Preliminary Real Estate Sales Contract — Validity and Annotation on Title Deed

A preliminary real estate sales contract (gayrimenkul satış vaadi sözleşmesi) is a pre-contract in which one or both parties undertake to transfer the ownership of a specific immovable property to the other party in the future. Based on the provisions of preliminary contracts (pactum de contrahendo) regulated in Article 29 of the Turkish Code of Obligations (TCO), this type of contract constitutes one of the most important and frequently used instruments in real estate law. Particularly for properties where condominium easement or condominium ownership has not yet been established, properties encumbered with mortgages or attachments, and plots undergoing zoning processes, the preliminary sales contract is the primary means for parties to secure future ownership transfers.

Legal Nature of the Preliminary Real Estate Sales Contract

The preliminary real estate sales contract is, by its legal nature, a pre-contract. Pursuant to Article 29 of the TCO, the parties may undertake to conclude a contract in the future through a pre-contract. In a preliminary real estate sales contract, the parties agree on the future transfer of an immovable property through an official sales contract at the land registry. This contract gives rise to a personal right; it does not create a real right. In other words, the preliminary sales contract alone does not effectuate the transfer of ownership.

The contract is of a bilateral (synallagmatic) nature, imposing obligations on both parties. The party making the promise of sale assumes the obligation to transfer the property, while the party promising to purchase assumes the obligation to pay the price. Unilateral preliminary sales contracts, where only one of the parties makes a promise, are also valid. In this case, only the party making the promise assumes an obligation, while the other party obtains a right of purchase.

The most fundamental difference between a preliminary sales contract and a sales contract is that the preliminary sales contract does not directly transfer ownership. In a sales contract, ownership passes to the other party through the title deed transfer, whereas in a preliminary sales contract, only a commitment is given that a sale will be made in the future. Therefore, the right arising from the preliminary sales contract is a personal claim right and cannot be asserted against third parties unless annotated on the title deed pursuant to Article 1009 of the Turkish Civil Code (TCC).

Notarial Drafting Requirement

For a preliminary real estate sales contract to be valid, it must be drawn up before a notary public in the form of an official deed. Pursuant to Article 29/2 of the TCO, the validity of a pre-contract depends on the form of the main contract to be concluded in the future. Since the sale of immovable property is subject to official form requirements pursuant to Article 706 of the TCC and Article 237 of the TCO, the preliminary sales contract must also be made in official form. Articles 60/3 and 89 of the Notary Public Law provide for this contract to be drafted by a notary.

The distinction between the drafting form and the certification form is of great importance. In the drafting form, the contract is prepared by the notary personally, and the parties' declarations are put into writing by the notary. In the certification form, the parties prepare the contract themselves, and only the signatures are certified by the notary. For the preliminary real estate sales contract to be valid, it must be drawn up in the drafting form; contracts made in the certification form are invalid.

Preliminary real estate sales contracts made in violation of the form requirement are, as a rule, invalid. Preliminary sales contracts made in ordinary written form or orally do not produce legal effects. However, in some decisions of the Court of Cassation, it has been accepted that where a contract made in violation of the form requirement has been fully performed, invoking the formal deficiency may constitute an abuse of right under Article 2 of the TCC. Nevertheless, this exception is interpreted very narrowly and is evaluated separately in each specific case.

There is one exception to the notarial drafting requirement: pursuant to Article 26 of the Land Registry Law No. 2644, preliminary sales contracts made at land registry offices are also valid. However, in practice, the drafting of preliminary sales contracts directly at land registry offices is very rarely encountered.

Mandatory Elements of the Contract

For the validity of the preliminary real estate sales contract, it must contain certain mandatory elements. The absence of these elements may lead to the invalidity of the contract or problems in its interpretation. The minimum elements that must be present in the contract are: the identity information of the parties, the title deed information of the property (block, parcel, neighborhood, province-district), the sale price, payment conditions, and the date of transfer of the property or the conditions requiring transfer.

The sale price must be expressly stated in the contract. Failure to determine the price may cause the invalidity of the contract. However, it is sufficient for the price to be determinable; for example, an expression such as "the market price at the date of transfer" is considered valid. Regarding payment conditions, different methods such as cash payment, installment payment, or payment at the time of transfer may be agreed upon.

