The Concepts of Incomplete Work and Defective Performance in Real Estate Promise-⁠to-⁠Sell Agreements and the Buyer’s Claims for Defective Performance – A Review in Light of Court of Cassation Decisions

The real estate promise-to-sell agreement, known in everyday life by expressions such as sale from a model, off-plan sale, sell-and-build or buying in at the foundation stage, has a structure that is an exception to the general rules. In the law and in Court of Cassation decisions, instead of real estate promise-to-sell agreement (GSVS), the terms immovable property promise-to-sell agreement, which has the same meaning, and, limited to certain situations, prepaid housing promise-to-sell agreement are also used.

A real estate promise-to-sell agreement creates a situation in which the buyer finances the seller and provides it with a kind of credit. This is because the general rule is that obligations are performed simultaneously. Under Art. 207/II of the Turkish Code of Obligations (TBK), “Unless otherwise agreed in the contract or unless there is a custom to the contrary, the seller and the buyer are obliged to perform their obligations simultaneously.” Because it involves a deferred term for performance, the real estate promise-to-sell agreement brings a number of problems with it. In practice, contracts being signed without complying with the formal requirement, the contractor absconding before completing the construction or going bankrupt, the same residence being sold to more than one person, and the existence of incomplete work or defective performance are a few of these problems.

For a contract relating to immovable property to fall within the scope of application of the Law on Consumer Protection (TKHK), its subject must be a residence or an immovable property for holiday purposes, and the contract must fall within the scope of the seller’s professional or commercial activity, while the other party must have acted for non-professional or non-commercial purposes.

The legislator has introduced provisions on incomplete work and defective performance in order to prevent undesirable situations. In this article, the cases of incomplete work and defective performance that may arise in real estate promise-to-sell agreements in which the BUYER IS A CONSUMER will be examined in question-and-answer form under the title “The Concepts of Incomplete Work and Defective Performance in Real Estate Promise-to-Sell Agreements and the Buyer’s Claims for Defective Performance – A Review in Light of Court of Cassation Decisions”.

TKHK No. 4077 was repealed when TKHK No. 6502 entered into force. However, Article 1 of TKHK No. 6502, headed “Provisional Article”, laid down that the provisions of the old law would continue to apply to contracts concluded while the old law was in force.

“As a rule, consumer transactions entered into before the date on which this Law entered into force, whether they are legally binding, and their consequences are governed by the provisions of the law that was in force when those transactions took place.”

There are very few decisions of the Court of Cassation concerning contracts concluded under the new law. For this reason, the Court of Cassation decisions given as examples consist of recent decisions rendered under the provisions of the old law. The subject of this article will be TKHK No. 6502, which is in force. In addition, the provisions of TBK No. 6098 will also be considered as general provisions.

1. What do the concepts of incomplete work and defective performance mean for real estate whose transfer has been agreed in a real estate promise-to-sell agreement? Is the seller liable under defective performance for advertisements about the property made by others, even if this is not in the contract and the seller did not itself act as an intermediary?

Our legislation distinguishes between incomplete work and defective performance and subjects these two concepts to different provisions. Although defective performance is regulated in the TKHK, the concept of incomplete work is not regulated in the TKHK. For incomplete work, recourse will be had to the general provisions of the TBK, and the provisions on partial impossibility or partial default will have to be applied to deficiencies of the kind mentioned. The scope of the consumer’s right to make claims and the responsibilities the consumer must fulfill before exercising that right will also vary from case to case. For this reason, which situations should be treated as incomplete work and which as defective performance is important in terms of the procedure, merits and time limit of the claim.

“It should be stated at once that incomplete work refers to work that should have been done but was not, while defective work refers to the differences between the qualities the work should have and those it actually has.” (Court of Cassation, 13th Civil Chamber, Docket No. 2012/12978, Decision No. 2013/8510, 3.4.2013)

“The concepts of defect and incomplete work are different from each other. A defect is the absence or lack of one or more of the elements provided for in the law or the contract, or the presence of qualities that should not be present. Incomplete work, on the other hand, is the failure to carry out the work that is the subject of the contract. In other words, it is work that has not been done at all. Incomplete performance, although not defined in our laws, is considered within the concept of defect set out in Article 4 of Law No. 4077. A defect may appear as a material, legal or economic deficiency. A material defect is the presence of a physical fault in the goods (e.g. the goods being torn or stained). A legal defect is the legal restriction of the use of the goods (e.g. the existence of encumbrances on the goods). An economic defect is a deficiency in the economic qualities of the goods.” (13th Civil Chamber, 11.5.2016, 16073/12879)

Turning to the concept of defective performance:

Article 219 of the TBK, headed “Liability for defects in general”, contains the definition of defective goods.

