Disputes Between Owners and Contractors in Urban Transformation

This article is an English translation of the Turkish original published by the office.

One of the most important stages of urban transformation is undoubtedly reaching agreement with the contractor and drafting the contract. The solution to problems that may arise later in the process lies in that contract. For this reason, as at every stage of urban transformation, it is in the interest of those involved to obtain support from a specialist lawyer, especially when the agreement with the contractor is being made.

Steps after a building is determined to be risky

In urban transformation, the process effectively begins once a building is determined to be a “risky building”. From that point, the owners must decide on the future of their building. There are several ways to eliminate the risk: strengthening the building, or demolishing and rebuilding it. The owners must first decide which route to take. If they decide to rebuild, they must also decide who will build: the owners may build themselves or have the building constructed by a contractor. The original article states that this decision must be taken by a two-thirds majority; as the required majority has since been amended by legislation, the rule in force should be checked for each building. Once the owners decide that a contractor will carry out the reconstruction, a contract setting out the rights and obligations of the chosen contractor and the owners is signed.

The legal nature of the contract with the contractor

In urban transformation projects, the contracts between the contractor and the landowners are mixed contracts defining the parties’ rights and obligations. They are usually called construction contracts in exchange for land shares or flat-for-land construction contracts, and they contain the following elements:

• Contract for work: the contractor’s obligation to build on the land is subject to the rules on contracts for work in Articles 470 et seq. of the Turkish Code of Obligations.
• Promise to sell real estate: the landowner’s undertaking to transfer certain shares to the contractor in exchange for independent units to be built has the nature of a promise to sell real estate.

Such contracts therefore combine the sale of immovable property (the landowner’s transfer of land shares) and a contract for work (the contractor’s undertaking to build). For the contract to be valid, it must be drawn up in official form before a notary; private written contracts between the parties are not binding in terms of acquiring rights.

Problems between owners and the contractor

A number of problems may arise between the contractor and the owners during urban transformation, including:

• the contract not being drawn up by a notary in official form;
• technical specifications in the contract not being sufficiently clear;
• the building not being completed and delivered by the agreed date;
• demands for extra money because of later developments while the contract is ongoing;
• materials not being of the quality agreed in the contract;
• flats being built with less floor area than agreed;
• poor workmanship in breach of the duty of care;
• the agreed rent support not being paid, or not paid in full;
• official permit and zoning procedures not being carried out;
• title deeds not being delivered although construction has finished.

Difficulties between owners and contractors cause significant legal, technical and financial problems. Obtaining legal advice, operating technical supervision and control mechanisms, sound financial planning, open and transparent communication, and detailed, clear contracts all play an important role in preventing them.

Türker Law Office provides legal representation and advice on drafting and reviewing flat-for-land or land-share construction contracts between owners and contractors in urban transformation, and on disputes concerning delivery, defective or incomplete work, rent payments, transfer of title and termination.