The time element is also of great importance in the contract. The time when the property will be transferred must be definite or determinable. If no time is specified, the creditor may demand performance immediately pursuant to Article 90 of the TCO. However, if the nature of the matter requires a certain period to pass (for example, if the establishment of condominium ownership is awaited), this period is waited.

Annotation on the Title Deed and Its Legal Consequences

The annotation of the preliminary real estate sales contract on the title deed ensures that the personal right arising from the contract can be asserted against third parties as well. Pursuant to Article 1009 of the TCC, personal rights such as construction in exchange for land shares and preliminary real estate sales promises may be annotated on the immovable property record. Annotation strengthens the personal right with an effect similar to a real right.

With the annotation on the title deed, even if the property is subsequently transferred to third parties, the creditor of the sales promise can assert their right against the new owner. In other words, a third party who purchases the property after the annotation is made is bound by the preliminary sales contract, even if they were unaware of the existence of the contract. This is the most important legal consequence of the annotation and significantly protects the creditor of the sales promise.

To annotate on the title deed, an application must be made to the land registry office with the original or a certified copy of the preliminary sales contract drawn up at the notary. The annotation request may be made by both parties or by one of them. In the case of a unilateral application, there must be a provision in the contract regarding the granting of annotation, or the consent of the other party must be obtained. Otherwise, annotation may be granted by court order.

Duration of Annotation and Removal of Annotation

The duration of annotation of the preliminary real estate sales contract on the title deed is five years pursuant to Article 1009 of the TCC and Article 26 of the Land Registry Law. Upon the expiration of five years, the annotation automatically loses its effect and may be deleted ex officio by the land registry office. This five-year period begins from the date the annotation is registered in the land registry.

After the expiration of the five-year period, it is possible to renew the annotation. The parties may have the annotation re-established with a new application. However, in this case, a new five-year period begins from the date the annotation is re-registered. If rights have been established on the property by third parties during the period between renewals, these rights are not affected by the renewal of the annotation.

The removal (deletion) of the annotation before its expiration is also possible. The annotation may be removed through the termination of the contract, the ending of the contract by mutual agreement, the performance of the sales promise (completion of the title deed transfer), or by court order. The unilateral removal of the annotation by one of the parties is not possible without the consent of the other party or a court order.

A common mistake in practice regarding the duration of the annotation is thinking that the five-year period begins from the date the contract was drawn up. However, the five-year period runs from the date the annotation is registered on the title deed. If the annotation is placed on the title deed one year after the contract was drawn up, the annotation will remain valid for five more years.

Compulsory Registration Action

If the obligor of the preliminary sales contract (the party making the promise of sale) refuses to make the title deed transfer when the conditions agreed upon in the contract are met, the creditor (the party promising to purchase) may file a compulsory registration action. Pursuant to Article 716 of the TCC, in cases where there is a valid contract imposing the obligation to transfer the ownership of an immovable property, and the obligor fails to carry out the transfer, the creditor may request the registration of ownership in their name by judicial decision.

For a compulsory registration action to be filed, there must first be a valid preliminary sales contract. The contract must have been drawn up in notarial deed form. A compulsory registration action cannot be filed based on a preliminary sales contract made in ordinary written form. Additionally, the payment conditions agreed upon in the contract must have been fulfilled or the party must be ready to fulfill them. If the full price has not been paid, the plaintiff must deposit the remaining amount.

The competent court for a compulsory registration action is the civil court of first instance. The court with jurisdiction is the court of the place where the immovable property is located, pursuant to Article 12 of the Code of Civil Procedure. This is an exclusive jurisdiction rule. The action is filed against the person who appears as the owner in the title deed record. If the property has multiple owners, all owners must be indicated as defendants.

If the court in a compulsory registration action determines that the contract is valid, the performance conditions have been fulfilled, and the defendant has refused to perform, it will order the registration of the property in the plaintiff's name. This decision is communicated to the land registry office and the registration is carried out. The title deed transfer does not take place until the compulsory registration decision becomes final.

Statute of Limitations

The statute of limitations for claim rights arising from preliminary real estate sales contracts is ten years pursuant to Article 146 of the TCO. This period begins to run from the performance date agreed upon in the contract. If no performance date is determined, the ten-year statute of limitations begins from the date the contract was drawn up.

Upon the expiration of the statute of limitations, the creditor of the sales promise cannot file a compulsory registration action. However, the statute of limitations defense is not taken into account by the judge ex officio unless raised by the defendant. The statute of limitations is not the extinction of the debt but a defense that gives the debtor the right to refuse performance.

