A contract by which one party undertakes to transfer a particular immovable property at a later date and the other undertakes to pay the price, and which is subject to official form, is known in practice as a contract for the promise to sell immovable property. The contract does not of itself transfer ownership; what the buyer obtains is the power to demand that the title be transferred in the future. Its validity depends on its being drawn up in the form of a deed executed by a notary and, in certain cases, on its being annotated on the land registry.
The most contested headings in practice are well known: the seller’s refusal to transfer the title, the sale of the same immovable property to other persons as well, claims for compulsory registration and disputes over contractual penalties.
In this briefing note we address the legal character of the contract, the elements required for its validity, the operation of the annotation on the land registry, the mutual obligations of the parties and the actions that may be brought on the basis of the contract.
What Is a Contract for the Promise to Sell Immovable Property?
This contract is a preliminary contract under which one of the parties assumes the obligation to transfer a specified immovable property in the future and the other assumes the obligation to pay the agreed price. Ownership does not change hands upon the conclusion of the contract; what arises is a personal right directed at the future execution of the transfer of title.
In practice, recourse is had to this contract most often in acquisitions of immovable property for investment purposes, in transactions where the transfer of title is not yet possible, in construction projects carried out in return for a land share and in off-plan sales.
The contract affords the parties the possibility of demanding that the official sale be executed in the future; where the conditions are met, it may also form the basis of actions for compulsory registration.
Legal Nature of the Contract
In terms of its nature, what is involved is a "preliminary contract". By it, the parties assume the obligation to conclude a contract for the sale of immovable property in the future.
For that reason the right arising from the contract is personal in nature; it does not of itself transfer ownership and does not create a direct right in rem.
Nevertheless, once the contract is annotated on the land registry, it becomes capable, under certain conditions, of being asserted against third parties as well.
A promise to sell immovable property is a contract subject to official form and imposing obligations on both parties in full. One party is obliged to effect the transfer of title, the other to pay the sale price.
Legal Basis of the Contract
The provisions forming the legal foundation of the contract are not gathered in a single statute; they are dispersed across different legislative texts. In this context the provisions of the Notaries Act, the Land Registry Act, the Turkish Civil Code No. 4721 and the Turkish Code of Obligations No. 6098 are the principal bases.
Among these, the requirement of official form carries particular weight in practice. For the contract to be regarded as valid, it must be prepared by a notary in the form of a deed executed by the notary.
Position of the Promise to Sell Relative to the Transfer of Ownership
A contract for the promise to sell does not directly transfer ownership of the immovable property. The change of ownership depends on a separate official sale being executed before the land registry directorate and on the registration being completed.
The contract therefore does not confer on the buyer the status of owner, does not take the place of the transfer of title and does not provide a right in rem.
The buyer does, on the other hand, obtain the power to demand the transfer of title in the future. Where the seller refrains from effecting the transfer, the buyer may, provided the conditions are met, bring an action for annulment of title deed and registration (compulsory registration).
The function of this contract becomes particularly apparent in immovable properties where condominium ownership has not yet been established, in sales at the project stage and in contractors’ projects.
Conditions of Validity
Whether the contract may be regarded as legally valid depends on a number of formal and substantive conditions being satisfied together. Since contracts relating to the sale of immovable property are subject to official form, a defect as to form may in practice lead to serious losses of rights.
In addition, the capacity of the parties, the scope of the authority of representation, the determinacy of the immovable property and the drafting of the contract in a lawful manner are also decisive as regards validity.
Requirement of Official Form
Contracts for the promise to sell immovable property are among the contracts that the law makes subject to official form. For validity, the contract must have been drawn up in accordance with the official form prescribed by law.
Contracts for the promise to sell made without observing this form are as a rule invalid.
Obligation to Have the Deed Executed by a Notary
For validity, it is required that the notary prepare the contract "in the form of a deed executed by the notary". Merely having the signature certified before a notary does not satisfy this condition; the text must be drawn up by the notary in person.
Contracts concluded contrary to this condition are as a rule regarded as invalid.
Capacity of the Parties
For the contract to be capable of producing effect, the parties must possess the capacity to perform legal transactions.
Authority of Representation and Power of Attorney
It is possible for a contract for the promise to sell to be concluded through an agent. However, the agent must have been expressly authorised to make a contract for the promise to sell immovable property.