“The seller is liable to the buyer not only for the absence in the thing sold of the qualities it has declared to the buyer in any manner whatsoever, but also for the presence of material, legal or economic defects that are contrary to its quality, or to the quantity affecting its quality, and that eliminate or significantly reduce its value in terms of its intended use and the benefits the buyer expects from it.”

Article 8 of TKHK No. 6502, headed “Defective goods”, contains the definition of defective goods.

“Defective goods are goods that, at the time of delivery to the consumer, are not in conformity with the contract because they do not correspond to the sample or model agreed on by the parties or do not have the characteristics they should objectively have.

Goods that lack one or more of the characteristics stated on their packaging, label, introductory and user manual, internet portal or in their advertisements and announcements; that do not conform to the quality declared by the seller or specified in their technical regulation; that do not meet the intended use of equivalent goods; or that contain material, legal or economic deficiencies that reduce or eliminate the benefits the consumer can reasonably expect are also deemed defective.”

The provisions of the TBK and the TKHK are parallel to each other. However, the TKHK has introduced a detailed regulation. Under the TKHK provisions, for a thing to be characterized as “defective”, it is necessary and sufficient that the thing lacks the characteristics agreed in the contract, announced by the seller or someone else through advertising, etc., or that the consumer reasonably expects to be present. Qualities that, although not included in the text of the contract, have been declared to exist by the seller or someone else, or that the consumer objectively expects to exist, may also be a source of liability for defects.

Article 9 of TKHK No. 6502, headed “Liability for defective goods”, provides that the seller will also be liable for advertisements made by others.

“The seller is obliged to deliver the goods to the consumer in accordance with the sales contract.

The seller is not bound by the content of a statement if it proves that it was not aware, and could not be expected to be aware, of statements made through advertising that did not originate from it, or that the content of the statement had been corrected at the time the sales contract was concluded, or that the decision to conclude the sales contract was not causally linked to this statement.”

“Therefore, apart from the contract, the seller is also liable to the buyer consumer for the matters it promised in announcements and advertisements, brochures and catalogs. On examination of the case file, the catalog for the project prepared by the defendant contractor states that the total net area of the residence is 74.67 square meters and its gross area is 97.07 m2. That being so, while the court should have taken into account that the defendant contractor is also liable to the plaintiff for the matters it promised in announcements and advertisements, brochures and catalogs, should have calculated, according to the relative method adopted by this Chamber, the loss of value suffered because the residence was built with fewer m2 than stated in the catalog, and should have rendered a decision according to the result, its decision to dismiss the claim for loss of value on the grounds stated in writing is contrary to procedure and law and requires reversal.” (Court of Cassation, 13th Civil Chamber, Docket No. 2018/2710, Decision No. 2018/6652, 6.6.2018)

Based on the cases reflected in court decisions, the following examples can be given of defects encountered in immovable property. In addition, there are also Court of Cassation decisions that, for similar situations, find incomplete work rather than defective performance.

- The surface area of the property being smaller than the contract requires

- The materials or installations used in the independent unit being faulty or incomplete, or of lower quality or smaller than the contract requires

- The absence of an elevator in a building that was promised to have one

- The front of the independent unit being blocked because a building was constructed contrary to the project

- The absence of general perimeter walls and iron railings around the housing complex, the security system not working, the landscaping not having been done with modern technology, the promised number of trees not being present around it, the pools not being of the promised standard

- Common areas such as social or sports facilities, green areas, etc. being entirely absent, being smaller than the contract requires, or being located on publicly owned immovable property or on parcels owned by third parties

According to one view in legal doctrine, with TKHK No. 6502 there is no longer any distinction between the concepts of incomplete work and defective performance; under the new regulation, both are deemed defective performance and are protected under the TKHK. However, it is not correct to treat every deficiency as defective performance. If a deficiency in quantity also affects quality, the provisions on defective performance will apply; otherwise, the deficiency will retain its character as incomplete work. For example, where a carpet that should have 200 knots has 180 knots, or where a cupboard whose dimensions were given so that it would cover a wall does not cover the wall, it is obvious that the deficiencies in quantity also affect quality. In such cases, the provisions on defective performance apply. It is clear that each case must be assessed on its own merits.

2. In the real estate promised under a real estate promise-to-sell agreement, is there a duty to notify that depends on whether the defect is patent or latent, and what has the new statutory regulation introduced?

Under TKHK No. 6502, for liability for defects to arise, the thing that is the subject of the contract must be defective at the latest at the time of delivery or, depending on the case, at the time ownership passes, and the consumer must be unaware of the defect. Unlike former TKHK No. 4077, TKHK No. 6502 does not provide for formal conditions (the burdens of inspection and notification) for liability for defects, so there can be no question of a need to fulfill these conditions either. As a result, in consumer contracts concluded after May 28, 2014, the date on which the Law entered into force, if the subject of the contract is defective, the consumer will be able to exercise the rights they have because of the defect within the limitation period, without having to fulfill the obligation to inspect and to notify the defect. Indeed, for this reason, it can be said that the distinction between patent and latent defects no longer has any meaning for contracts subject to this law.

