset of the process.
The second important point is that withdrawal from the contract and a claim for delay compensation cannot be raised together. As the claim for loss of rent will be left without foundation once the intention to withdraw has been declared, the decision as to which route is to be followed should be taken with regard to the economics of the file.
The headings that come to the fore in practice are the following:
- Examining whether the delivery date in the contract has the character of a definite term
- Sending the notice through a notary and documenting the date of service
- Complying, in relationships between merchants, with the means of notice prescribed by the TTK
- Compiling the data on comparable rents before the action is brought
- Assessing whether the contract contains a contractual penalty and how it relates to loss of rent
- Completing the stage of mandatory mediation in files where the capacity of consumer is present
Independent Legal provides advisory services and conducts litigation in claims for loss of rent and delay compensation arising from delays in the delivery of real property, from the stage of formal notice through to the conclusion of the proceedings.