The formation and implementation of decisions in urban transformation is governed by Act No. 6306 on the Transformation of Areas at Disaster Risk. Within this framework, the land shares of owners who remain outside the transformation decision may be transferred by public auction to the co-owners who joined the decision or to third parties. The sale procedure derives its authority from Article 15/A of the Implementing Regulation to that Act.
That said, before this stage is reached, every step taken must be consistent with the provisions of the Act and the Regulation. Measures adopted contrary to the legislation both create grounds for the annulment of the sale and give owners a basis on which to object. Owners who did not join the decision may bring proceedings against both the decision and the sale transaction by relying on the unlawfulness they identify.
In this briefing note we examine in detail the legal position of owners who do not join the transformation decision, since the risk faced by these owners extends to serious loss of rights, including the sale of their land shares.
The New Decision Quorum: Majority of Land Shares (50%+)
How decisions concerning a risky structure are to be formed, and by what procedure they acquire validity, is one of the matters that gives rise to the greatest uncertainty in practice. In particular, whether the owners must personally come together and hold a meeting is among the most frequently raised questions from the very first day of the process.
The common assumption is that a transformation decision can only be taken at a meeting attended by all owners. Although the legislation contains no express provision requiring a meeting in the classical sense, recording the decision in a written minute is of considerable importance in practice.
On the other hand, the absence of a meeting does not in itself invalidate the decision.
What is legally decisive is that the owners have reached agreement on a matter and that this agreement has been recorded in a written document by the co-owners holding more than half of the land shares.
The Decision Process Concerning the Treatment of the Property
The method by which decisions relating to a risky structure are to be formed, and the conditions they must satisfy in order to acquire validity, are among the most debated headings throughout the process. Whether the owners are obliged to convene lies at the centre of that debate.
Is a Meeting Mandatory?
Although many sources on urban transformation state that the owners must take a decision by convening, the legislation contains no express rule requiring a meeting in the classical sense.
What is required under the Act and the implementing regulation is that the owners have reached agreement on a matter and that this intention has been given concrete form in a written document by the co-owners holding more than half of the land shares.
Accordingly, although a meeting is a method frequently preferred in practice, it is not a condition of validity in law. The details of the decision-making procedure are addressed in our study on the Urban Transformation Decision and the Decision-Making Process.
Written Decisions and Giving Concrete Form to the Intention to Contract
Transformation processes today are conducted less through the classical meeting procedure than through documents in which the owners commit their intentions to writing.
The typical course of events in practice follows this order:
- The decision taken and the terms of the agreement are duly notified to the owners who did not join the decision or who took no part in the process at all.
- The co-owners holding more than half of the land shares (50%+) reach agreement with a contractor for the reconstruction of the building.
- The agreement reached is recorded by being set down in written texts such as a decision minute, a joint decision protocol or a construction contract in return for a land share.
What matters at this stage is not whether a meeting was held, but whether the intention of the majority has been set out in a written document.
Notification to Owners Who Do Not Join the Decision
The most critical stage for the purposes of putting such an owner’s share up for sale is that the decision taken and the terms of the agreement be duly communicated to that owner. The sale stage cannot be reached until that notification has been completed.
The notification in question is not a simple announcement that a decision has been taken. The text must clearly set out the content of the decision taken in respect of the property, the terms of the agreement concluded and the period granted to the owner. In other words, the notification goes beyond information and constitutes a legal offer addressed to the owner.
For this reason, the notification text must contain the following elements:
- That the building has been identified as a risky structure
- That the decision was taken by more than half of the land shares of the condominium owners
- That it has been decided that the building be demolished and rebuilt
- The essential terms of the agreement or contract concluded with the contractor
- The period granted to the owner in which to join the decision
- That, should the owner fail to sign the contract within that period, the share may be put up for sale
The absence of any one of these elements from the text may mean that the notification, although formally valid, is treated as deficient in content, giving rise to a procedural defect capable of forming the basis for the annulment of the sale at a later stage.
The 15-Day Period That Must Be Granted to the Owner
Together with the notification, the owner must by law be granted a period of 15 days. That period is the final opportunity for agreement afforded to the owner for the purpose of joining the majority decision.
- The period begins to run not from the date on which the decision was taken or the contract was signed, but from the date on which the notification was duly made.
Within that period the owner may sign the contract, declare that they have joined the decision and accept the terms of the agreement. If no intention is declared within the period, the way is opened for the share to be put up for sale.
Methods by Which Notification May Be Made
In the notification to be made to an owner who did not join the decision, it is not only the content but also the method used that is decisive. For unless the notification is duly made, the 15-day period does not begin to run in respect of the owner and the sale stage cannot be reached.
