Rights and Obligations of the Parties in Flat-for-Land Construction Contracts

This article is an English translation of the Turkish original published by the office.

Flat-for-land construction contracts are among the most common contracts in Turkish real estate practice, and they have become even more important in recent years as demand for housing has grown. We have therefore written a separate article to shed light on this subject.

The legal framework of flat-for-land construction contracts

In practice, a flat-for-land construction contract (kat karşılığı inşaat sözleşmesi) is also called a construction contract in exchange for land shares (arsa payı karşılığı inşaat sözleşmesi). These contracts are based mainly on the Turkish Code of Obligations, the Turkish Civil Code and the case law of the Court of Cassation. Although they are used very widely, they are not regulated directly in any single statute. The flat-for-land contract is a mixed contract of a dual type: the provisions on contracts for work and on promises to sell real estate are applied to it by analogy. Because it is encountered so often, it has been the subject of many court decisions and has found a firm place in practice. In short, it is a contract in which the contractor undertakes to build in return for the landowner’s obligation to transfer land shares.

The form of the contract

The flat-for-land contract is subject to an official form requirement. As noted above, the rules on sales of immovable property apply by analogy. Under Article 237 of the Turkish Code of Obligations, contracts for the sale of immovable property must be made in official form; otherwise they are invalid. Article 60 of the Notaries Law provides that sales of immovable property may be made before notaries, and Article 89 provides that this must be done in the form of a deed drawn up by the notary. Consequently, flat-for-land construction contracts must be drawn up by a notary. Contracts made privately between the parties are invalid.

The landowner’s obligations

The landowner’s most basic obligation is to transfer the land shares to the contractor. In substance, this is the landowner’s obligation to pay the price: at the end of the project the landowner will receive one or more flats from the contractor. Instead of paying cash as anyone else would, the landowner transfers all or an agreed part of the land to the contractor. The contractor thus obtains a site on which to build, delivers the agreed number of flats to the former landowner on completion, sells the remaining units to third parties and continues its business.

When transferring the land shares, the landowner must hand over land that is suitable for construction. For example, if there is an old building on the land that must be demolished, clearing the site is the landowner’s responsibility unless otherwise agreed. The landowner is obliged to make the land fit for construction.

The contractor’s obligations

The contractor’s most basic obligation is to construct the building in accordance with the agreed conditions and to deliver it. On completion, the contractor must transfer to the landowner the independent units agreed in the contract. While the main obligation is to produce the building, the contractor also has a duty of care: materials must be obtained carefully and in accordance with the contract, and poor-quality materials must not be used.

Another obligation, after the duty to build with care, is to carry out the works personally. Unless otherwise agreed, it is generally accepted that the contractor must build itself; if the contract is silent, personal performance is the rule. If the contract requires personal performance and the contractor nevertheless has the works carried out by someone else, this is a breach of contract. The only way for the contractor to have all or part of the works done by others is for the contract to permit it expressly.

The landowner’s purpose in signing the contract is to receive a completed building. The contractor must deliver the building on time and free of defects, as agreed. Possession must be transferred without any obstacle: construction materials and equipment that might interfere with the landowner’s actual control must be removed, workers must leave the site completely, and the independent units must be handed over — down to the door keys.

Conclusion

In this article we have covered the definition and form requirement of flat-for-land construction contracts and the obligations of the parties. In practice, many different problems may arise in performing these obligations; the most common is the contractor’s default, i.e. failing to complete the building within the agreed time. To avoid suffering loss in such cases, it is essential that the contract is complete and drawn up in the required form.

Türker Law Office provides legal representation and advice on drafting and reviewing flat-for-land contracts and on disputes arising from them, including title deed cancellation and registration, termination of the contract, incomplete or defective work and delays.