As mentioned above, while no duty to notify is provided for in the case of incomplete work, for defective performance it will be necessary to distinguish between the old and the new law. While former TKHK No. 4077 provided for a duty to notify for defective performance, the new TKHK No. 6502 has abolished the duty to notify and has instead introduced a rule concerning the burden of proof.

Article 10 of TKHK No. 6502, headed “Burden of proof”, provides that defects appearing within six months after delivery are deemed to have existed on the date of delivery, and leaves proof to the contrary to the seller. However, for defects appearing after 6 months have passed from delivery or from the transfer of ownership, the burden of proving that they existed at the moment the risk passed will now be on the consumer.

“Defects that appear within six months after the date of delivery are deemed to have existed on the date of delivery. In this case, the burden of proving that the goods are not defective lies with the seller. This presumption does not apply if it is incompatible with the nature of the goods or of the defect.

Where the consumer was aware, or could be expected to be aware, of the defect on the date the contract was concluded, there is no non-conformity with the contract. The consumer’s elective rights against other defects are reserved”

Our view on this matter is as follows: while Article 4 of Law No. 4077 provided for a 30-day notification period for patent defects, Law No. 6502 does not provide for a notification period. The fact that the new law does not regulate a notification period creates serious uncertainty for the seller going forward. It can be said that this situation is considerably to the seller’s detriment in terms of the balance of interests. In this situation, for which the special law contains no provision, we consider that the periods provided for latent defects in the TBK, which is the general law, can be applied to all defects, regardless of whether they are patent or latent.

TKHK No. 6502 contains no provision on the period within which latent defects must be notified to the seller. That being so, under Article 83 of TKHK No. 6502, headed “Other provisions”, the provision “In cases not covered by this Law, the general provisions apply.” will be applied. Since the dispute must be resolved according to the general provisions, under Article 223 of the TBK, headed “Inspection and notification to the seller in general”, if the defect is discovered later, the seller must be notified immediately.

“If the buyer neglects to inspect and to notify, the thing sold is deemed accepted. However, this provision does not apply where the thing sold has a defect that cannot be revealed by an ordinary inspection. If it is later discovered that such a defect exists, the seller must be notified immediately; if not, the thing sold is deemed accepted together with this defect.”

3. In terms of defective performance and incomplete work, how are cases assessed in which the property lacks features promised under a real estate promise-to-sell agreement, is not delivered in the agreed size, or has its common areas built on parcels belonging to others?

Each case will be assessed on its own merits and will be subject to the statutory provisions according to whether it constitutes incomplete work or defective performance. The Court of Cassation has rendered different decisions specific to each issue.

“Although the plaintiff’s claim was accepted on the grounds, stated in the expert report on which the judgment was based and in the court’s reasoning, that in the floor plan of the 78.75 m2, 1+1 apartment on the 12th floor of Block B-3 in dispute, the elements of the building’s load-bearing system and also the partition wall were marked in gray, but in this document the column in dispute was marked not in gray like the load-bearing elements but in a wood color (the same color and texture as the coffee table in the middle of the living room), so that it looked as if it were a corner table in the corner between the 3-seater sofa and the armchair; that the sales documents in the sales kit stated to have been presented to the plaintiff at the time of sale did not show the layout of the 78.75 m2, 1+1 apartment in Block B-3 in dispute; that the comprehensive document submitted by the defendant, showing all the floor plans of Blocks B1, B2 and B3, was not a sales document of the kind distributed to buyers at the time of sale (which buyers would examine comprehensively when making their purchase decision) but merely a comprehensive catalog shown by the sales representative during the meeting, and therefore could not be classified as a sales document; and that, by what was shown in the announcements and catalogs, the situation in question had been fraudulently concealed from the consumer and an attempt had been made to mislead the consumer; there is no doubt that the column in the middle of the living room referred to by the plaintiff constitutes a patent defect reducing the economic value of the independent unit purchased by the plaintiff, that the defendant did not resort to any fraud to conceal this defect, and that the plaintiff could easily have become aware of this defect on the date of purchasing and taking delivery of the independent unit.” (Court of Cassation, 13th Civil Chamber, Docket No. 2016/16917, Decision No. 2019/7076, 11.6.2019)

