Construction-in-exchange-for-land-share agreements offer significant opportunities for contractor (developer) companies, but they also entail substantial legal risks. Once the contractor completes the construction and delivers it to the landowner, the contractor becomes entitled to acquire ownership of the independent sections allocated to it under the agreement. During this process, matters such as project financing, timely completion, and pre-sales to third parties directly affect both the contractor’s commercial reputation and its legal position. In particular, where the project does not proceed as planned and the relationship approaches termination, it becomes critical to safeguard the contractor’s work and investments to date, while also striking a fair balance with the liabilities owed to third-party purchasers.
This article examines the rights and obligations arising from the contractor’s perspective in the event of termination due to default. It addresses the legal fate of partial construction works, the contractor’s rights where the landowner is at fault, the role of good faith in sales to third-party purchasers, the risks of failing to annotate the contract in the land registry, and the preventive measures contractor companies can adopt in light of Court of Cassation precedents. The aim is to enhance corporate construction companies’ legal risk awareness and help prevent loss of rights.
Protecting the Contractor’s Performance: The Value of Partial Construction
One of the most important issues for a contractor company is ensuring that the construction works it has performed do not remain uncompensated even if the agreement is terminated. A construction-in-exchange-for-land-share agreement is a fully reciprocal contract: if the contractor performs its obligation to build and deliver, the landowner must transfer the agreed land shares to the contractor. However, if the agreement is terminated before the contractor fully performs, the contractor may lose the right to demand transfer of land shares. As emphasized in a decision of the General Assembly of Civil Chambers of the Court of Cassation, unless and until the contractor completes and delivers the building, no right to demand transfer of land shares arises; consequently, if the contractor fails to perform, termination renders invalid any land registry entries created in favor of the contractor or third parties who purchased shares from the contractor. This principle is a key indicator of the boundaries of the contractor’s rights.
That said, the contractor may not necessarily suffer a total loss of rights in the event of termination. If the agreement is terminated with retroactive effect (i.e., the parties are restored as if the contract had never existed), the landowner may be unjustly enriched to the extent of the partial construction works completed. In such a case, the contractor may claim compensation against the landowner under the rules of unjust enrichment, in proportion to the value of the works performed. As the Court of Cassation has also indicated, where the contractor has carried out partial construction that provides a benefit to the landowner, the contractor may seek compensation at least to the extent of that benefit. For example, if a contractor undertaking a project of ten units has completed works equivalent to five units and the landowner terminates the agreement, the landowner may be required to pay the contractor the value of that partial construction.
If, on the other hand, the agreement is terminated with prospective effect (typically where the construction is more than 90% completed), the legal outcome is closer to concluding the contract through reciprocal performance rather than true termination. In such a scenario, the court may determine the level of completion, identify the independent sections to which the contractor is entitled, and order transfer of the corresponding land shares. Where the contractor has substantially performed, equity requires that the contractor’s contribution be protected; accordingly, prospective termination may be applied so that the contractor retains title to the units it has earned. Indeed, the 15th Civil Chamber of the Court of Cassation has issued decisions holding that where construction exceeds 90% completion, the agreement may be terminated prospectively and the title deeds of the units to which the contractor is entitled should remain with the contractor. The objective is to protect the contractor’s performance (labor and material contribution) and prevent it from being wasted.
In summary, even if the agreement is terminated, a contractor company does not necessarily lose the value of its work entirely. It may claim compensation for unjust enrichment, or—where the project is nearly complete—be entitled to obtain title to the independent sections corresponding to its performance. However, this requires proper management of the termination process and effective presentation of claims in court.
Sales to Third Parties and the Good Faith/Bad Faith Balance
Contractor companies frequently enter into pre-sale arrangements while construction is ongoing, either to secure financing or to capture market demand. In this context, they execute preliminary sale agreements (real estate sale promise agreements) before a notary public. Legally, such agreements constitute the transfer of a personal right held by the contractor and are valid. However, when the fate of the project changes—such as in the event of termination—the liabilities of both the contractor and the landowner vis-à-vis third-party purchasers come to the fore.