It is of critical importance in this respect that the power of attorney include the authority to carry out land registry transactions, to have annotations entered, to perform transactions relating to the transfer of the immovable property and to make a promise to sell.
The Immovable Property Must Be Determined or Determinable
The immovable property forming the subject matter of the contract must be determined or at least determinable in nature. For that reason the nature of the immovable property, the independent section number and the block and parcel details must be written out clearly.
The criterion of determinability acquires additional importance in projects where condominium ownership has not yet been established and in off-plan sales.
Determination of the Sale Price
The price must likewise be determined or determinable. The schedule according to which and the conditions under which payment is to be made must be regulated clearly in the contract.
Annotation of the Contract on the Land Registry
A contract for the promise to sell does not give the parties a right in rem; the right it gives rise to is personal in nature. Once the contract is entered on the land registry, however, the buyer’s legal position is strengthened to a certain degree and becomes capable of being protected against third parties.
For this reason the entry of an annotation on the land registry is regarded as one of the most effective protective instruments available in practice in promise-to-sell relationships.
What Is an Annotation?
An annotation is the legal transaction by which certain personal rights are entered on the land registry and thereby rendered capable of being asserted against third parties.
Through the annotation of a contract for the promise to sell, the buyer’s power to demand the transfer of title in the future becomes visible on the land register. Persons contemplating a subsequent acquisition of the immovable property are thus afforded the opportunity to learn that a promise to sell exists over it.
Legal Effect of the Annotation
As a rule, a contract for the promise to sell creates a personal right producing effects only as between the parties. The annotation, for its part, appreciably strengthens the legal protection of that right.
The principal consequences afforded by the annotation are the following: the buyer’s right may be taken into account in transactions subsequently carried out over the immovable property; the buyer’s legal position is consolidated where the seller refrains from transferring the title; and the buyer’s rights may be protected where the immovable property is transferred to third parties.
It is therefore particularly recommended that the annotation not be neglected in high-value acquisitions of immovable property.
Duration of the Annotation and the Five-Year Protection
The period during which an annotation of a promise to sell produces effect on the land registry is as a rule limited to 5 years. It is of great importance that the necessary legal steps be completed, the request for registration be asserted and the transfer of title be effected within that period. Once the five-year period expires, the effect of the annotation may fall away; correspondingly, the protection the buyer enjoys against third parties is weakened.
Deletion of the Annotation
An annotation may be deleted from the land registry for various reasons. A finding that the contract is invalid, the expiry of the annotation period, the existence of a court decision, an agreement of the parties to that effect or the completion of the transfer of title may be counted among the grounds for deletion. With the removal of the annotation, the protection the promise to sell affords against third parties also comes to an end.
Rights and Obligations Arising from the Contract
A contract for the promise to sell imposes reciprocal obligations on the parties. The seller undertakes to transfer ownership of the immovable property in the future, and the buyer to pay the agreed price.
Where these obligations are not performed, actions for annulment of title deed and registration, disputes over contractual penalties and claims for damages come onto the agenda.
Obligations of the Seller
The seller’s principal obligation is to effect the transfer of title to the immovable property identified in the contract. In that framework the seller is obliged to refrain from transactions that would obstruct the transfer of title, to transfer the immovable property in accordance with the terms of the contract and to execute the official sale at the land registry. In practice, a contractor’s refusal to effect the transfer, or the sale of the same independent section to more than one person, is a source of serious disputes.
Obligations of the Buyer
The buyer’s principal obligation is to pay the sale price determined in the contract. In addition, the buyer is under obligations to act in conformity with the contract, to submit the documents requested and to take part in the land registry transactions.
Breach of the Contract
Failure by the parties to perform the obligations arising from the contract gives rise to various disputes. The transfer of the same immovable property to other persons, non-payment of the sale price and refusal to effect the transfer of title are the most frequently encountered of these breaches.
Refusal to Transfer the Title
The seller’s fundamental obligation is to effect the transfer of title to the immovable property identified in the contract. Refusal to effect the transfer is nevertheless one of the most frequently encountered sources of dispute in practice. Where the conditions are met, the buyer may advance claims for a contractual penalty, damages, compulsory registration and annulment of title deed and registration. Delay in delivery or failure to transfer the title in contractors’ projects is also frequently made the subject of litigation.
