Construction Contract in Exchange for Land Shares (Floors) and Title Deed Cancellation and Registration Lawsuit in Turkish Law

Construction Contracts in Exchange for Land Shares

Construction contracts in exchange for land shares (floors) are not regulated in detail in the Turkish Code of Obligations (TCO) or special laws. Only in the Turkish Civil Code (TCC) Article 1009 it is stated that these contracts can be annotated in the land registry. Similarly, according to the Land Registry Law Article 26/5, it is accepted that personal rights arising from these contracts can be annotated.

 

Basic Features of the Contract

• The contractor undertakes the task of constructing a building on the landowner’s property. In this process, the contractor provides the financing and carries out the construction.
• The landowner promises to transfer the ownership of some independent sections in the building to be constructed to the contractor. This constitutes the mutual obligations of the contract.

Legal Nature and Applicable Provisions

In Turkish law, the construction contract in exchange for land shares is accepted as a type of work contract in doctrine and judicial decisions. Therefore, to the extent that it is compatible with its nature, the special provisions of the TCO regulating work contracts and general provisions are applied by analogy and considering the intentions of the parties.

 

Form Requirement

The contract must be made in official form.

Since this contract includes the transfer or promise of sale of immovable property shares in the land registry, it must be made in official form pursuant to Article 706 of the TCC, Article 237 of the TCO, Article 26 of the Land Registry Law, and Article 60 of the Notary Law. The contract must be made in the form of a notary public deed.

If there is a shared ownership situation on the immovable property subject to the contract, the acceptance of all co-owners is required according to Article 692 of the TCC.

 

Issues to be Investigated and Considered

1. Land registry records may not reflect the actual ownership situation. The registered immovable property shares transferred by the landowner to the contractor are of an “advance” nature and do not constitute the actual ownership situation.
2. The contractor’s personal right can only be converted into a real right under certain conditions. The contractor’s personal rights can be converted into real rights if the contract is fully performed or terminated with future effect.
3. In case of termination of the contract, the obligations of the parties change. If the termination has a retroactive effect, the parties can reclaim the obligations they have previously fulfilled.
4. In case of invalidity of the contract, the provisions of unjust enrichment apply. The parties cannot make claims based on the contract but can reclaim what they have given according to the provisions of unjust enrichment.
5. Substantial changes in the contract are subject to the same form requirement. According to TCO Art. 13, substantial amendments and changes in the contract must also be made in accordance with the same form requirement.

In case of construction in exchange for land shares on a property belonging to the municipality’s legal entity, a municipal council decision is required.

Important Points

• Consequences of form deficiency: As a rule, a contract not made in accordance with the form is considered invalid. However, in some cases (for example, in case of abuse of rights), invalid contracts may be subsequently validated.
• Impossibility of performance of the contract: Different consequences arise depending on when the impossibility of performance occurs. Impossibility before the contract renders it invalid, while subsequent impossibility may terminate the obligation.
• Distinction between defective work and incomplete work: Defective work and incomplete work differ in terms of legal consequences. In defective work, there is an obligation of inspection and notification, while in incomplete work, this obligation is not required.

 

Lawsuit for Cancellation and Registration of Title Deed Pursuant to EBL Art. 94/2

The lawsuit for cancellation and registration of title deed filed pursuant to EBL (Enforcement and Bankruptcy Law) Art. 94/2 is a special type of lawsuit in which the creditor demands the registration of ownership or other real rights that the debtor has not yet registered in the land registry in the name of the debtor. This lawsuit is particularly used in construction contracts in exchange for land shares to ensure the registration of independent sections or land shares that the contractor (debtor) is entitled to but not yet registered in their name.

Basic Features of the Lawsuit

1. The creditor can request the registration of rights that the debtor has not yet registered in the debtor’s name. The provision of EBL Art. 94/2 gives the creditor the authority to request the registration of the debtor’s ownership or other real rights in the debtor’s name.
2. The lawsuit can be based on the legal interest in returning the property to its true rightful owner or on the authority given by the enforcement office. This lawsuit can be filed due to the legal interest in returning the property to its true rightful owner or based on the authority given by the enforcement office.

Conditions for Filing the Lawsuit

1. There must be a finalized enforcement proceeding for the claim. The creditor must have initiated and finalized an enforcement proceeding against the debtor. This means that the existence and amount of the claim have been officially determined. Finalized enforcement proceedings are those where the debtor has not objected or their objection has been removed.
2. There must be an authorization certificate given to the creditor by the enforcement office to file a lawsuit. The creditor must obtain an authorization certificate from the enforcement office pursuant to EBL Art. 94/2. This document authorizes the creditor to file a registration lawsuit in the name of the debtor. The authorization certificate enables the enforcement office to inform the land registry office and, if necessary, the court that the creditor can pursue this action.
3. The contractor must have a real right that they have not received from the landowners in return for their work. The contractor must have a real right (for example, an independent section or land share) that they are entitled to under the contract with the landowner but has not yet been registered in their name in the land registry. This right is one that the contractor has earned in return for their work for the landowner but has not yet officially passed into their ownership.

Note: These three conditions must exist together. The absence of any of them may result in the dismissal of the lawsuit.

 

Conduct of the Lawsuit and Decision Stage

1. Determination of the market values of independent sections: The market values of the independent sections subject to the lawsuit should be determined through an expert.
2. Comparison with the amount of the claim: The determined values should be compared with the amount of the claim for which the plaintiff obtained the authorization certificate in the enforcement proceeding.
3. Determination of a sufficient number of independent sections: A decision for cancellation and registration of title deed should be made for a number of independent sections sufficient to cover the claim.

In Turkey, the Court of Cassation used the following expression in one of its decisions: (“…if it is understood that one of the independent sections can cover the debt, the lawsuit filed for others should be dismissed.”)

