Κοντογιάννη Αθηνά Δικηγόρος
REQUEST AN OFFER
enENG
elΕλfrFR

Contracts of exchange: What do I need to know?

Contracts of exchange: What do I need to know?

1.How does this contract work in the first place?

The basic scheme under which this contract operates is as follows: The owner of the land assigns to the contractor the construction of either a multi-storey building or multiple separate buildings on the plot of land provided to them. In return for the service provided by the contractor, the transfer of certain percentages of the undivided share on the buildings to be constructed together with the common areas, which are necessarily connected to them, is agreed upon as compensation. Thus, the landowner “retains” for themselves a percentage of the plot of land after deducting the percentages that the contractor is entitled to receive. It is important, however, to know in advance whether a multi-storey building or a separate building will be constructed on the plot of land because:

  • The construction is legally governed by Law 3741/1929 as horizontal property.
  • Independent buildings are governed by Law 1024/1971 as vertical property = transferred differently and legally “divided” in a different way.

2.What are the obligations of the parties to this contract?

Although it is a mixed contract, it has been accepted that the provisions of the contract for work (Articles 681 et seq. of the Civil Code) apply to this contract. This is of great practical importance because:

  • The main obligation of the employer is to pay the contractor’s fee (which here consists of the transfer of the undivided percentages on the plot of land).
  • The main obligation of the contractor is to perform the work with diligence (and if the contractor uses materials provided by the employer, then they must also handle them with care, and upon completion of the work, be accountable to the employer for the surplus, if any).

3.As a third party who will purchase from the contractor, how am I protected?

It is a fact that a contract is concluded between the landowner and the contractor concerning the transfer (to the contractor) of the undivided percentages of ownership on the plot of land once the construction is completed. This means that the third party, at an initial level, is not protected. They can seek protection in two ways:

  • Either the contractor assigns to them the claim they have against the landowner from the original contract (i.e., the transfer of the undivided percentages), and thus the third party can turn against the landowner themselves.
  • Or the third party exercises the rights of the contractor against the landowner through a collateral action, so that the landowner transfers to the contractor the percentages owed to them (and thus the contractor transfers them to the third party).

4.How should the contract of exchange be concluded?

It is crucial here that the contract of exchange concerns a future immovable construction on a plot of land, and therefore, since it falls under the provisions regarding immovables, it must be drawn up with a notarial deed (thus requiring the involvement of a notary). Often, in practice, the parties choose to draft a preliminary agreement for the transfer of undivided shares on the plot of land BEFORE signing the main contract. However, even in this case, the initial preliminary agreement will be incorporated into the final contract between the parties, and all the above must be drawn up in a notarial form, provided, of course, that we are talking about immovable property.

5.What are my rights as an employer in principle?

The employer, as the creditor of the due performance by the contractor, has certain rights against them:

  • The right to proper fulfillment of the work under construction (i.e., without actual or legal defects, and with all agreed-upon qualities if any).
  • The right to receive the work constructed by the contractor (so that the employer can inspect it and ultimately approve it).
  • The right to demand that the contractor perform the work themselves (and not use a subcontractor, which is generally prohibited by Article 684 of the Civil Code).
  • The right to require the contractor to handle with care the materials provided by the employer, be accountable upon completion of the work, and keep the employer informed about the cost and progress of the work (to prevent irregularities in the contract).

6.What are my rights as a contractor?

The fundamental right of the contractor is, in principle, the right to receive their fee, which is agreed upon between them and the employer. Regarding the time of payment of the fee, Article 694 of the Civil Code stipulates that the contractor’s fee is paid upon delivery of the work. This is the rule: however, the parties can agree differently regarding the fee (e.g., fee per time based on the agreement of the parties). It is worth mentioning that the contractor is not considered an “employee” of the employer, so they are NOT obligated to follow the employer’s instructions (unless otherwise agreed). Additionally, if the employer fails to pay the contractor’s fee upon delivery of the work (since then it becomes due and payable as a claim), the contractor may refuse to deliver the work to the employer until the employer simultaneously pays them the fee and the agreed expenses (asserting the defense of non-performance of the consideration).

7.What can I do if the construction has defects?

