Land-Share Construction Contracts: The Contractor's Liability

Land-Share Construction Contracts: The Contractor's Liability

Under a "land-share construction contract" (kat karşılığı inşaat sözleşmesi, also called arsa payı karşılığı inşaat sözleşmesi), a landowner transfers a share of their land to a contractor in exchange for a number of the finished units to be built on it — without the landowner ever having to pay cash for the construction. This is one of the most common methods of housing development in Turkey. However, this type of contract carries legal subtleties, both in terms of formal requirements and contractor liability, that can expose the landowner to serious risk if not properly understood.

What Is a Land-Share Construction Contract?

A land-share construction contract is, by nature, a mixed contract: on one hand, the contractor's obligation to build units on the land is governed by the work/construction contract provisions of the Turkish Code of Obligations (Türk Borçlar Kanunu, "TBK", Art. 470 et seq.); on the other hand, the landowner's undertaking to transfer specific land shares corresponding to certain units to the contractor has the character of a promise to sell real property. Because these two elements coexist, the contract is subject both to the rules governing work contracts and to the formal requirements applicable to promises to transfer real property.

Why Must It Be Executed Before a Notary?

Because the contract includes a promise to transfer a share of land in the future, the settled case law of the Turkish Court of Cassation (Yargıtay) holds that, under Land Registry Law (Tapu Kanunu) Art. 26 and Notary Law (Noterlik Kanunu) Art. 60, it must be executed before a notary in the form of a "formal promise to sell real property" (düzenleme şeklinde gayrimenkul satış vaadi sözleşmesi). A land-share construction contract made only in ordinary written form, without observing this formal requirement, is in principle considered invalid for lack of proper form. As an exception, the Court of Cassation has, in cases where the contract has already been substantially performed by the parties (for example, where construction is largely complete or units have been delivered), sometimes found — based on the prohibition of abuse of rights (Turkish Civil Code Art. 2) — that invoking the formal defect would be inequitable. This, however, is an exception to the general rule and its application in any given case cannot be guaranteed. For this reason, it is essential for the landowner to proceed from the outset with a contract executed before a notary.

The Contractor's Liability for Defects

If the completed units contain construction defects, material flaws, or deviations from the approved project or the contract, the provisions on work contracts apply by analogy (TBK Art. 474 et seq.). The landowner is obligated to inspect the delivered work without delay and to notify the contractor of any defects found within a reasonable time; failing to do so may be treated as acceptance of the work as defect-free. For defects notified in time, the landowner has a choice of remedies: demanding that the defect be remedied (repair), demanding a reduction of the price (i.e., of the land share owed), or, if the defect is substantial, rescinding the contract. Which remedy applies depends on the severity of the defect and the specific circumstances.

Contractor Default and Damages for Delay

If the contractor fails to complete and deliver the construction within the time agreed in the contract, the general provisions on debtor default apply (TBK Art. 117 et seq.). The landowner may claim compensation for the loss caused by the delay; if the contract includes a penalty clause (cezai şart) for this scenario, the landowner may claim the agreed penalty without needing to separately prove the actual damage suffered. Where the delay becomes substantial, or it becomes clear the contractor will not complete the work, the landowner may also, where the conditions are met, become entitled to terminate the contract.

Mutual Restitution Obligations if the Contract Is Terminated

If the land-share construction contract is terminated, the parties are obligated to mutually return what they received under it. The contractor must return the land shares transferred to them to the extent they had not yet earned entitlement to them at the time of termination; in turn, the landowner must compensate the contractor for the value of any construction work completed up to that point that benefited the landowner, assessed under the rules on unjust enrichment and tort liability. Accurately valuing the completed work and apportioning fault between the parties is the source of most disputes arising from this kind of unwinding.

What Protective Measures Should the Landowner Take?

• Require a letter of guarantee (teminat mektubu) from the contractor from the very start of the contract.
• Transfer the land share in stages, tied to the actual progress of construction, rather than transferring the entire share upfront.
• Expressly secure, within the contract, the obligation to obtain building inspection approval and the occupancy permit (iskan / yapı kullanma izin belgesi).
• Where possible, secure the contractor's obligations with a mortgage or other form of collateral.

Frequently Asked Questions

Is a land-share construction contract automatically invalid if it isn't made before a notary?

As a general rule, yes — a contract made only in ordinary written form is considered invalid for failing to meet the required formal requirements. While the Court of Cassation may reach a different conclusion in exceptional cases where the contract has already been substantially performed, relying on that possibility and signing an informal contract is a serious risk.

What can I do if the contractor fails to deliver the construction on time?

You can claim damages for delay under TBK Art. 117 et seq.; if the contract includes a penalty clause, you can claim that amount instead. If the delay becomes substantial, you may also become entitled to terminate the contract, where the conditions for doing so are met.

What are my rights if I discover a defect in the construction?

Provided you notify the contractor of the defect within a reasonable time, you may demand that it be remedied, request a reduction of the price (land share) owed, or, if the defect is substantial, rescind the contract.

What happens to the land share I transferred if the contract is terminated?

The contractor must return any land shares to which they had not yet become entitled; in turn, the value of any construction work that benefited you is separately assessed and compensated under the rules on unjust enrichment.

Source: Turkish Code of Obligations (Türk Borçlar Kanunu) No. 6098, Art. 117 et seq., Art. 470 et seq., Art. 474 et seq.; Land Registry Law (Tapu Kanunu) No. 2644, Art. 26; Notary Law (Noterlik Kanunu) No. 1512, Art. 60.

This content has been prepared for general informational purposes only and does not constitute legal advice. Before signing a land-share construction contract, or taking any step in an existing contract dispute, we recommend having your specific situation reviewed by a lawyer.