ELECTIONAL RIGHTS IN THE EVENT OF THE CONTRACTOR'S DEFAULT IN THE DELIVERY OF THE WORK

There is no specific provision in the TCC regarding the contractor's default in the delivery of independent sections in a construction contract in exchange for a land share. Therefore, if the contractor defaults in the delivery of independent sections, the general provisions of the TCC and, where applicable, the provisions pertaining to the work contract will apply. The institution of the debtor's default in Articles 117 and 118 of the TCC and the related provisions will apply to the contractor's default in the delivery of independent sections and the consequences thereof.

In this context: For a contractor to be in default on their obligation to deliver the independent sections, the obligation must be due and payable, the independent sections must not be delivered, the landowner must have provided a warning, and there must be no reasons preventing the default. However, the contractor's default on their obligation to deliver the independent sections is not, as a rule, required to be at fault. However, justified delay may prevent the contractor from defaulting because it eliminates the delay in fulfilling the obligation from being objectively contrary to the obligation.

As regulated in Article 117/I of the TCC, if the debt is due and payable, the debtor is in default upon the notice of the creditor. According to this provision, a notice from the landowner is required for a contractor to be in default. The notice must clearly state that the landowner has requested the contractor to deliver the independent sections in full and that the time for performance has come. Since the TCC does not specify a specific form for the validity and proof of a notice, a notice may be given verbally, in writing, expressly, or impliedly. However, if the parties stipulate a form of validity for the notice in the contract, the notice must be sent in accordance with this requirement. A notice given without complying with the form will not place the contractor in default.

However, as regulated in Article 18/III of the TCC, in disputes between merchants, notices and warnings to put the other party in default, to terminate the contract, or to withdraw from it must be sent by registered mail, via a registered electronic mail system using a secure electronic signature, through a notary public, or by telegram. In cases where a notice is not required: If there is a specific term, the contractor will automatically default if it fails to perform its obligation within that term, without the need for a notice from the landowner. There is no need for the landowner to issue a notice if the contractor's circumstances and circumstances indicate that a notice would be futile and serve no purpose. Similarly, if, due to their specific circumstances and personal abilities, only the debtor, in other words, the landowner, is in a position to know when performance will be due, then a notice is not necessary.

Following the contractor's default, the landowner's right to demand specific performance from the contractor or to waive this obligation and exercise their right to withdraw from the contract is not necessitated by the contractor's fault. However, the contractor's negligence is required to claim compensation.

A. LAND OWNER'S ELECTION RIGHTS AFTER DEFAULT

a. Conditions Required for the Land Owner to Exercise Their Elective Rights:

1. Contractor Must Be Granted Additional Time

The first requirement for exercising any optional rights, other than the right to demand specific performance and compensation for delays stipulated in Article 125 of the TCC, is that the contractor must have been granted an appropriate additional time or a request to the judge to this effect. If the contractor fails to deliver the building despite the expiration of the additional time, the landowner may continue to claim specific performance and compensation for delays. Instead, they have the option to waive their optional rights of performance and claim positive damages, or to withdraw from the contract and claim negative damages. Granting an additional time to the contractor constitutes a unilateral declaration of intent, similar to a legal transaction, by the landowner, which must be delivered to the other party. While the TCC does not specify a specific form for the extension of time, as is the case with notices, TCC Article 18/III stipulates that the extension for merchants must be granted in accordance with one of the forms specified in the article.

An extension of time can be granted after the contractor has entered into default. However, in cases where a notice is required for default, an extension of time can be granted along with the notice. The contractor can avoid default by also paying the delay compensation covering the period up to the date of performance upon granting the extension. The TCC does not provide a clear definition of the extension of time. It states that, while one of the parties may grant it, it is necessary for it to be appropriate, and that a request for a time limit can be made by applying to a judge. When determining the extension of time, criteria such as the landowner's and contractor's interest in the completion of the construction, the nature of the construction, the absence of fault by the contractor, and the rate of completion of the construction should be considered.

