Construction Contract in Return for Land Share Within the Scope of Urban Transformation

General Overview

The Construction Contract in Return for Land Share is commonly known and referred to among the public as a “flat-for-land” or “apartment-for-land” contract. In terms of its legal nature, this construction model is an agreement executed between a contractor (developer) and a property owner, whereby the owner undertakes to transfer a certain share of the land, and in return, the contractor undertakes to construct an integrated building within a specified period and under the conditions agreed upon by the parties. Within the process of urban transformation, this contract type has become the most fundamental legal instrument for the renewal of risky structures.

Since the agreement in question includes a commitment to transfer real property, it is a mixed-type (hybrid) contract that incorporates provisions of a “promise to sell real estate” and, as it constitutes a construction project, provisions of a “contract for work”. Due to this hybrid structure, the legal regimes of both contract types are applicable. Furthermore, although there is no mandatory form requirement for the “contract for work” component, the “promise to sell” aspect is subject to an official form requirement pursuant to Article 706 of the Turkish Civil Code. Therefore, in accordance with the Urban Transformation Law and related legislation, it is a condition of validity that these transactions be executed in an official form at the Land Registry Directorate or before a Notary Public.

In cases of non-compliance with the form requirement, parties reserve the right to demand the return of their performed obligations under the principles of Unjust Enrichment. However, in instances where asserting the lack of form would contradict the principle of good faith or constitute an abuse of right, the contract shall be deemed valid and enforceable. In urban transformation projects, the obstruction of the process by parties asserting such formal deficiencies is prevented by judicial precedents.

In disputes arising from this contract type, the legislative provisions regarding both contract types (contract for work and promise to sell) are evaluated together. In the event of conflicting provisions, the settled precedents of the Court of Cassation are applied. Therefore, it is of great importance to follow current judicial decisions in flat-for-land projects. Specific problems encountered in urban transformation applications have been brought to standardized solutions over time through these court rulings.

Urban transformation conducted under Law No. 6306 aims to identify and demolish buildings that have completed their structural lifespan or are located in disaster-prone areas, replacing them with modern, safe structures. This process may be initiated at the request of the owners or ex officio by the Ministry for reasons of public safety.

Contracts prepared within this scope are shaped by the mutual will of the contractor and the right holders, under the approval and supervision of administrative authorities following the determination of a risky area or reserve area. Every clause of the contract must be scrutinized meticulously during this process to prevent potential loss of rights.

In summary, the renewal process of structures under disaster risk is established on a legal ground by reaching an agreement with a contractor through an absolute majority (50%+1) decision as stipulated by law and formalizing this decision in an official document. These documents, signed after the urban transformation decision is made, serve as the “constitution” of the project.

Fundamental Stages of the Process

For the healthy progression of the process, the zoning status of the property, ownership details, and any encumbrances on the title deed are first examined. Any owner may apply to licensed institutions to conduct an urban transformation assessment. Upon notification of the prepared risky building report to the owners, a 15-day legal objection period begins; if objections are rejected, the report becomes final.

Once the risk is finalized, owners may take an urban transformation decision to rebuild or reinforce the building with a 50%+1 majority. The shares of the dissenting minority who do not participate in the decision are sold through an auction facilitated by the administration. Subsequently, the parties meet at the notary to execute the official contract, which is then annotated in the land registry. Following evacuation and demolition, building permits are obtained, and the physical construction phase commences.

Right holders in these projects are offered significant state incentives. For instance, exemptions from fees and taxes are applied as urban transformation support. Additionally, right holders may choose between interest rate subsidies for urban transformation loans or rent assistance. However, by law, a right holder cannot benefit from both supports simultaneously; they must choose only one. This assistance plays a critical role in meeting the temporary housing needs of the owners.

Rights and Obligations of the Parties

In this construction model, parties undertake mutual obligations. The responsibilities during the urban transformation application are as follows:

Obligations of the Contractor (Developer)

• To deliver the building in full on the agreed date.
• To act in compliance with the provisions of current urban transformation legislation.
• To complete the structure in accordance with the contract, technical rules, and the duty of care.
• To obtain zoning permits and finalize the processes for construction servitude and condominium ownership.
• To carry out the work personally or have it performed by competent subcontractors under their own technical supervision.

Obligations of the Employer

• To fulfill other ancillary obligations undertaken in the contract.
• To deliver the immovable property to the contractor in a vacant state suitable for construction.
• To perform the title deed transfers of the independent units allocated to the contractor as the project progresses.

To protect against delays or the contractor leaving the work unfinished, clauses for penal clauses and delay damages should be included in the contract. This ensures that owners are guaranteed throughout the urban transformation process. Furthermore, the “technical specifications” defining the quality of materials to be used in construction must be signed as an integral part of the agreement.

Differences Between Standard Contracts and Urban Transformation

• In Terms of Payment: In standard projects, landowners generally do not make cash payments; however, in agreements made under urban transformation legislation, both share transfers and additional payments may be required due to construction costs or goodwill differences. These conditions may vary depending on the feasibility of the project.
• In Terms of Quorum: The most distinct difference is at the decision-making stage. While a standard construction contract requires the unanimity of all shareholders, urban transformation benefits allow a 50%+1 majority signature to be sufficient to initiate the process. This is a special regulation introduced to prevent the process from being blocked.
• In Terms of the Property’s Condition: While classic contracts sometimes concern vacant plots with no existing buildings, projects within urban transformation areas always involve a risky structure. Here, a new sharing model is created through the demolition of the existing structure and potential deductions in square meters or shares, often referred to as an urban transformation deduction.

Professional Legal Support

The urban transformation process is a highly sensitive period where technical, administrative, and legal details are deeply intertwined, leaving a very low margin for error. Incomplete or erroneously drafted contracts may lead to irreparable loss of rights in the future. As Esenyel & Partners, we are ready to provide comprehensive support with our expert team in the drafting of construction agreements in return for land share, management of negotiation processes, review of technical specifications, and the resolution of potential legal disputes within the scope of urban transformation. You may contact us for any inquiries to ensure that your rights are legally secured and the process is conducted with full transparency.