The Impact of Construction Contracts Based on Land Shares on Property Rights

Entrance

In Turkey, the transformation process, accelerated by Law No. 6306 on the Transformation of Areas Under Disaster Risk , represents a vast legal and economic sphere closely affecting millions of properties and the real rights associated with them. At the heart of this process are Construction Contracts in Exchange for Land Shares (KKİS) , typically concluded between landowners and contractors. These contracts are structurally complex legal transactions , encompassing both the provisions of the Law of Obligations regarding contracts for work and the transfer of property rights from landowners to the contractor .

Even traditional Construction Contracts (CRCs) are complex in terms of carrying out the transfer of real rights, CRCs under Urban Transformation Law proceed on a much more complex legal ground due to special systems such as the mandatory provisions introduced by Law No. 6306 , the compulsory termination of shared ownership (partition), and expedited title deed procedures. This article will examine the origin, scope, and fundamental legal issues arising in the process of the contractor's obligation to construct and the commercial property owners' obligation to transfer their real rights on the immovable property, particularly in Construction Contracts in Urban Transformation projects

I. Legal Framework of Construction Contracts Based on Share of Land

KKIS is a type of bilateral contract where the landowner (or landowners) undertakes the obligation to transfer certain land payments (or all of them) to the contractor, in return for which the contractor undertakes the obligation to construct and deliver the independent units to the landowner.

A. The Mixed Nature and Formal Requirements of the Contract

1. Element of a Contract for Work: The contractor's obligation to construct a building (Turkish Code of Obligations, Articles 470 et seq.).

2. Real Estate Sale Element: The landowner promises to transfer (A Real Estate Sale Promise Agreement has been signed).

This contract, it involves the transfer of land or a share of land , is subject to a mandatory formal requirement pursuant to Article 706 of the Turkish Civil Code (TMK) and Article 237 of the Turkish Code of Obligations (TBK), and be drawn up in the form of a notarized document. Otherwise, the contract is invalid.

B. Additional Provisions Introduced by Urban Transformation (Law No. 6306)

Law No. 6306 grants the KKIS a special status in the following respects:

• Majority Decision: In properties where risky structural changes are made, the ownership shares of the owners, up to a maximum of two-thirds (in proportion to their land share), become permanent even for the minority owners who did not participate in the decision.

• Transfer Procedures: The law allows for the identification and processing of title deeds by specially authorized individuals within the General Directorate of Land Registry and Cadastre in order to expedite the process.

II. The Effect of the Contract on Real Rights and the Obligation to Transfer Ownership

The critical legal aspect of the KKIS (Construction, Property, and Construction) is the creation and fulfillment of the landowner's property ownership obligation. This process is closely tied to the extent to which the contractor fulfills their obligation.

A. Preliminary Title Transfer (Assignment) to the Contractor

In practice, the contractor requests a portion of the land payments corresponding to the independent units belonging to the contractor from the landowner during the ongoing or continuing phases of construction. This transfer can occur in two ways:

1. Direct Title Transfer: The landowner registers specific land payments in the name of the contractor . With this registration, ownership (real right) passes to the contractor.

2. Protection Through Annotation in the Land Registry: To obtain a security seal for the registration request, the contractor of annotating the real estate sales promise agreement in the (Turkish Civil Code, Article 1009). This annotation, as previously defined, enables the contractor to protect the owner against personal third parties.

B. Landowner's Security: Mortgages or Security Deposits in the Title Deed

If the transfer of the right to the contractor occurs prematurely, the landowner, in order to secure their own security, usually resorts to two methods:

• Right of Repurchase (Right of First Refusal): If the contractor fails to complete the construction, the landowner is granted the right to reclaim the payments transferred to them, and this right is registered in the land registry.

• Security Mortgage: Upon payment of the transferred land, a mortgage is established on behalf of the landowner to secure the contractor's obligation to construct the property (Turkish Civil Code, Article 881). This mortgage can be foreclosed upon the contractor's default.