If the work under construction by the contractor exhibits defects, then the employer, depending on the severity of the defects, has certain rights:

  • Claim for rectification of deficiencies (a right granted only in cases of significant deficiencies and always with the exercise of the right within a reasonable deadline to avoid abusive exercise).
  • Right to reduce the contractor’s fee (always in comparison to the fee that would be owed to the contractor in the case of a properly constructed work, and considering the extent of deviation from the work constructed).
  • Right of withdrawal (if the work exhibits substantial defects and a lack of agreed-upon qualities, without requiring fault on the part of the contractor).
  • Claim for compensation (which can be exercised instead of the right of withdrawal or fee reduction respectively for substantial (and minor) deficiencies).

The above rights are in a conciliatory relationship with each other = if the employer chooses to exercise one of them, then they cannot exercise any of the others.

8.Are contractual clauses for contractor discount valid?

Very often in contracts of exchange, it is agreed between the employer and the contractor that if the construction work does not commence in a timely manner or if it unjustifiably delays for a significant period of time, the employer retains the right to withdraw from the contract without having to observe any deadline, as required for lawful withdrawal. All of the above are often reflected in a contractual discount clause that is part of the contractor agreement, to which the parties are bound. Due to the principle of freedom of contract prevailing in Civil Law, the parties can foresee such clauses even with different content (e.g., setting deadlines before which the right of withdrawal cannot be exercised).

The contractual clause described above should NOT be confused with the independent right of termination provided by Article 700 of the Civil Code to the employer to terminate the construction contract if there is a significant reason even without observing a deadline.

If the employer exercises the right of termination, two consequences arise:

  • On the one hand, they must pay the agreed fee to the contractor (thus transferring the undivided shares on the construction that was completed).
  • On the other hand, the contractor must deliver to the employer the part of the work that has been executed until the termination (even if it is unfinished).

9.Collaboration of the employer during the delivery of the work.

First of all, the employer, as the borrower, is not obligated to collaborate in the acceptance of the work from the contractor (and therefore does not become overdue due to non-collaboration). However, there are many exceptions to this rule, where a burden is placed on the employer for collaboration in the acceptance of the work, so if they fail to fulfill this obligation, they may suffer the consequences of borrower’s delay. These exceptions may stem from an agreement between the parties, either explicit or implicit. For example, if the employer is responsible for inspecting the construction built by the competent supervisor and engineer, the failure of inspection on their part makes them an overdue party (thus the contractor can refuse to fulfill their obligation, i.e., delivery of the work, until the employer fulfills their own, while also being able to claim compensation for the damage suffered in the meantime).

10.How do I secure myself as a contractor against the employer?

To secure their claims against the employer, the contractor does NOT have a legal lien on movable property owned by the employer and located within the construction site. It is important to note that this lien covers the contractor’s fee depending on the value of the movable property subject to the lien (e.g., a car parked within the site, but due to the nature of the contract of exchange, it cannot be applied here as in a construction contract without such peculiarities).

For this reason, based on Article 702 of the Civil Code, there is the privilege of workers for the amounts owed to them directly against the employer for the amount owed to the contractor. This claim of the workers concerns all kinds of benefits from an employment relationship, such as wages, holiday bonuses, overtime pay, etc. Furthermore, the workers maintain their initial claim for wages AGAINST the contractor (= employer and contractor are now jointly liable).

Finally,no agreement can be made that limits the rights of the worker, especially for this legitimate claim, as described above, while the law itself provides that once the worker notifies the employer that they will claim their wages, the employer can no longer fulfill their obligation to the contractor or compromise with them, but must directly pay the wages and other monetary benefits to the workers.

11.Budget table of the project: what happens there?

It is common practice and extremely important for the interests of the parties to contracts of exchange to prepare a budget table regarding the quantity and type of materials required for the construction, as well as indicative prices required by the employer after the payment of the contractor’s fee, depending on whether the employer provides the materials or not.

At this point, it is crucial to distinguish whether the budget prepared is indicative or exclusive:

  • If the budget is indicative, the contractor may demand a higher fee due to the increased cost incurred later ONLY if this increase is reasonable. If, on the contrary, it is a significant increase, then the contractor must notify the employer about the (significant) increase in cost, and then two options are available to the employer: either to pay the additional fee demanded by the contractor or to withdraw from the contract of exchange (where what is mentioned in question 8 applies).
  • If the budget is exclusive, the contractor is not entitled to request an increase in their fee in case the costs of the work increase because they explicitly guaranteed the accuracy of the budget. However, it is not excluded for the parties to agree on some adjustment of prices or even the quantity of materials required for the execution of the work, provided that otherwise, this would be impossible.

Next to the client and his needs.

Athina Kontogianni-Lawyer

The above does not constitute legal advice and no responsibility is assumed for it. For more information, please contact us.