Article 124 of the Turkish Code of Obligations stipulates that, even if no additional time is granted, the landowner may exercise optional rights in certain circumstances. These include: a strong impression that the contractor will not perform their obligations based on their current circumstances and behavior; the contractor's performance becomes futile; or the contract clearly indicates that performance is unacceptable. The first example of a time limit not requiring a time limit is the contractor abandoning construction or only partially completing the structure. It is accepted that this situation of futile performance is not applicable to construction contracts for land shares. This is because the landowner still benefits from delayed completion of the structure. The final circumstance, as stipulated in Article 124/3 of the Turkish Code of Obligations, does not require an additional time limit: the parties have agreed on a definitive deadline.

2. Contractor Failure to Perform within the Granted Additional Time

Another condition for the landowner to exercise their optional rights is that the contractor has not performed within the granted additional time period. If the contractor has performed, optional rights cannot be exercised.

3. The Landowner's Immediate Exercise of Optional Rights

A landowner wishing to exercise their optional rights in a construction contract in exchange for a land share must exercise their optional rights immediately upon failure to perform within the granted extension period, or upon failure to perform despite the accrual of time in cases where an extension is not required. Failure to do so will be deemed to have insisted on specific performance. Upon the contractor's default, the landowner becomes eligible to request other optional rights in lieu of specific performance, either at the end of the specified period in cases where an extension is required, or upon the failure to perform the already-due obligation in cases where an extension is not required.

b. ELECTIVE RIGHTS

1. CLAIMING FOR SPECIAL PERFORMANCE AND DELAY DAMAGES
In the event of default, the obligation to construct the structure and deliver the independent sections does not automatically terminate; the obligation to perform in kind continues. If the landowner wishes to continue the contractual relationship despite the contractor's default, they may request specific performance and delay compensation from the contractor. For the landowner to claim for delay compensation in addition to specific performance, the contractor must be in default of its obligation to deliver the independent sections, a damage must have occurred, a suitable causal link must be established, and the contractor must be at fault.
The landowner may immediately notify the contractor of their request for specific performance and delay compensation. In other words, the landowner is not required to grant the contractor an extension of time for this request. Provided that the performance of the independent sections is still possible, the contractor may be compelled to perform in kind for its obligations. Therefore, the landowner may file a lawsuit against a contractor who fails to perform his obligation on time, demanding specific performance. As stipulated in Article 118/I of the TCC, the contractor is obligated to compensate the landowner for any losses incurred due to the late performance of the obligation, unless the contractor proves that he was not at fault for the default.

Delay compensation, regulated in Article 118 of the TCC, aims to compensate the creditor for losses incurred due to the late performance of the obligation and aims to ensure the creditor's interest in prompt performance. For a contractor to be liable for delay compensation, they must be at fault. However, damages incurred between the date of the contractor's default and the date of specific performance constitute the subject of delay compensation. The landowner may demand delay compensation along with the performance itself, or may claim and sue after accepting performance, even if they have not reserved the right to do so with a reservation. Delay compensation can be requested before the construction is completed and delivered, or after the construction is completed and delivered.

Delay compensation is calculated based on the difference between the landowner's assets' current condition if the independent units were delivered on time and their current condition due to the late delivery of the independent units. The landowner cannot waive specific performance and claim only delay compensation. Delay compensation can only be claimed for the period during which specific performance can be demanded. Therefore, a landowner who waives specific performance and reneges on the contract will not be able to claim delay compensation. Delay compensation is inherently a type of positive damages; the burden of proving the extent of the damages incurred rests with the landowner. The landowner may claim actual damages and lost earnings from the contractor under the delay compensation. In practice, the calculation of delay compensation is generally based on the estimated rental income based on current rental rates, given the nature and purpose of the construction, had the construction been completed and delivered on time.