With the legislative amendments that entered into force at the end of 2023, the methods of notification were substantially rearranged and the process accelerated. It is no longer mandatory for a separate notary notification to be served on each owner; notifications made by way of certain announcement and posting procedures have also come to be regarded as legally valid.
Under the legislation in force, notification may be made by the following means:
- Posting an announcement at the entrance of the risky structure
- Serving notification through a notary
- Providing information electronically via e-Devlet
- Applying the procedure of announcement and posting at the headman’s office
A notification made by one of these methods and in accordance with the legislation is regarded as legally valid; the period runs in respect of the owner from that moment onwards.
Even so, in a process producing a consequence as serious as the extinction of ownership, notification through a notary is still regarded in practice as the most reliable option. Indeed, many professional managers and practitioners prefer notary notification even though the legislation imposes no such requirement.
The Process for Selling the Land Share of an Owner Who Did Not Join the Decision
The share of an owner who did not join the decision is not automatically put up for sale merely because a majority decision has been taken. Proceeding to a sale depends on the decision and the terms of the agreement first being notified to that owner, on the statutory period being granted, and on that period expiring without effect.
Accordingly, the sale of a land share becomes possible not through the unilateral will of the majority, but upon the complete fulfilment of the stages set out in the Act and the implementing regulation. Deficiencies at the notification, period and administrative application stages in particular may render the sale unlawful.
The steps that must be completed before a sale may take place are explained below in order, on the basis of how matters proceed in practice.
Failure to Sign the Contract and Progression to the Sale Stage
If an owner who did not join the decision allows the 15-day period granted following the notification to pass without signing the contract and without declaring that they have joined the decision, the legal condition required for proceeding to the sale stage is regarded as fulfilled.
This does not, however, mean that the share will be sold automatically. The owner’s failure to sign within the period merely prepares the legal ground required for the sale to be initiated. Whether the process actually begins depends on an application by the majority to the competent administration.
The decisive point at this stage is that it can be proved by documents that the owner did not sign the contract and that the 15-day period has expired. This is because the competent administration will invariably examine whether these conditions have been met before proceeding to a sale.
In practice, the following documents are generally added to the application file submitted to the administration:
- A minute or declaration showing that the owner did not sign the contract
- The service documents relating to the notification made to the owner who did not join the decision
- A document establishing that the risky structure decision has become final
- The text of the decision or the contract showing that the majority was achieved
Once this stage is complete, the process passes out of the hands of the co-owners and becomes an administrative procedure conducted under the supervision of the competent administration.
Application to the Competent Administration
If the owner does not sign the contract within 15 days, proceeding to a sale depends on an application to the competent administration. Without such an application, no step towards the sale of the share may be initiated.
The administration to which the application is to be made may vary according to where the property is located. In practice, the competent authority is generally one of the following:
- The relevant Municipality, where authority has been delegated
- The Provincial Directorate of Environment, Urbanisation and Climate Change
- The Urban Transformation units operating in metropolitan municipalities
The application may be made by one or more of the co-owners who reached agreement, or equally by a lawyer, manager or contractor acting on their behalf. What is decisive is that the application has been made by persons representing the majority.
From that moment, the process ceases to be a dispute between the co-owners and takes on an administrative character. The subsequent steps proceed under the review and supervision of the competent administration.
Review by the Administration and Determination of the Value of the Land Share
The administration first examines whether the process has been conducted in accordance with the legislation, since an error relating to the notification, the period or the majority requirement is capable of leading to the annulment of the sale. If it is established that these conditions have been satisfied, the administration decides that the process may proceed to the sale stage.
Thereafter, a Valuation Commission is constituted within the administration for the purpose of determining the value of the land share and conducting the sale. The commission’s task is to determine the current market value of the share belonging to the owner who did not join the decision. The value so determined constitutes the opening price of the auction, and no sale may be made below that figure.
In carrying out its assessment, the commission takes the following criteria into account:
- The general outlook of market conditions
- The location of the property
- Comparable sale prices
- The current physical condition of the property
- The proportion of the land share
In weighing these factors, a report is obtained in most files from an independent valuation firm licensed by the Capital Markets Board. Until this stage is complete, no date of sale may be set and no sale may be carried out.
Setting the Date of Sale
Once the value has been determined, the administration sets the date of sale. At this stage the date, time and place of the sale, together with the opening price on which the sale is to be based, are determined and announced to those concerned.
With the setting of the date of sale, the process effectively enters the sale stage, and the steps that follow are directed towards the holding of the public auction. As regards the owner, however, the process is not yet entirely closed. Until the sale takes place, the owner may sign the contract and join the majority decision; in that event, no sale is carried out.
For that reason, although the setting of the date of sale is one of the final steps of the process, it also marks the last period in which the owner may express an intention to reach agreement.