“Although the expert panel report on which the court based its judgment stated that, despite being specified in the promotional materials, there was no fire detection system or sprinkler installation inside the apartments, there were no wastewater recycling systems in the bathroom toilets, the central heating system of the block was not integrated with solar collectors (there are no solar collectors), there was no massage room or snack bar in the social facility, there was no infrastructure for switching to a smart home system, there was no infrastructure for air conditioning in the apartments, the system for storing ... water for irrigating the green areas had not been installed, there was no fire detection and sprinkler system in the common areas of the block, and no landscaping had been done on the roof of the block, and that these matters constituted incomplete work, and although the court, basing its judgment on that report, awarded loss of value; there is no doubt that the failure to do these things constitutes a patent defect reducing the economic value of the independent unit purchased by the plaintiff, that the defendant did not resort to any fraud to conceal this defect, and that the plaintiff could easily have become aware of these defects on the date of purchasing and taking delivery of the independent unit.” (Court of Cassation, 13th Civil Chamber, Docket No. 2016/20009, Decision No. 2019/9112, 30.9.2019)

The property in question not being delivered in the agreed size:

Delivering the property in the size agreed in the real estate promise-to-sell agreement is an obligation imposed on the seller. If the situation in which the seller breaches this obligation and wishes to give the buyer a smaller area than the agreed size is accepted as defective performance, the buyer’s elective rights are reserved. Some contracts do not contain the square meter details of the property whose transfer is promised. As stated above, even in these cases, the Law and Court of Cassation decisions have established that the matters the seller promised in announcements and advertisements, brochures and catalogs, apart from the contract, will also bind it and form part of its undertaking. There are Court of Cassation decisions that have treated the failure to deliver the property with the promised square meters as defective performance, and also decisions that have treated it as incomplete work.

“As regards the defendant’s appeal on points of law concerning the independent unit having a smaller area than the net area stated in the catalog and in the approved project, which the court characterized as incomplete performance: Although the expert panel report on which the court based its judgment characterized the m2 shortfall in the independent unit as incomplete performance and the plaintiff’s claim was accepted accordingly; there is no doubt that this matter constitutes a patent defect reducing the economic value of the independent unit purchased by the plaintiff, that the defendants did not resort to any fraud to conceal this defect, and that the plaintiff could easily have become aware of these defects on the date of taking delivery of the independent unit.” (Court of Cassation, 13th Civil Chamber, Docket No. 2015/11681, Decision No. 2016/9142, 31.3.2016)

“It is evident that, although Article 17 of the construction-for-flats agreement dated December 30, 1993 concluded between the parties provided that offices No. 4/5 would be built as 25 square meters, they were built a total of 9.44 m2 short. Moreover, there is no dispute on this point.

In this context, let us state at once that a shortfall in the measured area of the independent unit, in other words, the incomplete performance of the independent unit in terms of the area agreed in the contract, is, by its legal definition, not a "defect" but "incomplete work". (See Assembly of Civil Chambers of the Court of Cassation (HGK), 9.12.1992, Docket No. 15/649, Decision No. 732, YKD Vol. 19, No. 3)” (Assembly of Civil Chambers of the Court of Cassation, Docket No. 2000/15-1134, Decision No. 2000/1191, 27.9.2000)

Common areas of the property in question being built on parcels belonging to others:

Cases are encountered in which many common areas that should belong to the housing complex (green area, basketball court, parking lot, pool, cafeteria, gym, etc.) have been built outside the parcel of the housing complex, on a parcel belonging to the municipality or on a parcel belonging to another private person. In these cases, it is a fact that the buyer has not been able to obtain, on the required terms, the property promised to them under the real estate promise-to-sell agreement. In these cases, whether this constitutes defective performance or incomplete work is important. The Court of Cassation has assessed this situation as incomplete work in some of its decisions and as a patent defect in others. Treating the deficiencies in common areas as incomplete work rather than defective performance will prevent the exercise of the elective rights granted by the TKHK. Moreover, this will also deprive the consumer of the possibility of having recourse, in addition to the seller, to the person who carried out the construction in the capacity of “producer”, and of holding the seller liable for advertisements, announcements, etc.

“Upon the plaintiff’s appeal on points of law against the decision of October 23, 2014 dismissing the action, that decision was reversed by this Chamber’s judgment dated 25.10.2017, Docket No. 2015/22631, Decision No. 2017/10174, on the grounds that “According to the content of the case file, the dispute arises from the announced common areas not having been built as undertaken. Although the court, in line with the principle of the publicity of land registry records, assessed the situation that arose in view of the social areas of the housing complex having been built outside the parcel on which the housing complex is located as a patent defect and dismissed the action with respect to the plaintiff, who had not given notice of defects within the statutory period; the impression was created, by showing these areas in the technical specifications and indicating them on the models, that they were included in the housing complex. The action concerns a claim arising from the decrease in value due to incomplete work; that being so, while the court should have determined the value of the properties if these areas were included in the housing complex and the value of the property if they were not, determined the plaintiff’s share on the basis of the resulting ratio, and rendered a judgment accordingly, its decision as written on contrary considerations requires reversal.” ” (Court of Cassation, 13th Civil Chamber, Docket No. 2019/6538, Decision No. 2020/760, 30.1.2020)