2. WAIVER OF SPECIAL PERFORMANCE AND CLAIMING FOR PRESENTATIVE DAMAGES
In the event of a default in the payment obligation, it may be more beneficial for the contractor to maintain the contract and seek compensation for damages rather than withdrawing from the contract. A contractor wishing to exercise this innovative right of choice must, within the scope of Article 123 of the TCC, give the employer a final opportunity (extra time) to make payment and must immediately notify the employer of the waiver of specific performance, which constitutes a novel right. "Immediately" means that the contractor must notify the employer of the optional right to refuse specific performance within a reasonable timeframe, depending on the specific circumstances. A waiver of specific performance is a mandatory condition for exercising the optional rights stipulated in Article 125 of the TCC.
In the event of a refusal of specific performance and a claim for positive damages, the contract remains valid and continues to exist. The contractor has merely refused specific performance, but has not renounced the contract. The parties remain liable for the performance of their respective obligations; however, within the rights and authority granted by law, the obligation of the client, as the obligor party, to perform the work changes in nature. The primary obligation of paying the price in the contract has been replaced by the secondary obligation of paying compensation. In this case, the client's primary obligation of performing in kind has now become a liability for compensation.

If performing in kind is waived and positive damages are claimed, unlike the other option of rescission, a liquidation process is not initiated, and the parties' completed performances are not subject to a refund obligation. Considering this situation in terms of a construction contract in exchange for a land share, in the event of partial performance, the subject of performance will not be refunded, and the contractor will be entitled to a fee proportional to the portion delivered. In this context, the contractor must be at fault for positive damages to be claimed. If the contractor proves that they were not at fault in their default in delivering the independent units, they will not pay compensation for positive damages.

Delay damages claimed upon waiver of specific performance and delay damages claimed in the event of specific performance are essentially the same. The elements of the positive damages suffered by the landowner as a result of the contractor's default in its obligation to deliver the independent units are the value of the unperformed performance and other damages arising from the delay. The value of the performance not performed by the contractor consists of the minimum amount of the positive damages suffered by the landowner due to the contractor's default in the obligation to deliver the independent units. Other damages suffered by the landowner due to the contractor's delay in delivering the independent units are all other damages incurred by the default, other than the unperformed performance, and causally linked to the default. Damages suffered by the landowner due to the contractor's delay in delivering the independent units may be claimed as actual damages and the lost profits. The starting date for calculating positive damages is generally the date the landowner waived the delay compensation along with specific performance. However, in cases where the landowner's declaration of waiver is not required, the date of default is taken into account.
Article 125/f.2 of the TCC uses the term "damages arising from non-performance of the obligation." In this context, the contractor's expenses incurred to exercise its option, litigation expenses, forced enforcement expenses, penalties and compensations it has to pay to third parties due to default, excess damages, price differences that have to be paid due to default, and the contractor's loss of profit and loss of profit are also considered positive damages.
According to the exchange theory, the first theory we will examine regarding the calculation of positive damages, the contractor's obligation to perform in kind remains, while the contractor will pay compensation in lieu of the performance. If this theory is accepted, the landowner will be required to transfer certain land shares to the contractor even if the building is not delivered. According to the dominant difference theory, the landowner's obligation to perform is eliminated, and they can deduct the amount they have to pay from the compensation they claim from the contractor and claim the remaining amount. Accordingly, if the difference theory is applied, the landowner is not obligated to transfer the share, but in this case, they can claim the remaining amount after deducting the value of the land shares from the positive damages they would otherwise claim from the contractor. The value of the independent units to be delivered to the landowner in exchange for the land share, as agreed upon in the construction contract, and the specific land shares to be transferred to the contractor in return, is determined based on the market value at the date of cancellation of performance. Positive damages should be at least the costs required for the completion of the building. In this context, since costs are determined based on the rate of completion of the building, the rate of completion is important. Positive damages consist of the costs required for completion of the building, as well as the costs resulting from delays and the lost profits. Accordingly, under the difference theory, compensation under the positive damages scope is the amount calculated by subtracting the value of the specific land shares determined based on the market value from the value of the independent units, also determined based on the market value, and adding the damages incurred due to delays and the cost required for completion of the construction to the resulting amount.