By way of scenario, where the landowner validly terminates the agreement, purchasers may not be able to demand delivery of their units notwithstanding the price paid. From the contractor’s standpoint, if it has undertaken obligations toward purchasers (e.g., delivery obligations), termination of the primary agreement does not automatically extinguish those obligations. Purchasers may pursue the contractor for repayment of the purchase price or damages. If, due to termination, the contractor cannot assert rights against the landowner (for example, where the contractor is at fault), the contractor may be required to refund purchasers from its own resources. For this reason, contractors must act with careful planning when selling to third parties, and should employ preventative legal structuring and robust contractual documentation.
The principle of good faith becomes particularly important with respect to whether the agreement between the landowner and contractor—and the purchasers’ sale promise agreements—has been annotated in the land registry. In general:
- If the construction-in-exchange-for-land-share agreement or purchasers’ sale promise agreements are annotated in the land registry, subsequent right holders (for example, a buyer who acquires the land share from the landowner) will be deemed to have notice of the annotation and cannot claim good faith. In such circumstances, even if the landowner terminates the agreement, purchasers may—subject to the applicable conditions—seek title registration as successors to the contractor’s position. At minimum, annotation prevents the landowner from transferring the land to a third party and sidelining the contractor.
- If neither the agreement nor sale promises are annotated, a new owner who acquires the land in reliance on the land registry will generally be protected as a good-faith third party. In that case, neither the contractor nor purchasers claiming through the contractor can assert real (in rem) rights against the new owner. The contractor may only bring a contractual damages claim against the landowner. Court of Cassation case law likewise makes clear that unannotated sale promise agreements cannot be asserted against subsequent good-faith third parties. For instance, where a landowner wrongfully terminates and transfers the land to another developer, and the original agreement was not annotated, the first contractor cannot recover the project from the new owner; it may only seek compensation from the landowner.
Protecting purchasers is also vital for the contractor’s corporate reputation. When a project fails, it may not be practically possible to shift all responsibility onto the landowner; aggrieved purchasers typically pursue both the landowner and the contractor in court. Accordingly, when selling to third parties, contractors should:
- Execute sale promise agreements before a notary public and, where possible, ensure annotation in the land registry (pursuant to Turkish Civil Code Article 1009). This strengthens purchasers’ personal rights and provides partial security if the project’s fate becomes uncertain.
- Regulate third-party sales transparently in the main agreement with the landowner. Provisions requiring landowner consent or notice, or allocating sale proceeds to project financing, may prevent future disputes and mistrust.
- Communicate promptly with purchasers when delay or termination risks arise, and—where necessary—offer alternative solutions (e.g., alternative projects, repayment mechanisms). Otherwise, contractor companies may face reputational harm as well as collective lawsuits and complaints.
Recent Court of Cassation decisions also reflect a purchaser-protective approach in certain default scenarios. For example, the 14th Civil Chamber has ruled in a case that, where a contractor substantially completed a project, certain purchasers could become entitled to title registration provided they complete remaining works and deposit the corresponding cost. Such decisions show that even where the contractor is in default, good-faith purchasers may not be entirely unprotected and may be granted rights under specific conditions. Contractors should account for these possibilities when drafting purchaser agreements—for instance, by predefining refund procedures if the project is discontinued.
Land Registry Records, Lack of Annotation, and the Limits of the Contractor’s Rights
Consistent with the above, the absence of a land registry annotation weakens the contractor’s position, while the existence of an annotation strengthens it. Without an annotation, the contractor’s contractual right remains a personal claim only. Even if the land changes hands, that personal right cannot be asserted against the new owner; the contractor may only sue the landowner. This outcome stems from the protection granted to third parties under the principle of reliance on the land registry (Turkish Civil Code Article 1023), regardless of the landowner’s good faith or bad faith. Court of Cassation unification decisions likewise recognize that an unannotated construction-in-exchange-for-land-share agreement cannot be asserted against a subsequent good-faith third party.
The scope of the contractor’s rights is largely determined by the contract and by whether the contractor has duly performed its obligations. If the contractor has materially breached (e.g., has not commenced construction or has caused substantial delay), it may be deprived of certain rights. In cases where the delay is entirely attributable to the contractor, the landowner may terminate the contract and have even the contractor’s accrued but not yet transferred rights eliminated. In such circumstances, the contractor cannot claim anticipated profits; at best, it may seek compensation corresponding to the value of its completed works under unjust enrichment. Contractual penalty clauses may also be enforced against the contractor (e.g., delay penalties), with potentially serious financial and reputational consequences for corporate contractors. Accordingly, contractors should incorporate realistic timelines at the outset and, where needed, negotiate extension protocols with the landowner.