The issue of the statute of limitations in preliminary sales contracts annotated on the title deed is controversial. According to some decisions of the Court of Cassation, the statute of limitations is interrupted by the annotation on the title deed and does not run during the annotation period. According to another view, the annotation on the title deed does not affect the statute of limitations, and the ten-year period runs from the performance date of the contract. Unity of case law on this issue has not yet been fully achieved.

Termination of the Preliminary Sales Contract

The preliminary real estate sales contract may terminate for various reasons. Performance, mutual rescission (ikale), termination, statute of limitations, and expropriation of the property are the main reasons for termination. The termination of the contract means the extinction of the parties' rights and obligations.

Termination by performance is the most natural way for the contract to end. When the property is transferred through a sales contract at the land registry, the preliminary sales contract has achieved its purpose and terminates automatically. In this case, the annotation placed on the title deed must also be removed.

In the case of termination, the contract is ended due to one party's breach. Pursuant to Articles 123-126 of the TCO, in the event of the debtor's default, the creditor may grant an additional period and invite performance; if performance does not occur within the additional period, the creditor may withdraw from the contract. In the event of withdrawal, the parties' obligations to return the performances they received arise.

In the event of expropriation of the property, the fate of the preliminary sales contract is also important. Since the ownership of the property will pass to the expropriating administration through the expropriation decision, the performance of the preliminary sales contract becomes impossible. In this case, the obligation terminates pursuant to Article 136 of the TCO, and the parties return the performances they received. The damages suffered by the creditor of the sales promise may be compensated under general provisions.

Problems Encountered in Practice and Solutions

Numerous problems are encountered in the implementation of preliminary real estate sales contracts. The foremost among these is the making of sales promises regarding the same property to multiple persons. If multiple preliminary sales contracts are drawn up for the same property, the contract annotated on the title deed takes priority over the others. If no contract is annotated on the title deed, the contract with the earlier date takes priority.

Another common problem is the subsequent establishment of a mortgage, attachment, or limited real right in favor of a third party on the property that is the subject of the sales promise. In preliminary sales contracts not annotated on the title deed, mortgage or attachment creditors subsequently established take priority over the creditor of the sales promise. In contracts annotated on the title deed, rights established after the annotation do not affect the creditor of the sales promise.

Changes in the zoning status of the property subject to the sales promise are also among the frequently encountered problems. Situations such as the allocation of the property for a different purpose in the zoning plan, the inability to construct buildings, or the reduction of the parcel may result in the adaptation or termination of the contract. Pursuant to Article 138 of the TCO, in cases of excessive difficulty of performance, the parties may request the court to adapt the contract to the changed conditions.

Within the scope of inheritance law, in the event of the death of the person who made the sales promise, the obligations arising from the contract pass to the heirs. The heirs are obliged to fulfill the transfer obligation arising from the decedent's preliminary sales contract. If the heirs refuse to perform the transfer, the creditor of the sales promise may file a compulsory registration action against the heirs.

Advantages and Risks of the Preliminary Sales Contract

The preliminary real estate sales contract provides various advantages for both the seller and the buyer. The greatest advantage for the buyer is obtaining a right guarantee over properties that cannot yet be transferred at the land registry. Especially in projects where condominium easement or condominium ownership has not been established, the most effective way to secure the buyer's right is the preliminary sales contract. This guarantee is further strengthened by annotation on the title deed.

For the seller, the preliminary sales contract is used to guarantee the sale of the property and to receive down payments or installment payments. The seller can guarantee the sale at a certain price through the preliminary sales contract while collecting payments from the buyer.

In terms of risks, the greatest danger is the inadequate protection of the buyer in preliminary sales contracts not annotated on the title deed. In cases where the seller transfers the property to a third party or a mortgage or attachment is placed on the property, the creditor of a sales promise without annotation cannot assert their right against these persons. Therefore, it is of great importance that the preliminary sales contract be immediately annotated on the title deed.

In conclusion, the preliminary real estate sales contract is an important legal instrument in real estate transactions and effectively protects the rights of the parties when properly drawn up and annotated on the title deed. Care must be taken regarding the notarial drafting form of the contract, the complete specification of mandatory elements, and annotation on the title deed, which is of critical importance in preventing future disputes.

This article has been prepared for general informational purposes and does not constitute legal advice. Professional legal support from an expert lawyer must be obtained in specific disputes.