Cancellation of Construction Agreements in Return for Land Share

Construction Agreements in Return for Land Share (also known as land-share construction contracts) are hybrid contracts under Turkish civil law. They combine the characteristics of an construction contract (obligation to construct a building) and a promise to sell real estate (obligation to transfer land titles). When a contractor fails to complete the construction, deviates from the project layout, or abandons the work, landowners often seek to terminate the contract. However, terminating these official contracts involves strict, complex legal parameters.

1. Can a Construction Agreement Be Terminated Unilaterally in Turkey?

Under Turkish law, because these contracts involve property title transfers, they must be drafted officially by a notary. Therefore, neither party can terminate the agreement unilaterally through a simple declaration or notification. Valid termination requires one of the following methods:

• Mutual Consent (Termination Protocol): The parties must sign a mutual termination agreement in official notary format.
• Judicial Dissolution (Court Lawsuit): If mutual agreement is not possible, the party seeking dissolution must file a lawsuit in the Civil Court of First Instance to obtain a court decree of termination.

2. Retroactive (Ex Tunc) vs. Prospective (Ex Nunc) Termination

The legal consequences of a termination lawsuit depend heavily on the physical completion rate of the building at the time of the dispute:

• Retroactive Termination: If the completion rate is low (typically under 90%), the court rules for retroactive termination. The contract is treated as if it never existed, titles are returned to the landowner, and the contractor can only claim the value of materials under unjust enrichment principles.
• Prospective Termination: If the completion rate is 90% or higher, the principle of good faith (Article 2 of the Turkish Civil Code) prevents retroactive cancellation. The court rules for prospective termination, granting the contractor units proportional to their completed work, while the landowner can claim damages for unfinished and defective works.

3. Rights of the Landowner in Case of Contractor's Default

If the contractor fails to deliver the property within the agreed duration, the landowner can exercise several statutory options:

• Demand specific performance (completion of the building) and claim delay compensation (loss of rent) for the duration of the delay.
• Seek court permission for performance on behalf of the contractor (nama ifaya izin), allowing the landowner to complete the construction and charge all costs to the contractor.
• Terminate the agreement due to default and sue for damages (either positive or negative damages depending on the nature of the termination).

4. Title Risks for Third-Party Buyers

Contractors frequently sell their designated units to third-party buyers during the construction phase. However, if the contractor defaults and the agreement is retroactively terminated, the tapu (title deed) transfers to third parties are cancelled, and the properties revert to the landowner. The Turkish Supreme Court rules that third parties cannot claim good faith protection (TMK Art. 1023), as they should anticipate that the contractor's title is dependent on the completion of the construction.

Frequently Asked Questions

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