III. Implementation Problems in Urban Transformation and the Supreme Court's Approach

The irregular structure and high economic value in urban areas have led to significant problems in residential real estate projects, such as default and contract termination.

A. Contractor's Default and Revocation of Real Rights

Contractor default (delay) is a common problem in typical urban transformation projects. The contractor is in default if they fail to complete construction and deliver the individual units within the timeframe agreed upon in the contract.

1. Termination of the Contract: The landowner may terminate the contract in accordance with the provisions of the Turkish Code of Obligations regarding contracts for work (Articles 473 et seq.). In urban transformation projects, a divorce of the owners representing 51% of the land share is generally required for a termination request

2. Title Cancellation and Registration Lawsuit: When the contract is terminated, the legal basis for the land payments transferred to the contractor disappears. The landowners the cancellation of the title deed registration for the land payments recorded in the contractor's name and their registration in their own name . In this case, the Supreme Court makes a decision by balancing the physical extent of everything the contractor has done with the landowner's losses.

B. The Issue of the Contractor Selling to Third Parties

The contractor may sell the land payments (or payments corresponding to the independent units allocated to them) received from the landowner before construction is even completed . This is a key element of legal uncertainty.

• Transfer in Bad Faith: If a contractor transfers the contract when the construction level is very low or when they are in default, this transaction is generally illegal . If the third party knows or should have known that the contractor was acting in bad faith (especially if construction had not even begun), of the principle of reliance on the land registry in Article 1023 of the Turkish Civil Code . The landowner a lawsuit for cancellation and registration of the title deed .

• Transfer Prohibition Clause: Landowners may include a transfer restriction in the contract to prevent the contractor from transferring land payments, and have this restriction registered (Turkish Code of Obligations, Article 147). This clause constitutes strong evidence, refuting any third-party claim of good faith.

C. Building Permit and Illegal Construction Problems

Even in urban transformation projects, the contractor's construction of buildings that violate permits or are illegal can render the performance of the contract impossible. The cancellation of the permit or its annexes may lead to the cessation of construction and the retroactive termination of the contract. This prolongs the process of re-establishing the property rights of the landowners. The Supreme Court may rule on the termination of the contract or, depending on the appropriateness of the violation of the permit, may order only the remedy of the defect

IV. Legal Security Mechanisms and Proposed Solutions

Given the complex structure of the KKIS (Corporate Socialist Youth Association) operation, bringing together a series of actions to protect the same rights is of vital importance.

A. Phased Title Transfer System

The landowner's strongest safeguard is to transfer land payments to the contractor in parallel with the physical progress of construction (e.g., 30% upon foundation permit, 50% upon completion of the rough construction, and the remaining 20% ​​upon occupancy permit). This system provides the landowner with stronger protection in a title cancellation lawsuit should the contractor default.

B. Letter of Guarantee and Surety

The contractor should be required to provide a substantial bank guarantee or a third-party surety . This provides the landowner with financial security in the event of default, thus protecting them during legal battles.

C. Annotation of the Construction Contract in Exchange for Land Share

Although the contract itself does not create a real right, upon request, this contract is registered in the land registry declaration or annotation . This registration constitutes additional evidence in refuting the third party's claim of good faith and shows that everyone was aware that the contract would not be entered into.

Conclusion

Construction Contracts in Exchange for Land Shares: These contracts, used in urban transformation projects, a significant and direct impact on property rights . In addition to the rights stipulated in Law No. 6306, implementation problems such as the contractor's guarantee and malicious sales by third parties create a high legal risk regarding the protection of the property rights of landowners.

To minimize these risks, the phased, step-by-step title transfer system , of a clause prohibiting the transfer of , and the establishment of strong, definitive mortgages are of vital importance. Supreme Court precedents operate with a fair balance in title cancellation and registration cases, prioritizing the landowner's good faith and the fulfillment of the fundamental provision in the contract (the construction). Therefore, for a successful and risk-free process in continuous transformation, establishing a solid legal basis for the contract is essential.