Construction Contracts in Return for Land Share: Default of the Contractor and Termination of the Contract

The rapid growth in the real estate and construction sectors has heightened the importance of the contracts that form the legal foundation of relations between land owners and contractors. However, in practice, contractors failing to comply with committed delivery dates, leaving constructions incomplete, or causing delays result in severe forfeitures of rights for land owners.

As Malgır Law Firm, we analyze in deep detail the default (delay) of the contractor—one of the most complex domains of construction law—the processes regarding the termination of the contract, the indemnity rights of the land owner, and the legal status of third-party buyers purchasing properties off-plan, under the guidance of the Turkish Obligations Code (TBK) and contemporary Court of Cassation jurisprudence.

What is a Construction Contract in Return for Land Share?

A Construction Contract in Return for Land Share (Arsa Payı Karşılığı İnşaat Sözleşmesi) is a bilateral, synallagmatic contract where the land owner commits to transferring a specific share of their land ownership to the contractor, and in return for this share, the contractor undertakes the obligation to construct a building on the land using their own financing and deliver a designated portion of the independent units (apartments/commercial shops) to the land owner.

For this contract to be legally valid, it is a mandatory requirement under the Notary Law that it be executed "in the form of a formal drafting" (düzenleme şeklinde) before a public notary. Contracts executed via ordinary written instruments are null and void as a rule.

What is the Default of the Contractor and What are its Requirements?

The Default of the Contractor (Müteahhidin Temerrüdü) constitutes the non-delivery of the construction to the land owner on the delivery date designated in the contract or at the expiration of statutory extensions, without a justified legal ground. For a contractor to be legally deemed in default, the materialization of the following conditions is required:

• Maturity of the Obligation (Borcun Vadesinin Gelmesi): The delivery date mutually agreed upon in the contract (e.g., 24 months commencing from the procurement of the construction permit) must have expired.

• Non-Delivery of the Construction: The building must have failed to be delivered either physically or legally through the procurement of an occupancy permit (iskan / yapı kullanma izin belgesi).

• Absence of Force Majeure: Extraordinary circumstances outside the contractor's fault that obstruct the completion of the construction (such as the annulment of zoning plans, conflicting precedent court orders, natural disasters, etc.) must not be present.

Is it Mandatory to Serve a Notarial Notice and Grant an Extension Period?

The notarial notice process is the domain where land owners commit the most frequent legal errors. Pursuant to the Turkish Obligations Code, as a rule, to place a debtor in default, a formal notice must be served through a notary public, and a reasonable extension period (mehil) must be granted to fulfill the obligation.

• The Exception of a Fixed Deadline (Kesin Vade): If the delivery date of the construction is explicitly designated in the contract by day, month, and year as a definitive deadline, the contractor automatically falls into default at the expiration of that date without the requirement of a notice.

• Circumstances Where Granting an Extension is Unnecessary: If it is explicitly manifest that the contractor has abandoned the project, deserted the construction site, or that completing the work within the remaining timeframe is physically impossible, the land owner can exercise the right of termination directly without granting an extension period.

Requirements for the Termination of the Contract: Retroactive vs. Prospective Termination

In the event that the contractor fails to complete the construction on the delivery date, the land owner may apply to the court to demand the termination of the contract. In construction contracts in return for land share, the right of termination—unless the parties mutually execute a termination agreement before a notary—can solely be exercised via a judicial court decree as a rule. The legal consequences of termination are split into two categories based on the completion level of the construction:

1. Retroactive Termination (İnşaat Seviyesinin %90'ın Altında Olması)

As a rule established by high-court precedent, if the completion level of the construction is below 90%, the contract is terminated with retroactive effect (geçmişe etkili fesih) from its very inception.

• Legal Outcome: The parties revert to their initial legal statuses as if the contract had never been executed. The land owner demands the annulment of the land registry titles transferred to the contractor and their re-registration under their own name. Conversely, the contractor can only claim the monetary value of the physical structures manufactured up to that date from the land owner under the rules of unjust enrichment (sebepsiz zenginleşme), calculated strictly over their base cost value.

2. Prospective Termination (İnşaat Seviyesinin %90 ve Üzerinde Olması)

Pursuant to the landmark decrees of the Joint Appellate Grand General Board of the Court of Cassation, if the construction has been completed to a vast extent and its level has reached 90% and above, terminating the contract retroactively would trigger a severe injustice against the contractor under the principle of good faith.

• Legal Outcome: The contract is deemed valid up to the exact moment of termination (ileriye etkili fesih). The land owner terminates the contract by deducting the financial value of the incomplete works from the independent units allocated to the contractor. The contractor retains the right to acquire the titles corresponding to the exact percentage of the work they executed up to that date.

Indemnities Claimable by the Land Owner: Loss of Rent and Liquidated Damages

To remedy the financial losses of the land owner in the event of a breach of contract, the following indemnity items can legally be claimed:

• Rental Indemnity / Delay Indemnity (Kira Tazminatı): The loss of rental income that the land owner was deprived of for each month the contractor remained in default. Crucial Legal Note: If the contract is terminated retroactively, the land owner cannot claim loss of rent (positive damages / müspet zarar); however, rental values can fully be claimed under a prospective termination or when the land owner chooses to keep the contract active while demanding delay indemnities.

• Liquidated Damages / Penalty Clause (Cezai Şart): If a fixed penalty sum to be paid in the event of a delay has been written into the contract (e.g., 10,000 TL for each month of delay), the land owner can demand this amount without bearing the burden of proving that they sustained an actual loss.

The Legal Status of Third Parties Who Purchase Properties Off-Plan from the Contractor

To secure project financing, contractors routinely sell the apartments allocated to them to third-party buyers (off-plan / from the foundation) before the construction is finalized. However, the legal rights of these buyers are strictly conditional upon the contractor performing their obligations toward the land owner fully and flawlessly.

If the contractor fails to finish the construction and the land owner successfully terminates the contract with retroactive effect, the land registry titles held by third parties who purchased properties from the contractor are also annulled through a lawsuit for land registry cancellation and registration filed by the land owner.

Pursuant to the Court of Cassation, an individual purchasing a property off-plan stands in the shoes of the contractor under the doctrine of subrogation (halefiyet) and is legally presumed to have assumed the risk of the construction remaining incomplete. In this scenario, the buyers cannot direct their claims against the land owner; they can solely claim the restitution of the purchase price from the specific contractor from whom they bought the property.

Conclusion and Strategic Legal Assessment

Disputes arising from construction contracts in return for land share require the meticulous execution of notarial notice processes, the precise determination of construction completion levels via judicial court channels (determination of evidence / delil tespiti), and highly strategic maneuvering in land registry cancellation and registration lawsuits. A minor procedural error can cause land owners or property-purchasing consumers to suffer severe grievances lasting for years.

With our specialized legal team, Malgır Law Firm provides expert legal consultancy and courtroom advocacy across all stages of construction law—spanning from the drafting of corporate construction contracts to the serving of notices of default and the litigation of land registry cancellation actions tied to contract terminations, serving clients nationwide, with core operations in Ankara, Mersin, and Gaziantep.