Construction Contract in Exchange for Flat in Turkey
A construction contract in exchange for flat, known in Turkish law as kat karşılığı inşaat sözleşmesi or arsa payı karşılığı inşaat sözleşmesi, is one of the most widely used legal instruments in Turkey’s real estate sector. Under this arrangement, a landowner transfers a specified share of land to a contractor, and in return, the contractor undertakes to construct a building on that land and deliver certain independent units to the landowner. The model allows landowners to become property owners without any financial outlay, while contractors gain the right to sell the remaining units for profit.
Legal Nature of the Agreement
The construction contract in exchange for flat is not expressly regulated under Turkish law as a distinct contract type. It is classified as an atypical or unnamed contract (isimsiz sözleşme), governed by the principle of freedom of contract set out in Article 26 of the Turkish Code of Obligations (TCO). Because the agreement combines elements of two different contract types, it is considered a mixed-type contract. The contractor’s obligation to construct and deliver a work is subject to the provisions on contracts for work (eser sözleşmesi) under TCO Article 470 et seq., while the landowner’s obligation to transfer immovable property is governed by the rules on preliminary contracts for the sale of immovables (taşınmaz satış vaadi sözleşmesi) under TCO Article 237.
Formal Validity Requirements
Since the agreement involves the transfer of immovable property, it is subject to strict formal requirements under Turkish law. Pursuant to Article 706 of the Turkish Civil Code (TCC), “Taşınmaz mülkiyetinin devrini amaçlayan sözleşmelerin geçerli olması, resmî şekilde düzenlenmiş bulunmalarına bağlıdır,” meaning that contracts aimed at transferring ownership of immovable property are valid only if executed in official form. This requirement is further reinforced by TCO Article 237, Notary Law Article 60, and Land Registry Law Article 26. Accordingly, a construction contract in exchange for flat must be executed before a notary public in the form of a notarial deed (düzenleme şeklinde resmi senet). A notarially certified signature alone does not satisfy this requirement.
An agreement that fails to comply with this formal requirement is legally invalid and produces no rights or obligations for either party. However, Turkish courts apply an important exception based on the principle of good faith under TCC Article 2. Where construction has been substantially completed in reliance on an informally concluded agreement, the landowner cannot invoke formal invalidity to avoid their obligations, as doing so would constitute an abuse of rights.
Parties to the Agreement
The two parties to a construction contract in exchange for flat are the landowner (arsa sahibi) and the contractor (yüklenici or müteahhit). The landowner may be a natural person, a private legal entity, or a public legal entity. The contractor is typically a construction company or an individual developer. In practice, it is also common for multiple landowners to be party to a single agreement, particularly in urban renewal projects where an entire block of land is redeveloped.
Obligations of the Landowner
The landowner’s primary obligation is to deliver the land to the contractor in a condition that is physically and legally suitable for construction. Physical suitability requires that the land be free of any existing structures and occupants. Legal suitability requires that the land be eligible for construction under the applicable zoning regulations set out in Law No. 3194 on Construction (İmar Kanunu). The landowner is also obliged to transfer the agreed land shares to the contractor in accordance with the timeline specified in the agreement. Failure to perform this obligation in a timely manner constitutes default (temerrüt) and entitles the contractor to exercise the remedies available under TCO Article 125.
Obligations of the Contractor
The contractor’s principal obligation is to complete the construction in full conformity with the specifications, technical drawings, and timeline set out in the agreement. The contractor must supply all materials and bear all construction costs unless otherwise agreed. Upon completion, the contractor is required to deliver the independent units designated for the landowner in a defect-free condition. Where defects are present, the landowner is entitled to request repair, a proportional reduction in the agreed consideration, or rescission of the contract, depending on the severity of the defects and in accordance with TCO Article 475.
Registration of the Agreement with the Land Registry
Although registration is not a condition for validity, the construction contract in exchange for flat may be annotated (şerh) in the land registry. This annotation converts what is otherwise a personal right into one that is enforceable against third parties. Pursuant to TCC Article 1009, “Arsa payı karşılığı inşaat sözleşmesinden doğan kişisel haklar, tapu kütüğüne şerh verilebilir,” allowing the contractor’s rights arising from the agreement to be recorded against the title. Once annotated, the contractor may also request the cancellation of any subsequently registered encumbrances or attachments that conflict with the agreement.
Consequences of the Contractor’s Failure to Complete Construction
Where the contractor fails to complete the construction within the agreed period, the landowner may serve a notice of default and grant a reasonable additional period for performance. If the contractor still fails to perform, the landowner may rescind the contract, claim damages, or have the work completed by a third party at the contractor’s expense. Under TCO Article 473, “Yüklenicinin işi gereği gibi ya da sözleşmede öngörülen süre içinde bitiremeyeceği açıkça anlaşılıyorsa, iş sahibi teslim için öngörülen günü beklemek zorunda olmaksızın sözleşmeden dönebilir,” meaning that where it becomes evident the contractor will not complete the work properly or on time, the landowner may rescind without waiting for the delivery date.
Termination of the Agreement
Termination of a construction contract in exchange for flat is subject to formal requirements equivalent to those governing its formation. A unilateral declaration of termination has no legal effect; the agreement can only be brought to an end either by mutual written agreement executed before a notary or by a court judgment. Where the parties cannot agree on termination, the aggrieved party must initiate legal proceedings and obtain a court order. This rule has been consistently upheld in the decisions of the Court of Cassation (Yargıtay), which has held that any informal attempt to terminate the agreement is without legal consequence.
Disputes and Competent Courts
Disputes arising from construction contracts in exchange for flat fall within the jurisdiction of the civil courts of first instance (asliye hukuk mahkemesi). Territorial jurisdiction is generally determined by the location of the immovable property in question. Parties may also include arbitration clauses in their agreements, in which case disputes are referred to arbitration rather than the state courts. Given the complexity and financial significance of these agreements, obtaining legal advice from a lawyer specialising in Turkish real estate law is strongly advisable before executing or terminating such a contract.
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