“By showing the social facilities within the enclosed housing complex in the site plan, announcements, promotional models and brochures of the "S... Y... Palmiye Evleri" project, and by enclosing them and including them in the area of the housing complex after they were built, the plaintiff was given the impression that these areas belonged to the housing complex. Therefore, the fact that the social facilities in question were built on block 189, parcel 14, owned by Ümraniye Municipality, is a matter that affected the buyer’s purchase decision and reduces the value of the property, and it must be accepted that the seller is liable to the buyer because of this deficiency in the performance of the obligation. Although the court characterized the construction of the social facilities on property belonging to Ümraniye Municipality as a "patent defect" and dismissed the action because no notice of defects had been given to the defendant within the periods provided for in Article 198 of the former Code of Obligations (BK) after the plaintiff took delivery of the residence, in the case in dispute there is not "defective performance" as regulated in Law No. 4077 but "incomplete performance", and since, under Article 30 of Law No. 4077, disputes must be resolved according to the general provisions in cases not covered by this Law, it must be accepted that the plaintiff may hold the seller liable within the 10-year limitation period because of the disputed deficiencies in the performance of the contractual obligation.” (Assembly of Civil Chambers of the Court of Cassation, Docket No. 2011/13-350, Decision No. 2011/700, 23.11.2011)

“It is understood that the plaintiff sought compensation for the economic deficiency arising, because of this defect, in the property it purchased, on the grounds that the parcels adjacent to parcel No. 9, on which the project in dispute was built, are areas ceded to Ümraniye Municipality, that the social facilities in dispute were built in an area open to the public, and that (...) the promised facilities were also opened to public use.

There is no doubt that the existing situation, which the plaintiff described in the statement of claim and which it is understood was built by the defendant, is a patent defect reducing the economic value of the independent unit purchased, that the defendant did not resort to any fraud to conceal this defect, and that the plaintiff could easily have become aware of these defects on the date of purchasing and taking delivery of the independent unit.”(Court of Cassation, 13th Civil Chamber, Docket No. 2016/3745, Decision No. 2019/860, 30.1.2019)

“The court, on the basis of the promotional catalog and the contract, accepted as incomplete work, as stated in the expert report, the open swimming pool being built with fewer m2, ... the park being smaller in m2 and built in the area ceded to the public, the open parking lot having been converted into a children’s playground, the intercom system not having been built in accordance with the contract, the social facilities being located in an area registered in the name of the defendant, and the absence of a road between the lake and grove phases, and rendered its decision as written, stating that no notice of defects was necessary(...)

The court rendered its decision as written on the grounds that the matters described by the plaintiff in the statement of claim and established by the court through the expert report were deficiencies reducing the economic value of the independent unit purchased by the plaintiff. However, as explained in detail above, there is no doubt that these matters are patent defects, that the defendant did not resort to any fraud to conceal this defect, and that the plaintiff could easily have become aware of these defects on the date of purchasing and taking delivery of the independent unit.” (Court of Cassation, 13th Civil Chamber, Docket No. 2016/26078, Decision No. 2019/12738, 17.12.2019)

Common areas of the property in question not being built at all:

“Looking at the present case in light of the principles explained above; it is understood from the content of the case file that the internet advertisements and the advertising and promotional brochures for the sale of residences and business premises to be built within the scope of the project called “Ispartakule” stated that a total of 13 city blocks with more than 1,000,000 m2 of construction area would be built on a licensed area of 560,000 m2, with 5280 modern residences on 10 of the blocks and, on 3 of them, a shopping and entertainment center containing 800 business premises; that, in addition to large supermarkets, cinemas, restaurants and cafés, shops and business premises meeting every kind of need would be right next to the people living there; that this project would also include the essentials of daily life, such as a clubhouse where sports activities would take place, two primary schools, one secondary school, a mosque, a hospital and a community health center; and that the “Ispartakule” project, which would be a European-style residential area worthy of the 21st century, would be fully completed by the end of 2009; however, most of these undertakings were not fulfilled. The fact that the social facilities in question were not built is a matter that affected the buyer’s purchase decision and reduces the value of the property, and it must be accepted that the seller is liable to the buyer because of this deficiency in the performance of the obligation. Although the court characterized the failure to build these social facilities as a “patent defect”, in the case in dispute there is not “defective performance” as regulated in Law No. 4077 but “incomplete performance”..” (Court of Cassation, 13th Civil Chamber, Docket No. 2012/12978, Decision No. 2013/8510, 3.4.2013)

Common areas of the property in question not being built as promised:

