THE CONTRACTOR'S LIABILITY FOR DEFECTS IN CONSTRUCTION CONTRACTS OF FLAT FOR LAND 2 August 2024
In the context of construction contracts of flat for land, the contractor's obligation is to deliver the work agreed upon in the contract to the client without any defects. The Turkish Code of Obligations No. 6098 (“TCO”) provides specific legal remedies for the client in cases where the contractor delivers a defective work by failing to fulfill their primary performance obligation properly.
What is Defective Performance?
In construction contracts of flat for land, the concept of defect is defined as the absence of certain qualities expected to be present in the work. Defects that can be noticed through a simple inspection are called obvious defects, while defects that are not noticeable during inspection and only become apparent over time with use are referred to as hidden defects.
What Are the Client’s Optional Rights Against the Contractor’s Liability for Defects?
Following the delivery of the work by the contractor, the client is obliged, pursuant to TCO Article 474/1, to "inspect the work as soon as possible according to the ordinary course of business and notify the contractor of any defects within a reasonable time." The optional rights that the client may exercise concerning defects notified within a reasonable period under this article are regulated in TCO Article 475:
"In cases where the contractor is liable for defects in the work, the client may exercise one of the following optional rights:
1. If the work is so defective or contrary to the terms of the contract that the client cannot use it or cannot reasonably be expected to accept it, the client may rescind the contract.
2. The client may retain the work and demand a reduction in the price proportional to the defect.
3. Provided it does not require excessive expense, the client may demand that the defect be remedied at the contractor’s expense."
Regarding the optional rights specified in TCO Article 475, the contractor’s liability is a strict liability. In this context, the client who wishes to exercise optional rights does not need to prove the contractor's fault concerning the defects in the work.
According to TCO Article 475/II, the client's right to claim compensation according to general provisions is reserved. In cases where the contractor is liable for the defect in the work, the client may claim compensation either by exercising one of the optional rights or independently thereof according to general provisions. On the other hand, to claim compensation, the client must prove the contractor's fault according to the principles of fault liability.
What Are the Conditions for the Client to Exercise Optional Rights?
The client may only exercise optional rights after the delivery of the defective work. Although there is no formal requirement regarding how the delivery should be carried out, it is observed that in construction contracts of flat for land, the delivery is often linked to situations such as turnkey delivery or obtaining an occupancy permit.
After the delivery of the defective work, the client must fulfill the obligation of inspection and notification to exercise optional rights. In this context, for obvious defects, the client must perform the inspection as soon as possible after delivery according to the ordinary course of business and notify the contractor of all detected defects. However, since hidden defects become apparent over time with the use of the work, they must be reported by the client to the contractor as soon as they are discovered. Otherwise, the client will not be able to exercise the optional rights granted by the law.
For the client to exercise the right to rescind the contract under TCO Article 475/1, "the work must be so defective or contrary to the terms of the contract that the client cannot use it or cannot reasonably be expected to accept it," in other words, the defect in the work must be significant. Since rescission affects the ownership rights of the parties in construction contracts of flat for land, this right must be exercised through litigation. Moreover, in construction contracts of flat for land concluded between merchants, the provision of Article 18/3 of the Turkish Commercial Code regarding the notification of rescission will apply: "Notices or warnings regarding putting the other party in default, rescinding the contract, or terminating the contract among merchants are made via a notary, registered mail, telegraph, or registered electronic mail system using a secure electronic signature."
The client cannot exercise optional rights if the defective work is accepted explicitly or implicitly and the defect is not attributable to the contractor. In this context, the client may be responsible for the defect if the contractor was given definitive and binding instructions during the construction of the work or if the defect results from materials provided by the client or plans and projects prepared by the client. Rescission results in the contract being voided retroactively, and the parties' restitution obligations come into play.
The second optional right the client may exercise is the right to a price reduction, which is among the innovative rights. Four methods can be used to calculate the reduction amount: absolute reduction method, cost-based calculation, relative method, and compensation method. In the decisions of the Supreme Court, the relative method is generally preferred.
The final optional right the client can use is the right to have the defect remedied, i.e., the right to repair. To exercise this right, there must be a market value deficiency in the work due to the defect, but this deficiency should not completely destroy the work’s value.
What is the Statute of Limitations for the Client’s Optional Rights Under TCO Article 475?
According to TCO Article 478, the client's optional rights related to defects in the work are subject to a five-year statute of limitations from the delivery of the work. However, if the defect results from gross negligence by the contractor, the statute of limitations is twenty years.