It should also be noted that Court of Cassation precedents indicate that if the landowner is at fault (for example, failing to perform its own obligations in due time), the contractor’s delay may be excused. For example, if the landowner was obliged to transfer a portion of the land share to the contractor at the outset and failed to do so, the contractor may not be deemed at fault even if it did not commence works on time. The 15th Civil Chamber has held that a landowner who fails to transfer land shares is in default, and that a contractor cannot be deemed at fault for not commencing work until the land shares are transferred. Therefore, contractors must also monitor and enforce the landowner’s obligations and, where necessary, place the landowner in default.
Preventive Measures for Contractor Companies and Conclusion
Corporate contractor firms may safeguard their rights by adopting preventative measures against termination and default risks in construction-in-exchange-for-land-share projects:
- Careful Contract Drafting: Provisions should be clear, balanced, and aligned with Court of Cassation jurisprudence. Commencement and completion dates, delay penalties, force majeure, and the consequences of each party’s default should be regulated in detail. The landowner’s obligations (timely delivery of the land, project approvals, permit/licensing cooperation, share-transfer undertakings) should be expressly stated to prevent loss of rights.
- Land Registry Annotation: Upon execution, the contractor should evaluate annotation of its contractual right in the land registry. Article 1009 of the Turkish Civil Code permits annotation of the personal right arising from these agreements. This is critical: if the landowner transfers the land to a third party without annotation, the contractor may be unable to assert rights due to the new owner’s good faith. With annotation, subsequent acquirers are deemed to take the land with knowledge of—and subject to—the contractor’s rights.
- Phased Transfers and Securities: In some projects, land shares are transferred progressively as construction advances. This may strengthen the contractor’s position by securing title to earned shares during performance. Similarly, contractors may consider requiring security from the landowner (e.g., a penalty clause payable in case of wrongful termination after substantial completion). In large-scale projects, instruments such as bank guarantees, surety arrangements, or other securities may be appropriate for both parties.
- Purchaser (Third-Party) Agreements: Sales promise agreements should address termination scenarios. Clauses such as “if the project is discontinued due to unforeseen reasons, the buyer’s payment will be refunded within X days and related costs/interest will be covered” can significantly reduce both legal exposure and reputational harm. Ensuring notarization and, where feasible, annotation of purchaser agreements is also beneficial, as it allows purchasers to assert rights against the landowner and prevents all liability from concentrating on the contractor.
- Performance Tracking and Documentation: The contractor should document project progress and the landowner’s performance (or non-performance) on an ongoing basis. The construction stage, landowner-caused delays, weather conditions, and administrative impediments may become crucial evidence. This helps demonstrate, for example, that a delay arose from a permit issue attributable to the landowner, thereby avoiding default. Court of Cassation precedents recognize that landowner-caused delays prevent the contractor from falling into default and extend the construction period accordingly.
- Legal Counsel and Dispute Resolution: Construction projects engage multiple areas of law (contracts, zoning/regulatory rules, consumer law, etc.). Corporate firms should work closely with legal counsel from the outset to mitigate risks before disputes arise. In potential default or termination situations, timely evaluation of mediation, settlement, and other alternative dispute resolution methods may be valuable for managing crises efficiently and avoiding protracted litigation.
In conclusion, protecting the contractor’s rights under construction-in-exchange-for-land-share agreements requires a proactive and forward-looking approach. Because both parties are simultaneously creditor and debtor, the contractor should not focus solely on its own performance; it must also monitor the landowner’s obligations. Preserving the value of the contractor’s work, maintaining reputational credibility toward third-party purchasers, and employing legal tools such as land registry annotation are as important in the long run as a company’s project portfolio and references. A robust legal foundation for a construction project reduces losses in unforeseen circumstances. For project-specific issues, obtaining specialised legal support is the most effective way to prevent loss of rights and avoid lengthy proceedings. If your company requires legal support in construction-in-exchange-for-land-share agreements, please contact our professional team. Our experienced construction-law practice is ready to secure the legal framework of your project and minimise potential disputes.