“When the present case is assessed in light of these explanations; there is no doubt that the situation characterized by the court as a latent defect, namely “on the model, the absence of the walls surrounding the blocks in the 3rd zone where the villa in dispute is located, the green area in front of these blocks extending up to the edge of the model, and the green area lying outside the ownership boundary of the plaintiff’s villa”, is a patent defect reducing the economic value of the villa purchased by the plaintiff, that the defendants did not resort to any fraud to conceal this defect, that the plaintiff could easily have become aware of this defect on the date of purchasing and taking delivery of the villa, and that land registry records are public.” (Court of Cassation, 13th Civil Chamber, Docket No. 2013/28728, Decision No. 2014/30273, 1.10.2014)

Construction not previously agreed being carried out on the common areas of the property in question:

“The defendant’s construction of a building on the part designed as a green area in the site plan for the area where the property in dispute is located constitutes a patent defect reducing the economic value of the independent unit purchased by the plaintiff, and likewise the matters characterized as incomplete and defective workmanship in the property in dispute must also be accepted as patent defects. There is no doubt that the defendant did not resort to any fraud to conceal these defects in dispute, and that the plaintiff could easily have become aware of these defects on the date of taking delivery of the independent unit.” (Court of Cassation, 13th Civil Chamber, Docket No. 2013/15540, Decision No. 2014/12779, 22.4.2014)

4. What are the buyer’s elective rights in the event of defective performance concerning real estate whose delivery has been agreed in a real estate promise-to-sell agreement?

Defective performance may occur with respect to real estate promised under a real estate promise-to-sell agreement. In the event of defective performance, the buyer is granted four elective rights. In addition to these elective rights, the buyer may also claim compensation under the provisions of the TBK.

Article 11 of TKHK No. 6502, headed “Elective rights of the consumer”, sets out the elective rights the buyer has in the event of defective performance of the work:

“Where it is established that the goods are defective, the consumer may:

a) rescind the contract by declaring that they are ready to return the goods sold,

b) keep the goods sold and request a reduction in the sale price in proportion to the defect,

c) unless this requires excessive expense, request that the goods sold be repaired free of charge, with all costs borne by the seller,

ç) if possible, request that the goods sold be replaced with a defect-free equivalent; the consumer may exercise one of these elective rights.

The seller is obliged to fulfill this request chosen by the consumer.

(...)

Where free repair or replacement of the goods with a defect-free equivalent would entail disproportionate difficulties for the seller, the consumer may exercise one of the rights to rescind the contract or to a reduction of the price in proportion to the defect. In determining disproportionality, matters such as the value of the goods without the defect, the significance of the defect, and whether recourse to the other elective rights would cause a problem for the consumer are taken into account.

(...)

All costs arising from the exercise of the elective rights are borne by the party fulfilling the right chosen by the consumer. Together with one of these elective rights, the consumer may also claim compensation under the provisions of the Turkish Code of Obligations No. 6098 of January 11, 2011”

The buyer has the right to exercise one of these elective rights according to the degree of the defect. The principles and limitations in the TBK concerning the exercise of the right to rescind the contract, which is one of the rights the consumer has, in principle also apply to contracts subject to the TKHK. In this context, in particular Article 227 of the TBK, headed “Elective rights of the buyer in general”, which lists and limits the buyer’s elective rights, may be applied to the extent that it does not conflict with the TKHK and is suitable for immovable property.

“The seller may prevent the buyer from exercising the elective rights by immediately giving the buyer a defect-free equivalent of the same goods and making good the entire loss the buyer has suffered.

Where the buyer exercises the right to rescind the contract, the judge may, if the circumstances do not justify this, decide that the thing sold be repaired or that the sale price be reduced.

If the shortfall in the value of the thing sold is very close to the sale price, the buyer may exercise only one of the rights to rescind the contract or to request replacement of the thing sold with a defect-free equivalent.”

“Article 4 of Law No. 4077, which was in force on the date the action was filed, regulates the elective rights that the consumer may exercise where the goods are defective. Under these elective rights, the consumer has the rights to rescind the contract, including refund of the price, to have the goods replaced with a defect-free equivalent, or to request a price reduction in proportion to the defect or free repair. The seller is obliged to fulfill this request chosen by the consumer. As explained, the consumer may exercise any one of the elective rights. As accepted in legal scholarship and in practice, the consumer must exercise the elective rights by a unilateral declaration of intent that must reach the other party. By notifying once which of these rights they have chosen, the consumer exercises the right of choice and can no longer change their preference. This is because the seller is obliged to fulfill the notified preference unconditionally. For this reason, the consumer’s right of choice ends once it is exercised and is replaced by the right chosen. Because of this feature, we can say that the consumer’s elective right is one of the formative (constitutive) rights.” (Court of Cassation, 13th Civil Chamber, Docket No. 2016/14908, Decision No. 2019/12357, 11.12.2019)

5. Can the provisions on defective performance or incomplete work be invoked where the real estate whose transfer is promised in a real estate promise-to-sell agreement cannot obtain an occupancy permit because it was built contrary to the permit?

