TÜRKIYE Law and Practice Contributed by: Serkan Gül, Nazım Kurt and Türkay Avanaş, Hergüner Bilgen Üçer Attorney Partnership
structures may be used depending on the commercial agreement of the parties. Moreover, a unique method that is commonly used that was created for construction to be made over pri - vate party land is known as “construction in return for flat”. Under this structure, the contractor constructs the building without receiving any cash payment. The owner makes the payment to the contractor in the form of a flat or flats; accordingly, the owner and contractor share the flats in the constructed building in line with a ratio determined under the agreement (eg, 55% for the owner and 45% for the contractor). The owner does not make any other payment for the construction. Revenue sharing, which is a structure that resembles ordinary partnership, has been gaining traction in the market recently. Revenue sharing involves the con - tractor taking on the construction and sale activities, and the landowner and the contractor sharing the col - lected revenues in previously agreed ratios. 7.2 Assigning Responsibility for the Design and Construction of a Project Contractors assume the responsibility for construction of a project through construction agreements. How - ever, as per the Turkish Code of Obligations, owners are responsible vis-à-vis third parties. In the event that owners are required to pay compensation to third par - ties, they are entitled to have recourse to their con - tractor. At the contractor level, design and construc - tion work is outsourced through subcontractors that are hired by contractors. 7.3 Management of Construction Risk Contractors generally assume the construction risk of a project; thus, limitation of the contractors’ liabil - ity is not very common. Moreover, clauses containing waivers, indemnifications and limitations of liability in favour of contractors are not generally accepted by courts. 7.4 Management of Schedule-Related Risk Provisions on schedule-related risks are subject to freedom of contract; therefore, parties may agree on certain milestones and penalties. This is commonly used in practice. As per the law, an owner is entitled
to compensation if the contractor does not comply with the milestones and deadlines specified under the agreement. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance Parent guarantees, performance bonds (bank letters of guarantee) and retentions are common securities given by contractors. Requesting guarantees from contractors is common for valuable lands where the owners have negotiating power. Another method that is often used in tranches but not necessarily in high-profile construction projects is the exchange of negotiable instruments (eg, bonds or cheques). While negotiable instruments are ordinarily used to settle outstanding debts, they are sometimes used as security in construction agreements. 7.6 Liens or Encumbrances in the Event of Non-Payment Contractors are entitled to request the registration of a mortgage over the land to guarantee their receiva - bles. Owners may request removal of the mortgage upon fulfilling their obligations under the construction agreement. 7.7 Requirements Before Use or Inhabitation An occupancy permit certifying that the construction has been completed in accordance with the official designs (projects) should be obtained before a project is inhabited or used for its intended purpose.
8. Tax 8.1 VAT and Sales Tax
Sale of land within the scope of a commercial enter - prise and land owned by limited liability companies and corporations is subject to VAT. The generally applicable VAT rate for land sales is 10%. However, the VAT rate applicable for sales of flats gen - erated from urban regeneration that are up to a net area of 150 square metres is 1% and for those that are 150 square metres or higher is 20%.
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