DEFINITION, LEGAL NATURE, FORM AND TYPES OF CONSTRUCTION CONTRACT OF FLAT FOR LAND 30 May 2024

I. What are Construction Contracts of Flat for Land?

Construction contracts of flat for land are agreements where the contractor undertakes the construction on the immovable property belonging to the landowner with their own financing. In return, the landowner promises to transfer the immovable property to the contractor as payment. In other words, the contractor undertakes to create a building, and the landowner undertakes to pay a price through the transfer of a land share.

II. What is the Legal Nature of Construction Contracts of Flat for Land?

Construction contracts of flat for land are not a type of contract regulated under the Turkish Code of Obligations (“TCO”); they are innominate contracts. They are organized within the scope of the principle of freedom of contract stipulated in Article 19 of the TCO. Since the performances of the contractor and the landowner, who are the parties to the contract, are based on different types of legal contracts, it is a hybrid contract of dual types. The contractor’s obligation to create and deliver the work is governed by the provisions on the contract for work in the TCO, while the landowner’s obligation to transfer the ownership of the immovable property is governed by the provisions related to the promise of sale of immovable property.

As these contracts create mutual obligations and claims, they are synallagmatic contracts. Since the contract requires the mutual and congruent declaration of intent of the landowner and the contractor, these contracts are also consensual.

III. The Form of Construction Contracts of Flat for Land

As stated above, construction contracts of flat for land are hybrid contracts consisting of a contract of work and a promise of sale of immovable property. In hybrid contracts, the form issue is determined according to the contracts that constitute their elements. While the contract of work is not subject to any form requirement, the promise of sale of immovable property is subject to the formal requirement under Turkish Civil Code (“TCC”) Article 706, TCO Article 213, Land Registry Law Article 26, and Notary Law Articles 60 and 89. Therefore, since the construction contract of flat for land involves the promise to transfer the ownership of immovable property, it is subject to the formal requirement of an official form as a validity condition by analogy pursuant to TCC 706, and it must be executed in an official form. If such a contract is not executed in the prescribed form, it will be invalid and have no legal effect. The official form will be ensured by the land registry officer. However, under Notary Law Article 60, promises of sale of immovable property can also be executed by a notary.

IV. Methods of Execution of Construction Contracts of Flat for Land

The construction contract of flat for land, which emerged within the framework of the freedom of contract, can be executed in various forms within the scope of this freedom.

a. The construction contract of flat for land can be executed by transferring certain land shares to the contractor.

In this case, the landowner transfers the land shares specified in the contract concluded with the contractor on the immovable property, for which a condominium has been established, to the contractor. However, transferring the land shares to the contractor at the outset and the construction not yet having commenced is not advantageous for the landowner. To mitigate this situation, it is common practice to establish a security mortgage on the relevant land shares in favor of the landowner. The mortgage is gradually lifted as the stages specified in the contract are reached.

b. The construction contract of flat for land can be executed by transferring the land completely to the contractor.

In this case, the land is completely transferred to the contractor. The conditions of the contract, such as the allocation and characteristics of the independent sections, are also determined. This type involves a real estate sale transaction at the outset. To prevent the landowner from experiencing a loss of rights, a mortgage is established in favor of the landowner. The mortgage is lifted by the landowner as the construction progresses.

c. The construction contract of flat for land can be executed by transferring land shares according to the stages of construction.

In this case, the landowner undertakes to transfer the independent sections allocated to the contractor to the contractor as certain stages of construction are reached, or to grant the contractor the authority to sell the contractor's shares to third parties.

d. The construction contract of flat for land can be executed by the landowner promising to sell land shares and the contractor undertaking to construct the building.

In this case, the landowner promises to sell certain land shares, and the contractor undertakes to construct the independent sections in return. This type is the most frequently concluded type of construction contract of flat for land.