In buildings for which an occupancy permit cannot be obtained because they were built contrary to the building permit, there will be no question of a price reduction on the grounds that incomplete work or defective performance has occurred. Since the legal order will not protect unlicensed buildings that violate the Zoning Law, if the building cannot be brought into conformity with the permit, its demolition will have to be ordered. In this case, the buyer may terminate the contract and claim the market value of the real estate.

“As regards the defendant’s appeal on points of law concerning the compensation awarded by the court because the building has no occupancy permit: In line with the expert report obtained, the court awarded compensation of 29,474.00 TL because the building in dispute has no occupancy permit. As stated in the decision of the Assembly of Civil Chambers of the Court of Cassation, Docket No. 1999/15-653, Decision No. 1999/965, under Zoning Law No. 3194 a building permit must be obtained for all buildings. In buildings constructed without a permit or contrary to the permit and its annexes, if the non-conformity with the permit cannot be remedied, the construction is stopped immediately, and ultimately the building is demolished by decision of the municipal executive committee or the provincial administrative board, with the demolition costs to be collected from the owner of the building. With regard to an unlicensed illegal building, or a part contrary to its permit, constructed in breach of the mandatory provisions of the Zoning Law, no claim other than demolition, whether for the cost of incomplete work, for registration or, even where there is a legal interest, for a declaration of ownership, may be brought before the courts until the illegality is remedied. Nor may the courts, which are charged with applying the laws, rule in line with such claims by contractors who commit zoning offenses and by landowners who attempt to benefit from those acts.

In the present case, since the occupancy permit has not yet been obtained because the building was constructed contrary to the permit and its annexes and its approved project, what the court must do is obtain a report from a court-appointed expert qualified in the subject and investigate whether the illegality can be remedied with respect to the parts contrary to the project; if it concludes that it cannot be remedied, it should render a decision in accordance with the result, accepting that the plaintiff may only claim the market value of the apartment by terminating the contract and also taking into account the claim in this action. The court’s rendering of judgment as written on the basis of an incomplete examination, without taking this into account, is contrary to procedure and law and requires reversal.” (Court of Cassation, 13th Civil Chamber, Docket No. 2016/1076, Decision No. 2018/10758, 15.11.2018)

6. How is the amount to be deducted from the sale price determined in the case of defective performance under real estate promise-to-sell agreements?

In claims for price reduction, how the amount to be deducted is determined is important. Although there are many methods on this matter, the Court of Cassation has preferred the relative method in its decisions. In the calculation to be made according to this method, the ratio between the existing real estate and the real estate promised will be taken as the basis.

“In other words, without regard to the sale price agreed by the parties, the true defect-free market value of the thing sold and its market value in its defective condition, as of the date of sale, are determined separately, and the ratio obtained by dividing these two values by each other is applied to the sale price. In the present case, without taking these matters into account, judgment was rendered by relying on an expert report in which the plaintiff’s overpayment was calculated on a per-square-meter basis, taking as the criterion an apartment whose m2 and project differ from those of the apartment purchased by the plaintiff. In this situation, in light of the explanations above, the court should obtain a report from a new panel of court-appointed experts that includes a real estate expert, should separately determine, without regard to the sale price agreed by the parties, the true defect-free value of the 126 m2 gross 2+1 apartment purchased by the plaintiff as of the date of sale (its value if it were located on the floor above the floor where the building entrance is, on the same facade) and its market value in its defective condition (its value on the floor where it is currently located), should apply the ratio obtained by dividing these two values by each other to the sale price, and should render a decision according to the result. Rendering judgment as written on the basis of an incomplete examination and an incorrect assessment, without taking these matters into account, is contrary to procedure and law and requires reversal.” (Court of Cassation, 13th Civil Chamber, Docket No. 2013/29548, Decision No. 2014/31443, 16.10.2014)

While the price reduction for incomplete work and defective performance attributable to independent units is easily calculated, the question may arise as to how the price reduction for incomplete work and defective performance in the common areas is to be made. In its decisions, the Court of Cassation considers a division according to land share appropriate.

“For this reason, the plaintiff may claim the collection of the portion, corresponding to the land share of their own independent unit in the land register, of the cost of the incomplete work and defective workmanship in their own independent unit and in the common areas. That being so, while judgment should have been rendered on the basis that the plaintiff is entitled to claim, in proportion to the land share, with respect to the portion falling to their share because of the property they own, the court’s decision as written without taking this into account is contrary to procedure and law and requires reversal” (Court of Cassation, 13th Civil Chamber, Docket No. 2016/588, Decision No. 2017/8858, 3.10.2017)

7. If the producer and the seller appearing in the real estate promise-to-sell agreement are different persons, can claims under defective performance also be made against the producer or the seller?