Non-Payment of the Sale Price
Failure by the buyer to pay the price in the manner agreed in the contract gives rise to a series of rights on the seller’s part. In such a case the seller may advance claims for damages, for a contractual penalty and for termination of the contract.
Cases of Non-Conformity with the Contract
Conduct by the parties contrary to the obligations they have assumed produces different legal consequences. Transfer of the immovable property contrary to the contract, breach of the payment terms, defective or incomplete performance and failure to observe the delivery period are cases frequently encountered in this context. In such situations the parties’ rights of termination and to damages may come onto the agenda.
Cases of Wrongful Termination
An attempt by one of the parties to bring the contract to an end without just cause may be characterised as wrongful termination. In such a case the return of the sums paid, claims for a contractual penalty and compensation for the losses suffered come onto the agenda. In high-value projects, disputes arising from wrongful termination are among the significant litigation headings in practice.
Promise-to-Sell Contracts in Contractors’ Projects
The field in which contracts for the promise to sell are used most intensively is contractors’ projects. Contracts of this kind are drawn up between the parties in buildings where condominium ownership has not yet been established and in off-plan sales. In such projects serious disputes may arise, such as the inability to effect the transfer of title, the sale of the same independent section to more than one person, failure to obtain the occupancy permit, problems with the building permit and delay in the construction. It is therefore of great importance in practice that contracts drawn up in contractors’ projects be examined in detail and annotated on the land registry.
Expiry and Termination of the Contract
A contract for the promise to sell may come to an end for different reasons. A court decision, cases of impossibility, agreement of the parties or performance of the contract may bring this relationship to an end.
Furthermore, where one of the parties acts contrary to the contract, discussions as to termination and the damages consequent upon it also come onto the agenda.
Expiry Through Performance
The most ordinary manner in which the contract comes to an end is the performance by the parties of their obligations. With the completion of the official sale, the effecting of the transfer of title and the payment of the sale price, the contract attains its purpose. Once the transfer has been effected at the land registry, the provisions and consequences of the contract are regarded as exhausted.
Expiry Through Agreement of the Parties
The parties may bring the contract to an end by their mutual intentions. In such a case matters such as the removal of the land registry annotation, waiver of the contractual penalty, return of the sums paid and termination of the contract may additionally be agreed. In practice, expiries of this kind are most often given effect through settlement protocols.
Expiry by Reason of Impossibility
Where the transfer of the immovable property forming the subject matter of the contract has become impossible in fact or in law, the ending of the relationship comes onto the agenda. Cancellation of the project, inability to effect the transfer by reason of legal impediments, demolition of the immovable property or its expropriation may create impossibility of performance of this kind. Depending on the type of impossibility, liability in damages may also arise for the parties.
Expiry of the Agreed Period
The parties may have agreed a particular period in the contract. If the transfer of title is not effected within that period, the contract may come to an end or a right of termination may arise.
It is important in this respect that the periods for delivery and for the transfer of title be determined carefully in project-based sales.
Expiry by Court Decision
In certain cases the invalidity, annulment or termination of the contract comes onto the agenda by judicial decision. Serious non-conformity with the contract, impossibility, lack of capacity, simulation (sham transaction) and defect as to form are the principal grounds capable of producing that result. In such cases the restitution by the parties of what they have received and the deletion of the annotation on the land registry may also come onto the agenda.
Termination of the Contract and Its Consequences
Where one of the parties acts contrary to the contract, a right of termination may arise for the other party. In the event of termination, consequences such as the removal of the land registry annotation, damages, claims for a contractual penalty and the return of the sums paid arise. Termination disputes brought by reason of delay in delivery or failure to transfer the title in contractors’ projects are frequently encountered in practice.
Statute of Limitations
As regards claims arising from a contract for the promise to sell, the statute of limitations is among the contested headings in practice. Because the transfer of title is often not effected for many years, because of delays in delivery in contractors’ projects and because registration actions are brought long after the event, the plea of limitation is frequently advanced.
In making the assessment, the features of the particular case, whether the parties have performed their obligations, the date on which the transfer of title became capable of being demanded and the nature of the contract are considered together.