Parties to the Lawsuit

1. The plaintiff status is shown in the name of the debtor. In this type of lawsuit, the creditor files the lawsuit not in their own name, but in the name of the debtor. This is a special application of EBL Art. 94/2. The creditor is requesting the registration of a right that the debtor owns but has not yet registered.
2. The debtor is not shown as the defendant in the lawsuit. Under normal circumstances, due to the principle that the plaintiff and the defendant cannot be the same person, the debtor does not appear as the defendant in this lawsuit. The defendant is usually the land registry administration that will make the registration or the third party (for example, the landowner) from whom the right will be obtained.

The Court of Cassation addressed this issue in one of its decisions as follows: (“…since the creditor files the registration lawsuit in the name of the debtor, there is no possibility or need to show the debtor as the defendant in the lawsuit”)

Important Points

1. The lawsuit is based on enforcement law. This lawsuit is based on a special provision of the Enforcement and Bankruptcy Law. Therefore, unlike general legal lawsuits, it is considered as part of the enforcement proceedings and the principles of enforcement law are applied.
2. It is essential to protect the rights and laws of the creditor and debtor in a balanced manner. While trying to ensure that the creditor receives their receivable, the court must also consider the rights of the debtor.
3. The primary aim is the payment of the debt. The ultimate goal of the lawsuit is for the creditor to receive their receivable. However, this goal should not be achieved at the expense of unnecessarily reducing the debtor’s assets. Only as much of the assets as necessary to pay the debt should be processed.

Note: The court should consider a proportion between the amount of the debt and the value of the right requested to be registered. A decision should not be made to register a right more than the amount necessary to pay the debt.

Points to Consider in Title Deed Cancellation and Registration Lawsuit

1. The person receiving the assignment must prove their claim regarding the sale against the contractor. The person receiving the assignment must prove the sales relationship between them and the contractor.
2. The claim that the acquired personal right has been gained must be proven against the landowners. The person receiving the assignment must prove that the contractor has fulfilled their obligations to the landowners and thus the personal right has arisen.
3. For a decision to register, it is essential that the contractor has fully fulfilled their obligations. The contractor must have completely fulfilled all their obligations to the landowners.

In assignee registration lawsuits, it is mandatory for the landowners and the contractor to be involved in the lawsuit. If there is a lack of party formation, the court should remedy this deficiency on its own.

Situation of Competing Personal Rights

• If the same independent section is assigned to more than one person, the earlier dated one is recognized. In case the contractor assigns the same independent section to more than one person on different dates, the valid and non-terminated contract that is earlier in date is preferred.
• The form of the assignment is not important, but the date is. It doesn’t matter whether the assignment was made officially (with a promise of sale agreement at the notary) or with a simple written contract. What matters is the date the assignment was made.

The Court of Cassation addressed this issue in one of its decisions as follows: (“…there is a competition of personal rights. As a rule, unless invalid or the contract is terminated, the earlier dated one of the competing personal rights is recognized…”)

Landowner’s Defense Rights

• The landowner can assert against the assignee the defenses they could assert against the contractor. According to Article 188 of the Turkish Code of Obligations, the landowner can use all the defenses they had against the contractor at the time they learned of the assignment against the person receiving the assignment.
• The subject of the assignment is only as much as the right actually acquired by the contractor. The contractor’s assignment of a right not acquired from the landowner to a third party is not binding for the landowner.

Note: If the contractor has assigned their personal right to a third party without fully or partially fulfilling their obligation, the person receiving the assignment cannot force the landowner to perform.

Contractor’s Right of Assignment

• Unless prohibited in the contract, the contractor can transfer to third parties the personal right they will acquire when they fulfill their delivery obligation. This transfer can be made without the consent of the landowner according to Article 183 of the Turkish Code of Obligations.
• The assignment must be in writing. According to Article 184 of the Turkish Code of Obligations, for the assignment to be valid, it must be made in writing.

The Court of Cassation used the following expression in one of its decisions: (“…if the contractor has assigned the personal right they will acquire to a third party (the plaintiff) without fully or partially fulfilling their obligation to the landowner, the third party (plaintiff) cannot force the landowner, who has the right to benefit from the provision of Article 97 of the Turkish Code of Obligations, to perform.”)

Mistakes Made in Lawsuits

1. Failure to distinguish between incomplete work and defective work: Incomplete work and defective work differ in terms of legal consequences. Incomplete work refers to work that was agreed to be done in the contract but was never done; defective work is work that does not comply with the contract or standards. In defective work, there is an obligation of inspection and notification, while in incomplete work, this obligation is not required. Failure to make this distinction correctly can lead to misinterpretation of lawsuits and loss of rights.
2. Misinterpretation of the situation of third parties: The legal situation of third parties who purchase independent sections made by the contractor according to the construction contract in exchange for land shares is the same as the legal situation of the person receiving the assignment of the receivable. The rights of these persons can be protected by an assignment of receivables in accordance with the simple written form, without requiring an official form requirement. However, courts sometimes misinterpret this situation and may dismiss cases on the grounds that the contract was not made in official form.
3. Ignoring mandatory litigation partnership: When requesting the cancellation of the title deed of an independent section, there is a mandatory litigation partnership not only with the registered owner of the independent section, but also between the landowner and the contractor who are parties to the construction contract in exchange for land shares. Ignoring this situation can lead to the lawsuit being conducted with incomplete parties and legal problems.
4. Considering the consumer court as competent in commercial disputes: If the independent section purchased from the contractor is commercial in nature (workplace, shop) or if many independent sections have been purchased from the contractor, the commercial purpose comes to the fore. In these cases, the consumer court is not competent. However, sometimes this distinction is overlooked, and commercial disputes are mistakenly taken to the consumer court.

 

 

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