Construction in Return for Land Share Contract

Character of the contract and the form requirement

A construction in return for land share contract combines two separate obligations: the developer's obligation to carry out the construction (contract for works) and the landowner's obligation to transfer the land share (promise to sell an immovable). Because it contains an undertaking to transfer an immovable, the contract must be made as a notarial deed drawn up by the notary (düzenleme). Contracts made in handwriting or merely certified by a notary (onaylama) are as a rule invalid.

In practice, where construction has been completed and the flats delivered despite an invalid contract, the courts may find it contrary to the principle of good faith to plead invalidity, taking into account that the parties acted in accordance with the contract for a long time. But this does not make it reasonable to start work with an invalid contract: that debate itself means a case lasting years.

What the contract must contain

• Delivery date and the sanction to apply in case of delay (delay compensation, rent)
• Allocation table: which independent unit will belong to whom, specifying floor and facade
• Technical specifications: the quality of the materials to be used, brand or equivalent quality definition
• Stages of the land share transfer: how much share will be transferred at which level of construction
• Who is responsible for the permit, the occupancy permit and public obligations
• Whether the developer may assign the contract

Transferring the whole land share at the outset is the riskiest structure for the landowner. Gradual transfer of shares tied to the level of construction is the balanced solution that protects both the landowner and the financing.

Delay and default

If construction is not finished on the delivery date, the main items the landowner may claim are these: delay compensation if agreed in the contract, and if not agreed, the rental value of the undelivered independent units (lost income). The rent is determined by a court-appointed expert according to comparable rents.

Defective performance

Where the work is defective, inspection and timely notification are important; hidden defects must be notified without delay after discovery (TBK Arts.474–477). Subject to the conditions in Article 475, remedies include repair, price reduction or rescission, together with damages where fault exists. They are not universally sequential. Restrictions on rescission for structures on the employer’s land apply. Under Article 478, the period for immovable works is five years from delivery, and twenty years where the contractor is grossly at fault.

Evidence of the defect should be preserved before alterations. Judicial preservation of evidence may be useful but is not a universal prerequisite for asserting a claim; it must not delay the necessary defect notice.

Termination

If the developer has not built at all or has left the construction at a very low level, termination of the contract comes into question. The decisive criterion here is the completion ratio of the construction. Where construction is substantially complete, the courts prefer termination with prospective effect, in which what has been done up to that point is preserved, over treating the contract as never made (termination with retrospective effect). Otherwise third parties who bought completed independent units would suffer.

Flats sold to third parties are the most complex side of these files: the buyers are mostly in good faith, and their claims for title transfer conflict with the landowner's claims.

For general information purposes; every contract is assessed on its own text.