Turkish Law Blog

Shared Revenue Building Contract

Deniz Saltık Deniz Saltık/ Rheinische Friedrich-Wilhelms-Universität Bonn
24 March, 2020
222

Introduction

Shared revenue-building contract is a contract type rapidly spreading in use in recent years in the construction sector in Turkey. Acceleration capture public housing construction in recent years in Turkey, it revealed a significant financial resource requirement. The shared revenue-building contract has found the field of application as a type of contract aiming to meet this need.

Housing Development Administration of Turkey (TOKİ) has an important role in the implementation of this method and increasingly preferred in the construction sector.

This contract model, which has started to be applied in the contractual relations between TOKİ and contractor companies in mass housing production has also started to be preferred and become widespread in projects carried out among private law persons which have no public character in recent years.

I. Shared Revenue Building Contract

In the shared revenue-building contract, the landowner and the contractor agree to share the income from the sale of independent sections to be built by the contractor. The aim of this contract is not only to create independent sections on the land of the business owner but also to earn income as a result of selling the independent sections and to share this revenue as agreed in the contract. To accomplish this purpose the contractor will both construct the land of the landowner and market and sell the independent sections built on the base of the authority given by the landowner to third parties. The contractor will obtain the return of its own performance by taking share from the income to be obtained from this sale. On the other hand, the owner of the land allocates his land and gives sales authority to the contractor and aims to obtain the highest income from the project to be realized by the contractor. Within the contract, it can also be decided that the sale is made by the landowner, not by the contractor.

II. Purpose and Benefits of Shared Revenue Building Contract

The emergence of the shared revenue-building contract as a result of practical needs and its response to these needs brought along some advantages. This contract has benefits for the purpose of the parties, the landowner and third parties who have purchased a section independent of construction. We will be content with briefly mentioning these benefits[1].

If the purpose of the parties is to earn income from the sale of independent sections only as a result of the construction, the shared revenue-building contract provides a very convenient opportunity to achieve this purpose. Especially if the purpose of the landowner is not to have independent sections, but to earn income from the sale of them marketing and selling of the independent sections with this contract provides a great convenience to the landowner. In addition, the risk of failure of the project belongs to the contractor. Because the contractor does not get any response by creating only the construction. The contractor's income for the construction depends on the existence of a successful project and the sale of independent sections.

In shared revenue-building contract, third parties who acquire sections independent of construction are entitled directly to the landowner not the contractor. For this reason, the fate of the contract between the landowner and the contractor and especially the return of the landowner due to the default of the contractor has no effect on the third party's legal status.

In this contract, since some of the independent sections do not belong to the landowner and the other to the contractor, all independent sections can be marketed and sold in one hand and within a professional system. This situation increases the efficiency of the work and the result to be obtained.

Finally, although controversial, the idea that the shared revenue-building contract is not subject to shape, the fact that large-scale and high-cost projects that are the subject of such contracts often do not have to be carried out at a notary, will save the parties from a burdened expense.

III.  Description and Elements

A. Description

The shared revenue-building contract is not regulated in the Turkish Code of Obligations (“TCO”) or special law. For this reason, there is no definition of the law on the contract[2].

In the shared revenue-building contract, a structure is created on the land of the landowner by the contractor. Later, this structure is sold by the contractor based on the authorization given by the landowner. The income obtained from selling is shared between the parties at the rate previously agreed in the contract.

According to one view[3]the landowner is under the obligation to represent for the sale of independent sections and is included in the definition of this contract. According to the other view[4] it is not necessary to authorize representation. The main element of the contract is the landowner's entry into the transferred debt of the property. The landowner can do this in person, or the signature of a third party that the parties agree on is sufficient.

B. Elements

When determining the essential elements of a contract, the original performance obligations to which the contract parties are loaded are taken into consideration. The shared revenue-building contract can be made in different ways in practice[5]. In our study, an explanation has been made based on the most used contract model in practice.

1. The Land Owner's Obligation to Transfer Ownership to the Third Party and to Share the Income from the Sale of the Independent Section

One of the essential actions in the shared revenue-building contract and consequently one of the essential elements of the contract is that the landowner promises to transfer the ownership of the independent sections.

The landowner makes a commitment to the contractor to transfer the ownership of the independent sections built for the purpose of earning income. However, the transfer of ownership will be carried out not against the contractor, but against third parties who are still unidentified at the time of the contract creation[6].

In the shared revenue-building contract, the other primary performance debt of the landowner is to share the income from the sales with the contractor at the rate determined in the contract.

The rate of sharing the income obtained from the sale of independent sections and how it will be shared between the parties can be decided in various ways in the contract[7].

2. Contractor's Independent Sections, Selling on behalf of the landowner and Delivery to Buyers

The contract does not differ from the other construction contracts in terms of the construction debt of the contractor from the construction contract in return for land share.

The debt of selling the independent parts built by the contractor on behalf of the landowner and delivering them to the buyers is one of the characteristic features of the contract that separates this contract from the construction contract in return for the share of the land.

3. Agreement of the Parties

The agreement element of the parties is the main element sought in each contractual relationship. The scope of the contract established by the parties is also determined according to this agreement.

To establish the contract the parties must have agreed on the essential points of the contract (TCO. Art. 2)[8]. Although the parties agree on the main aspects of the contract when they disagree about the side points that are not discussed in the future these issues are determined by the judge (TCO Art. 2/II)[9].


[1] For detailed information, Emrehan İnal, Sonuca Katılmalı Sözleşme Kavramı ve Gelir Paylaşımlı İnşaat Sözleşmesi, İstanbul, 2011, p. 144 following pages.

[2] For definitions according to experts, İnal, p. 149; Umut Yeniocak, Gelir Paylaşımına Dayalı İnşaat Sözleşmesi (Arsa Satışı Karşılığı Gelir Paylaşımı), Ankara, 2013, p. 25.

[3] İnal, p. 149.

[4] Yeniocak, p. 26.

[5] For sample explanations, Yeniocak, p. 27.

[7] For example, in the shared revenue-building contract used by TOKI, it is envisaged that the total income to be obtained from the sale of independent sections will be collected in the "TOKİ Sales Total Income Guarantee Account" account to be opened financially. In parallel with the progress of the construction project, the contractor's share is released.

[8] Kemal Oğuzman/ Turgut Öz, Borçlar Hukuku Genel Hükümler, C.1, Vedat Kitapçılık, İstanbul, 2013, p. 74; Fikret Eren, Borçlar Hukuku Genel Hükümler, Yetkin Yayıncılık, İstanbul, 2014, p. 229.

[9] Eren, p. 237.

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