Considering that, in practice, consumer contracts relating to immovable property are generally in the nature of sales contracts, the party against whom liability for defects is directed is usually the seller. However, as also stated in legal doctrine, in housing sales, where the building in which the residence is located has been built by a person other than the seller, this person, referred to in practice as the “contractor”, should also be jointly and severally liable with the seller toward the consumer under the TKHK in the capacity of “producer”.

Article 11 of TKHK No. 6502, headed “Elective rights of the consumer”, provides that, in the event of defective performance of the work, the buyer may exercise some of their elective rights against the producer as well as the seller.

“The rights to free repair or to replacement of the goods with a defect-free equivalent may also be exercised against the producer or the importer. The seller, the producer and the importer are jointly and severally liable for the fulfillment of the rights in this paragraph. The producer or the importer is not held liable if it proves that the defect arose after it placed the goods on the market.”

For defective performance in the real estate that is the subject of a real estate promise-to-sell agreement, recourse may be had to the producer or the seller named in the contract, limited to the elective rights of free repair and replacement of the goods with a defect-free equivalent. In this case, the seller and the producer are deemed jointly and severally liable.

“Although the court dismissed the action against the defendant Emlak Konut GYO A.Ş. for lack of standing to be sued, on the grounds that this defendant is the landowner and not a party to the contract concluded with the defendant; the defendant Emlak Konut GYO A.Ş. appears as the seller in the real estate promise-to-sell agreement dated May 1, 2008 signed between the plaintiff and the defendants. The concept and liability of the seller, manufacturer and producer are regulated in Articles 3 and 4 of Law No. 4077. Under Art. 4/3 of the TKHK, the seller, the manufacturer-producer, the dealer, the agent, the importer and the lender under the fifth paragraph of Article 10 or the ninth paragraph of Article 10/B are jointly and severally liable for the defective goods and for the consumer’s elective rights set out in this article. That being so, the action may be directed against the defendant Emlak Konut GYO A.Ş., which is in the position of seller. While the court should also have resolved the merits of the dispute with respect to this defendant, its dismissal of the action for lack of standing on erroneous grounds is contrary to procedure and law and requires reversal.” (Court of Cassation, 13th Civil Chamber, Docket No. 2012/12978, Decision No. 2013/8510, 3.4.2013)

8. Until when can claims arising from defective performance be asserted, and how long is the limitation period set by law?

Under TKHK No. 6502, liability for defects in immovable property is subject to a five-year limitation period, unless a longer period is set by law or by the contract between the parties. In sales of second-hand residences, this period cannot be less than three years. It is of course also possible to agree on a longer limitation period by contract. By contrast, the limitation period cannot be shortened by contract. On the other hand, the limitation period provided for in the Law concerns the consumer’s elective rights arising from the defect; a claim for compensation under the general provisions, which may be asserted together with one of these rights or on its own, is subject to the general limitation period (ten years).

Article 12 of TKHK No. 6502, headed “Limitation period”, sets out the limitation period for the elective rights the buyer has in the event of defective performance of the work.

“Unless a longer period is set by law or by the contract between the parties, liability for defective goods is subject to a two-year limitation period from the date of delivery of the goods to the consumer, even if the defect appears later. For immovable property for residential or holiday purposes, this period is five years from the date of delivery of the property.

Without prejudice to the third paragraph of Article 10 of this Law, in second-hand sales the seller’s liability for defective goods cannot be less than one year, and, for immovable property for residential or holiday purposes, less than three years.

If the defect has been concealed through gross fault or fraud, the provisions on limitation do not apply.”

If the defect has been concealed through gross fault and fraud, it must be accepted that the limitation period will be 20 years. Article 244 of the TBK, headed “Liability”, has introduced a special limitation rule for gross fault and fraud for certain immovable property.

“Actions arising from a building being defective become time-barred on the expiry of five years from the passing of ownership and, if the seller is at gross fault, of twenty years.”

While the TBK sets the limitation period at five years from the passing of ownership, TKHK No. 6502 sets this period at five years from delivery. In our view, in this case, where the property is delivered to the consumer before ownership passes, it should be accepted that the limitation period starts to run not from delivery but from the passing of ownership. The wording of Article 12 of TKHK No. 6502, headed “Limitation period”, “Unless a longer period is set by law or by the contract between the parties,..” also forms the legal basis for this. This is because, in cases where registration takes place before delivery, the limitation period will also start to run from the delivery of the property to the consumer. This is a natural consequence of the principle of interpretation in favor of the consumer.

In all these processes, it will be in the parties’ interest to obtain legal support from a lawyer in order to avoid losing their rights.

This article is a general assessment prepared in accordance with the legislation in force on its date of publication; it does not constitute a legal opinion. This English text is a translation of the Turkish original; in case of any discrepancy, the Turkish version prevails.