3. RESCISSION OF THE CONTRACT AND REQUESTING COMPENSATION FOR NEGATIVE DAMAGES

Rescission of a contract aims to reestablish the parties' pre-contractual position and is a right that creates a disruptive and innovative process. Thus, the contract becomes a liquidation relationship, and the parties are obligated to repay the damages. In contrast, recent decisions of the Court of Cassation have ruled that the landowner's right to rescind the contract is contingent upon the contractor's acceptance, or if the contractor refuses, upon a court decision.

According to Article 125/III of the TCC, the parties to the contract are relieved of their obligation to perform by the landowner's declaration of rescission. Furthermore, with this declaration, the parties may request the return of previously performed performances. In this case, unless the contractor proves that they were not at fault for the default, the landowner must, upon request, compensate the landowner for the damages they suffered due to the contract's invalidity. Whether the contractor is at fault or not, the landowner may exercise their right to withdraw from the contract. However, the contractor's negligence requirement applies only if the landowner seeks compensation for negative damages after the contract is terminated. To withdraw from the contract and claim compensation for negative damages, the landowner must, as a rule, grant the contractor an extension of time for specific performance and, if performance fails within the granted extension, immediately notify the contractor of their intention to withdraw from the contract.

Consequences of the Landowner's Retreat from the Contract:

Upon the landowner's withdrawal from the contract, both parties are relieved of their obligation to fulfill their obligations and may request the return of previously performed obligations pursuant to Article 125/III of the TCC. The Court of Cassation's view, however, is that, given that this contract is a contract for immediate and continuous performance, it is necessary to determine whether the landowner's withdrawal from the contract is retroactive or retroactive, taking into account its nature. The decision emphasized that retroactive termination is only acceptable if the level of construction is so high that retroactive termination would be unjust. Otherwise, the landowner's retroactive termination of the contract is the primary consideration.

The Court of Cassation relies on the classical theory that retroactive termination of the contract is terminated by the landowner's withdrawal. In some decisions, it has based the parties' obligation to repay the contract on unjust enrichment. In some decisions, the court has based the parties' obligations to rescind the contract on a legal debt relationship, subjecting rescission claims to a 10-year statute of limitations.

Termination of a construction contract in exchange for a land share; termination of outstanding obligations: Revocation of the contract terminates the landowner's obligation to pay any outstanding price, and the contractor's obligation to construct the structure and deliver the independent units. As a rule, rescissions are made in kind. However, if rescission of the rescission is not possible, rescission is made in the form of the monetary value of the rescission. The general provisions regarding the performance of rescission obligations, as stipulated in Articles 83 and 10 of the Turkish Code of Obligations, apply.

Calculation and Proof of Negative Damages: Articles 50-52 of the TCC, which regulate tort liability, apply analogously to the calculation of compensation for negative damages arising from breach of contract. It is possible that the landowner may obtain certain benefits by reneging on the contract. In this case, these benefits obtained by the landowner must be taken into account and balanced in the calculation of negative damages.

According to Article 125/III of the TCC, for a landowner who reneges on a contract to claim compensation for negative damages, the contractor must be at fault. The burden of proving that they were not at fault for defaulting on their obligation to deliver the independent units rests with the contractor. In this context, the landowner can prove the items constituting actual damages with documents and receipts. Regarding the loss of profits from missed opportunities to enter into contracts with third parties, if the work in question has a market value, the landowner is presumed to have lost the opportunity to enter into a contract with another contractor at this market value.

AV. AYŞEGÜL ÖTER
U&T Law - U&T Law and Consulting