Construction contracts in return for independent units, one of the most frequently used models in property development projects, carry serious legal risks in practice. How the rights of the parties are to be protected where the contract is invalid or is terminated is a particularly important question. In this article we examine, in the light of the decisions of the Court of Cassation, how the provisions of the Turkish Civil Code on construction on another’s land without a right (TMK arts. 722-724) are applied in the disputes that arise in these contracts.
What Is a Construction Contract in Return for Independent Units?
It is a contract of mixed nature in which the landowner allocates their land to the contractor, the contractor builds a building on that land, and in return a certain part of the independent units is transferred to the contractor. In practice it is most often made before a notary in the form of a promise to sell, and sometimes even as a contract in ordinary written form. This last situation creates a risk of invalidity, particularly on account of a defect of form.
What Happens If the Contract Is Invalid or Has Been Terminated?
Where the construction has started or has reached a certain stage, the rights of the parties differ. This is the most complex aspect of works undertaken in return for independent units. The construction may have reached a point where it cannot be dismantled. A serious economic imbalance may arise between the parties. The provisions on unjust enrichment do not always produce a fair result. It is at this point that the provisions on construction without a right come into play.
What Is Construction Without a Right?
It is the situation in which a person builds on another’s land without any legal basis. If the construction contract in return for independent units is invalid or has subsequently been terminated, the building put up by the contractor is regarded as “construction without a right”.
What Are the Rights of the Parties in Such a Case?
In cases of this kind there are three basic solutions.
1. Requesting the Removal of the Building
If the landowner has not consented, the removal of the building may be requested provided that dismantling will not cause “excessive loss”. In practice, however, since the landowner has generally permitted the construction, this route is most often unavailable.
2. Claim for Compensation
If the building is not dismantled, the landowner is obliged to pay appropriate compensation to the contractor. In determining the compensation, the value of the building, the cost of materials and labour and the good faith of the parties are taken into account. In most cases the contractor is accepted as having acted in good faith.
3. Transfer of Ownership of the Land
If the value of the building is clearly greater than the value of the land, and the party has acted in good faith, the contractor may request the transfer of all or part of the land to themselves. In practice this is the strongest and the most disputed right. According to the Court of Cassation this right is a personal right and cannot be asserted against everyone. It may be exercised only against the parties to the contract or their successors.
The Greatest Risks in Practice
The most frequently encountered mistakes in construction projects in return for independent units:
*Making the contract in ordinary written form
*Failing to have the contract annotated on the title deed (this will also create a problem later in respect of the capital gains tax on the increase in value)
*Failing to carry out legal supervision as the project progresses
*Allowing uncontrolled sales to third parties
These mistakes lead to very serious ownership and compensation actions when the contract is terminated. Construction contracts in return for independent units are not a simple “land and construction” relationship but a legal structure with many possible outcomes. Where the contract is invalid or has been terminated, the provisions on construction without a right are the most important instrument for restoring the balance between the parties.
These contracts require serious technical and legal knowledge. Obtaining professional support at every stage, from the drafting of the contract to its performance, will prevent major disputes that may arise later.
This article has been prepared for general information purposes and does not constitute legal advice. You may contact us for an assessment of your particular case.
