Less Parking Than Promised as Defective Performance and the Contractor’s Liability

In buildings constructed with parking, the contractor promises the landowners and/or the buyers under real estate promise-to-sell agreements the parking area allocated to each independent unit. The promised parking area being built with fewer spaces than the number promised is one of the matters that must be assessed as defective performance. In this article, we examine in detail what the parties who suffer a loss of rights in this situation may claim from the contractor.

Although in some of its decisions the Court of Cassation has assessed this shortfall in parking area as incomplete work, in many settled decisions rendered in recent times it has held that the shortfall constitutes defective performance.

Because building fewer parking areas than promised is assessed as defective performance, the time limit for recourse to the courts provided for landowners differs from the time limits that apply to those who acquired independent units under a real estate promise-to-sell agreement. Here, the Law on Consumer Protection (TKHK), which entered into force on May 28, 2014, will have to be applied to those who acquired independent units under a real estate promise-to-sell agreement, and the Turkish Code of Obligations (TBK), which entered into force on July 1, 2012, to those who acquired independent units in their capacity as landowners. Because it is important, we would like to point out here that, although the Court of Cassation decisions we cite below draw a distinction between patent and latent defects with respect to the consumer, this distinction has been abolished in the Law on Consumer Protection, and the notification period found in the former law has not been provided for.

“The action concerns a claim for payment of the loss of value in the apartment purchased by the plaintiff because of works that were stated in the catalog, project and promotional materials presented at the time of sale but were not built in accordance with them or were built incompletely, and of the penalty under the penalty clause for late delivery. The court, in line with 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 dispute centers on whether the case in question involves “defective performance” or “incomplete performance” and, depending on the conclusion reached on this point, on what the notification and limitation periods for holding the seller liable are and what the scope of the right to claim is. (...)The concept of defect and that of incomplete work, however, are different from each other.

A DEFECT is the lack of one or more of the elements provided for by law or in the contract, or the presence of qualities that should not be present.

INCOMPLETE WORK, in turn, is the failure to do the contracted works, that is, work that is not done at all.

INCOMPLETE PERFORMANCE is, for its part, considered within the concept of defect enumerated in Article 4 of Law No. 4077, although it is not defined in our laws.

(...)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, that these matters are patent defects(...)” (Court of Cassation, 13th Civil Chamber, Docket No. 2016/26078, Decision No. 2019/12738, 17.12.2019)

- What the parking areas will be like may be specified in the contract between the parties or in the technical specifications annexed to it, and sometimes this may also be specified in places such as advertising and promotional booklets, brochures, sales models, the room finish schedule and sketch plan, the website, etc. In both cases, the contractor remains liable.

”The plaintiff (...) stated that the property had latent defects because the project was not built in accordance with the qualities announced in its advertisements and announcements and that a loss of value had been caused and, reserving the rights to the excess, requested that 5,000 TL be collected from the defendants jointly and severally, together with statutory interest from the date of the action. (…)There is no doubt that this situation, described by the plaintiff in the statement of claim, is a patent defect reducing the economic value of the independent unit purchased, 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 purchasing the independent unit. (…) In the present action, the matters asserted by the plaintiff are in the nature of a “patent defect”, not “incomplete performance”.” (Assembly of Civil Chambers of the Court of Cassation, Docket No. 2014/13-591, Decision No. 2015/875, 25.2.2015)

