In a construction agreement in exchange for land share, also known as a flat-for-land agreement, the landowner undertakes to transfer certain shares of the land to the contractor in return for the building the contractor will construct. Although very common in practice, this agreement is not a contract type separately named in the legislation. Disputes are therefore largely resolved by applying the provisions on contracts for work and on preliminary sale agreements for immovable property together.

Legal nature and form

The agreement is a mixed contract containing elements of a contract for work (Turkish Code of Obligations No. 6098, Art. 470 et seq.) on the one hand and of a preliminary sale agreement for immovable property on the other. Since it includes an obligation to transfer immovable property, its validity depends on official form, that is, on its being drawn up by a notary as a notarial deed. An agreement made in ordinary written form is, as a rule, invalid.

Court decisions accept that, where the obligations have been largely performed, relying on the lack of form may be regarded as an abuse of right. Nevertheless, making the agreement in ordinary written form in reliance on this exception is a serious risk.

Delay

If the contractor does not start the work on time, delays the work in breach of the terms of the agreement, or if it becomes clearly apparent that the work will be completed later than the agreed time for a reason not attributable to the owner of the work, the owner of the work may withdraw from the agreement without waiting for the delivery date. Agreements usually provide for a contractual penalty for delay. For the contractual penalty to be claimed together with performance, the owner of the work must expressly state, upon accepting performance, that this right is reserved.

Defective performance

After delivery, the owner of the work is obliged to inspect the work as soon as is feasible in the ordinary course of business and to notify the contractor of any defects. Latent defects must be notified immediately upon their discovery. In the event of a defect, the owner of the work may, depending on the circumstances, exercise one of the following rights:

• Withdrawal from the agreement,
• Reduction of the price,
• Repair free of charge, provided that this does not entail excessive cost.

In addition, the owner of the work may claim compensation under the general provisions.

Limitation

Actions based on defects in immovable structures become time-barred five years after the date of delivery of the work. If the defect results from the contractor’s gross fault, this period is twenty years.

Sale of an independent unit to a third party

The contractor may sell the independent units allocated to it to third parties before construction is completed. In that case, the relationships between the landowner, the contractor and the buyer are assessed separately. The most important safeguard for the buyer is the annotation of the promise of sale in the title deed register.

Assessment

A significant proportion of disputes arising from construction agreements in exchange for land share stem from matters left unclear at the contract stage: the delivery date, material and design standards, the allocation of independent units, the contractual penalty for delay and the stage at which the title deeds will be transferred. Regulating these matters clearly in the agreement is the most effective means of preventing lengthy and costly litigation later on.