General points in a flat-for-land agreement: the sharing ratio, delivery dates, security, the timing of title transfers and what happens on delay.
A construction agreement in exchange for land shares, known in practice as a flat-for-land agreement (kat karşılığı), is a contract in which the landowner undertakes to transfer certain shares of the land to a contractor, and the contractor in return undertakes to construct a building on the land and deliver a number of independent units to the landowner. Because it creates a long-running, high-value relationship between the parties, the agreement deserves careful preparation.
Form of the agreement
As the agreement gives rise to an obligation to transfer immovable property, it is as a rule made in official form, that is, drawn up by a notary. Agreements made in ordinary written form may give rise to disputes about validity later on. In practice the agreement is drawn up before a notary as a “construction agreement in exchange for land shares and promise to sell”, and it may be annotated on the land register.
Sharing ratio and identifying the units
At the heart of the agreement is the question of which independent units will go to the landowner and which to the contractor. Rather than simply stating a ratio, attaching a schedule identifying the units by floor, aspect and size reduces the scope for later disagreement. The agreement should also deal with how the allocation will be revisited if the project changes.
Delivery dates, delay and penalty clauses
The start and delivery dates, and the circumstances in which they may be extended, should be stated clearly. The landowner’s rights in the event of delay, for example a monthly delay payment or a penalty clause, may be included. The Turkish Code of Obligations No. 6098 contains general provisions on contracts for work and on default; even so, express provisions agreed by the parties provide a more predictable footing in practice.
Timing of title transfers and security
One of the most sensitive matters for the landowner is the stage at which the shares allocated to the contractor are transferred. Transferring all of them at the outset can leave the landowner in a difficult position if construction is left unfinished. Methods commonly discussed in practice include:
- Staged transfer of shares linked to the progress of construction
- A bank-issued performance bond provided by the contractor
- Linking the contractor’s sales of its units to third parties to specific milestones
- Holding back the transfer of certain units until the occupancy permit is issued
Permits, occupancy and costs
The agreement should state clearly who will obtain the building permit and the occupancy permit (iskân) and within what period; who will bear project, fee and tax costs; how existing tenants will be vacated; and whether the landowners will receive a rent allowance during construction. Items such as building inspection, soil surveys and DASK should not be overlooked.
Where there are several landowners
Where the land is held in shares, all co-owners must join the agreement or properly grant the necessary authority. A single co-owner declining to sign may hold up the process for a long time. For buildings within urban regeneration schemes, specific legislation also comes into play.
In short
A flat-for-land agreement ties the landowner’s most valuable asset to another party’s work over a long period. Official form, a clear schedule of units, realistic delivery dates, staged title transfers and security, and the allocation of costs are the key headings. As every plot and project is different, the text should be prepared with the specific circumstances in mind.
This content is for general information only and does not constitute legal advice.