“The plaintiff stated that they had purchased apartment No. 34 in Block A-8 of the ... Housing Complex, ... ... Neighborhood, from the defendant under the Real Estate Promise-to-Sell Agreement concluded on October 22, 2007; that, according to the site plan promoted at the sales office and the construction area shown, they had, as a consumer, been fraudulently misled by visual catalogs and advertisements; that no massage room or snack bar had been built; that the indoor swimming pool, sauna and steam room were not adequate for a housing complex in which approximately 4,000 people live; that the infrastructure for a smart home system had not been installed; that the fire detection and sprinkler system had not been installed in all the apartments; that no infrastructure had been built for air conditioning; that the defendant had rendered incomplete, defective and poor performance in relation to the contract and the advertising brochures; that the water heating system supported by solar collectors had not been installed; that the undertaking to recycle the water from wet areas for use in the toilets had not been fulfilled; that ... water was not stored for use in irrigating the green areas; that no landscaping had been done on the roofs and they had not been arranged for use; that in Blocks A8, A7 and A6 the fire alarm and sprinkler system and at least one parking space for each apartment had not been built; that the facade had not been built facing the sea; that the electrical rooms of the blocks had not been insulated and that there was water leakage; and that it was clear that all these matters created cost and a decrease in value and were also contrary to the contract, (...) Although the court (...), it was reported that these matters were in the nature of incomplete work, and the court awarded the loss of value on the basis of that report; that the failure to build these is in the nature of a patent defect reducing the economic value of the independent unit purchased by the plaintiff(...).” (Court of Cassation, 13th Civil Chamber, Docket No. 2016/20009, Decision No. 2019/9112, 30.9.2019)

- However, if no promise whatsoever has been made in the contract or in the technical specifications annexed to the contract, in advertising and promotional booklets, brochures, sales models, the room finish schedule and sketch plan, the website, etc., the contractor cannot be considered liable.

“The plaintiff’s attorney stated that, between their client and the other non-party landowners and the defendant company, a construction-for-flats agreement (land share in exchange for construction) dated January 24, 2008 had been concluded, that the requirements of the contract had not been fulfilled, and that, because the covered parking lot for 20 vehicles had not been built, enforcement proceedings had been initiated for the collection of ... TL out of the 15,000.00 TL loss of value of the apartment allocated to their client and of 8,000.00 TL accumulated over the 8 months from September 2009 to April 2010 (...) The defendant’s attorney (...) on the grounds that, since the contract did not expressly state that there must be a parking area for each apartment, the claim in this respect was unfounded, it was decided that the action be partially accepted and that compensation for denial of debt at the rate of 40% be collected. The decision was appealed by the defendant’s attorney (...) CONCLUSION: For the reasons explained above, it was unanimously decided on February 25, 2016, by dismissing all of the appellate objections of the defendant’s attorney, that the judgment, found to be in accordance with procedure and law, be UPHELD, that the upholding fee written below be collected from the appellant, with the remedy of rectification of decision being closed.” (Court of Cassation, 23rd Civil Chamber, Docket No. 2014/7985, Decision No. 2016/1055, 25.2.2016)

- The basis on which a claim for the decrease in value arising where fewer parking areas are built than promised is to be assessed will vary depending on whether the claimant is a landowner or a consumer who acquired an independent unit under a real estate promise-to-sell agreement.

With respect to the consumer, the Court of Cassation has long adopted the method of calculating the decrease in value using the “relative method”.

“(...) alleging that, under Article 9 of the technical specifications annexed to the contract concluded between the parties, it had been provided that, for the duplex apartments and the 4+1 apartments, a 2-car covered parking area would be allocated, and that, since the defendant company had nevertheless failed to fulfill this, it had rendered defective service (...) The plaintiff filed the present action alleging that the apartment they purchased from the defendant was defective and that, for this reason, a decrease in value had occurred in the apartment, and requesting that the loss of value resulting from the decrease in value be paid to them. In line with the expert report obtained, the court decided to partially accept the action. Although in legal doctrine there are different views on determining the amount to be deducted from the sale price, known as the "absolute method", the "relative method" and the "compensation method", the calculation method called the "relative method", which has long been applied by both this Chamber and the Court of Cassation, is adopted. (13th Civil Chamber, 26.12.1997, Docket No. 1997/7580; Decision No. 1997/10870) Under this method, the extent to which the ratio between the defect-free and defective values of the thing sold, as of the date of sale, is reflected in the sale price is determined. 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.” (Court of Cassation, 13th Civil Chamber, Docket No. 2019/1059, Decision No. 2019/2985, 6.3.2019)

Looking at it from the landowner’s perspective, the question of how much of the decrease in value arising from defective performance in the common areas may be claimed also varies in Court of Cassation decisions. In some of its decisions, the Court of Cassation considers that the landowner may claim the decrease in value in proportion to the land share, while in others it considers that the landowner may claim it according to the sharing ratio under the contract.