Sale of the Share by Public Auction
Holding the public auction
Once the administration has set the date of sale and the price on which the auction is to be based, the share in question is put up for sale by way of public auction. That sale is an administrative act conducted by the competent administration and must be carried out in accordance with the procedures and principles set out in the legislation.
The auction is held on the day, at the time and at the place determined by the administration. Before the sale begins, the price to be taken as the basis and the terms of sale are announced to those present, and the auction is opened at that figure. The price taken as the basis of the auction may not fall below the market value previously determined.
Priority afforded to the co-owners
At the first stage of the auction, priority is given to the co-owners who joined the decision. For that reason, as a rule only the co-owners who are parties to the agreement, or their legal representatives, may take part in the first auction.
The purpose of this practice is to ensure that the share is first dealt with among the existing co-owners of the property and that the ownership structure is preserved so far as possible.
Transfer of the share following the auction
At the conclusion of the auction, the co-owner offering the highest price becomes the new owner of the share put up for sale. Once the sale price has been paid within the period determined by the administration, the transfer formalities are completed at the land registry and the share is registered in the name of the new owner.
Ownership of the share thereby becomes final in law in favour of the new owner.
The new owner becomes bound by the contract
The person who purchases the share takes the place of the former owner and acquires the status of co-owner of the property. The new owner therefore becomes bound by the transformation decision taken by the majority and by the contract signed pursuant to that decision.
Put another way, the person who purchases the share has no opportunity to join the project afresh or to renegotiate the contract; the terms of the contract in force are binding on that person too.
The opportunity to join the decision until the sale is completed
An owner who did not join the decision may at any time, until the sale transaction is concluded, accept the offer made by the majority and sign the contract. If the owner declares in this way that they have joined the decision, the sale is not carried out and the process comes to an end.
The auction period is therefore also described as the final window for agreement from the owner’s perspective.
No Buyer Among the Co-Owners and Registration in the Name of the Treasury
The fact that the share belonging to the owner who did not join the decision is not purchased at the auction by the other co-owners does not bring the sale process to an end. If no buyer emerges from among the co-owners, the price of that share is paid by the relevant administration and the share is registered ex officio at the land registry in the name of the Treasury.
In this way, the transformation process is prevented from being deadlocked, contrary to the will of the majority, by a co-owner in the minority.
Action for Annulment Against the Sale of the Land Share
The sale of shares belonging to owners who did not join the decision is a process in the nature of an administrative act. Where the notification is not made, the period is not duly granted, the price is incorrectly determined or the sale is carried out contrary to the legislation, an action may be brought seeking the annulment of the sale of the land share. For further detail on this subject, reference may be made to our study entitled The Rights of Owners Who Do Not Join an Urban Transformation Decision.
As a rule, such actions are heard in the administrative courts and before the administrative court of the place where the property is located. One of the most critical aspects of the action is time: as a general rule, the action must be brought within 60 days running from the date on which the sale was served on the owner. Since that period is a preclusive period, missing it may extinguish the possibility of bringing an action.
In practice, the principal grounds on which such actions are based are as follows:
- That the public auction was conducted contrary to the legislation
- That no valid notification was made to the owner who did not join the decision
- That the market value of the land share was incorrectly determined
- That the 15-day period was not granted at all, or was miscalculated
- That the required majority was not in fact achieved
Matters such as the determination of the competent court, the time limit for bringing an action, an application for a stay of execution and the conduct of the proceedings involve technical detail. Our assessment on this subject is set out in our study on the Action for Annulment of the Sale of a Land Share.
Independent Legal Assessment
The sale of the share of an owner who did not join the decision is the instrument of urban transformation legislation that interferes most directly with the right to property. The process must therefore be managed with care, both from the perspective of the co-owners representing the majority and from that of the owner who did not join the decision. For the majority, the risk is that of being confronted with a project built upon a sale annulled years later for a procedural deficiency; for the owner, the risk is that the sixty-day period for bringing an action passes unnoticed.
In practice, the majority of files turn less on a dispute over value than on a lack of documents relating to the notification and time-limit requirements. Although the recognition of the announcement and posting procedure as valid under the amendments at the end of 2023 has made notification easier, notary notification still retains its character as the safest option in terms of the burden of proof.
In a specific file, the following headings should be addressed as a matter of priority:
- Verification that the majority has genuinely been achieved, by calculating the land share proportions from the land registry records
- Review of the notification text as to whether it contains all the elements required by the legislation
- Precise determination of the starting date of the 15-day period by reference to the service document
- Examination of the choice of comparables and the valuation method in the valuation commission’s report
- Verification of whether the priority afforded to the co-owners at the auction was duly given effect
- Diarising the sixty-day period for bringing an action, which runs from service of the sale transaction
Independent Legal provides advisory services and conducts litigation at every stage of urban transformation processes, from structuring the decision-making stage to pursuing administrative and judicial applications relating to the sale of land shares.