CAN THE STATUTORY PRE-EMPTION RIGHT BE EXERCISED ON THE LAND SHARES TRANSFERRED TO THE CONTRACTOR PURSUANT TO CONSTRUCTION CONTRACTS OF FLAT FOR LAND? 4 June 2024
What is the Legal Nature of Construction Contracts of Flat for Land?
A construction contract of flat for land is a type of contract in which the contractor undertakes the obligation to construct a specified work on the land owned by the employer, and in return, the employer commits to transferring certain shares of the land or the constructed work to the contractor. Although not specifically regulated in the special provisions of the Turkish Code of Obligations, it is a hybrid and double-natured contract that combines elements of both a contract of work and a sales contract. The valid establishment of such agreements requires their preparation and signing before a notary. Due to its sui generis nature, the construction contract of flat for land brings certain problems and disputes in practice.
In this type of contract, which emerges to address the needs of contractors experiencing difficulties in obtaining financing, the employer transfers land shares allocated to the contractor either during the establishment of the contract or when the construction reaches a certain level, ensuring that the contractor obtains the necessary financing to properly fulfill their obligation to construct the work. Furthermore, the establishment of construction servitude on the independent sections to be constructed by the contractor under the provisions of the Condominium Law is a frequently used method in practice to meet the contractor's financing needs.
What is the Legal Nature of the Transfer of Land Share by the Employer to the Contractor During Construction?
Although the transfer of land shares to the contractor is officially executed at the land registry in practice, these transfer transactions are considered as "advances" by the Supreme Court and are consistently emphasized not to be real sales transactions made with the intention of transferring ownership (Supreme Court of 23rd Civil Chamber, 1.6.2017, E. 2016/1583, K. 2017/1640). In light of this jurisprudence, advance transfers made to the contractor can be reclaimed if the contractor does not properly fulfill their obligations under the construction contract of flat for land, and the claims of third parties who receive shares from the contractor in good faith will not be entertained (Supreme Court of 23rd Civil Chamber, 1.6.2017, E. 2016/1583, K. 2017/1640).
What is the Statutory Pre-emption Right?
The statutory pre-emption right is a formative right that grants other co-owners the right to become the purchaser of a share when one of the co-owners of a property subject to co-ownership sells all or part of their share to a third party.
The right of pre-emption is exercised by filing a lawsuit against the third party who purchased the share. The person with the right of pre-emption is obliged to pay the purchase price and the notary fees to a place designated by the judge within a specified period before the decision for the registration of their share is made.
Decisions of the Supreme Court on the Subject
Adhering to the jurisprudence related to construction contracts of flat for land, the Supreme Court holds that the contractor does not acquire the status of a co-owner as a result of the transfer of land shares by the employer and, therefore, there is no statutory pre-emption right on these shares (Supreme Court Assembly of Civil Chambers, E. 2014/324 K. 2015/2787 T. 4.12.2015; Supreme Court Assembly of Civil Chambers, E. 2017/1765 K. 2020/1033 T. 15.12.2020). However, it has been observed that first instance courts accept pre-emption lawsuits filed for the acquisition of these shares, mistakenly assuming that the transfers made at the land registry during the continuation of construction are sales transactions. Nonetheless, when such first-instance court decisions are appealed, the Supreme Court applies the aforementioned principles and overturns the erroneous decisions of the first-instance courts.