“For this reason, with respect to the incomplete work and defective workmanship in their own independent unit and in the common areas, the plaintiff may claim collection of the portion of their cost that corresponds to the land share of their own independent unit in the land register. 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)

“In the expert report on which the court based its judgment, no distinction was made as to whether the works claimed constitute incomplete work or defective work, nor was it determined whether the defective works involve latent or patent defects. Accordingly, the items claimed as compensation should first be assessed one by one, and it should be determined whether they are defective work or incomplete work and, as regards defective work, whether it involves a latent or a patent defect. Then, with respect to patent defects, it should be examined whether notice was given to the contractor in due time after delivery as provided for in Article 474 of the TBK (Article 359 of the former Code of Obligations (BK)), and, with respect to latent defects, when the defect came to light and whether, after it came to light, the contractor was informed in accordance with Article 477 of the TBK (Article 362 of the BK). On the other hand, since each co-owner has a share in the common areas, the decision should have been rendered taking into account that, out of the cost of the incomplete and defective works on these areas, the landowner may claim at most the amount corresponding to the sharing ratio under the contract; rendering judgment on the basis of an incomplete examination was erroneous.” (Court of Cassation, 23rd Civil Chamber, Docket No. 2016/101, Decision No. 2017/3793, 19.12.2017)

- It may happen that the parking is built incompletely in accordance with the contractor’s project but contrary to the construction-for-flats agreement concluded between the parties. In such a case, if the contract between the parties expressly states that the contractor may not make changes, it may be requested that the contractor remedy these nonconformities, which it built in accordance with the project but which do not conform to the contract between the parties, and carry out a project amendment; if this is not possible, an award for the decrease in value may be requested. What should be understood from this is as follows: where the status of the parking is not expressly agreed in the contract, the contractor will be able to make changes concerning the parking in the project without obtaining the consent of the landowners.

“The plaintiff landowners, alleging that the coal store to be built in the basement of the building and the parking lot to be constructed next to it were occupied by the contractor, requested the prevention of the interference; the court dismissed the claim for prohibition of interference with respect to these areas and awarded their value on the grounds that this was in accordance with the project. However, since their contract expressly stated that the contractor could not even make a project amendment regarding the coal store and the parking lot, the contractor’s taking over these areas on the pretext that coal stores were not needed because the building was constructed with central heating cannot be considered justified. For this reason, while the court should have investigated whether it is possible to convert the areas in question into a coal store and a parking lot, also taking into account the structural condition of the building, should have granted the plaintiffs authority and time to bring them into conformity with the contract through a project amendment if there is no structural problem, should have decided to prohibit the defendant’s interference once they were restored to their former state and, if they cannot be brought into conformity, should have awarded their value as it has now done, reaching a conclusion through incomplete examination and incorrect assessment was not correct, and the decision had to be reversed.” (Court of Cassation, 15th Civil Chamber, Docket No. 2004/2119, Decision No. 2004/3556, 24.6.2004)

- The consumer who purchases an independent unit under a real estate promise-to-sell agreement may, because of defective performance in the real estate that is the subject of the contract, assert their compensation rights arising from incomplete work against the producer or the seller named in the contract. In this case, the seller and the producer are deemed jointly and severally liable.

“In the real estate promise-to-sell agreement dated May 1, 2008 signed between the plaintiff and the defendants, the defendant Emlak Konut GYO A.Ş. appears as the seller. The concept and liability of the seller, manufacturer and producer are regulated in Articles 3 and 4 of Law No. 4077. Under Article 4/3 of the TKHK, the seller, the manufacturer-producer, the dealer, the agency, 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 to be sued 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)

We believe it would always be appropriate to obtain legal support from a lawyer in order to avoid a loss of 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.