Limitation in Claims for Registration of Title
In claims for annulment of title deed and registration based on a contract for the promise to sell, a ten-year limitation period applies as a rule.
In most cases the period begins to run on the date on which the transfer of title became capable of being demanded.
The basis of this period is the general ten-year limitation prescribed in Turkish Code of Obligations No. 6098, Art. 146. That said, in situations such as the continual postponement of the transfer of title, the continuing relationship between the parties, the buyer’s long-standing use of the immovable property and the immovable property having been delivered in fact, different conclusions may be reached as regards the starting date. The limitation analysis must therefore be carried out separately in each file.
Interruption and Suspension of the Limitation Period
In certain cases the limitation period may be interrupted or suspended. Steps taken between the parties directed at performance, acknowledgment of the debt, the commencement of enforcement proceedings and the bringing of an action are the principal steps affecting the period. Accordingly, the conduct displayed by the parties throughout the process may prove decisive in practice.
Practice of the Court of Cassation
In the decisions of the Court of Cassation, assessments of limitation in relation to contracts for the promise to sell are for the most part shaped by the circumstances of the particular case. The fact that the contract has been annotated on the land registry, the seller’s continual promises to effect the transfer of title, the buyer’s long-standing use of the immovable property and the immovable property having been delivered in fact are important elements considered in that assessment. When limitation is examined, one must therefore not be content with a mere calculation of the period; the whole of the factual and legal relationship between the parties must be addressed.
Actions Brought on the Basis of the Contract
Where the obligations arising from a contract for the promise to sell are not performed, the parties may turn to different actions and claims. Cases of non-conformity with the contract, non-payment of the sale price, transfer of the immovable property to third parties and refusal to effect the transfer of title are the situations most frequently made the subject of litigation in practice.
The principal legal avenues available in this framework are addressed below.
Action for Annulment of Title Deed and Registration (Compulsory Registration)
Where the seller does not effect the transfer of title, the buyer may, provided the conditions are met, bring an action for annulment of title deed and registration.
By this avenue, also known in practice as an "action for compulsory registration", the buyer seeks to have the immovable property registered in their own name by judicial decision. As regards the outcome of the action, the fact that the transfer of title has been wrongfully withheld, the fact that the buyer has performed their own obligations and the existence of a valid contract for the promise to sell are of decisive importance.
Actions for Damages
Where conduct by one of the parties contrary to the contract has caused loss to the other party, claims for damages come onto the agenda. Where the contract is wrongfully breached, where the immovable property is transferred to third parties, where delivery is delayed and where the transfer of title is not effected, redress may be sought for pecuniary losses. In some situations non-pecuniary damages may also be made the subject of a claim.
Claims for a Contractual Penalty
The parties most often insert contractual penalty provisions into contracts for the promise to sell. Where the contract is wrongfully terminated, where the payment obligation is breached and where the transfer of title is delayed, it may be possible to claim the contractual penalty agreed. The courts are able to assess the amount of the contractual penalty having regard to the circumstances of the particular case.
Actions for Annulment and Termination of the Contract
In certain cases a declaration of the invalidity of the contract, its annulment or its termination may be sought. Serious breach by the parties of their obligations, contravention of law or morality, lack of capacity on the part of one of the parties, a simulated transaction and failure to observe the requirement of official form are the principal grounds for these actions. Furthermore, where there is conduct contrary to the contract, where the buyer does not pay the price or where the seller does not effect the transfer of title, the parties may seek termination of the contract. In actions of this kind, the removal of the land registry annotation, claims for damages, claims for a contractual penalty and the return of the sums paid are also most often advanced together.
Independent Legal Assessment
In contracts for the promise to sell, the great majority of disputes arise from details overlooked when the contract is concluded. Even where the requirement of a deed executed by a notary has been observed, insufficient identification of the immovable property, leaving the payment timetable vague or framing the contractual penalty one-sidedly considerably weakens the buyer’s hand at a later stage.
The annotation, too, is most often regarded as a formality to be postponed, whereas in files where the immovable property has been transferred to third parties it becomes the very element determining the buyer’s position. In a particular relationship we recommend that the following headings be assessed in advance:
- Verification that the contract was concluded in the form of a deed executed by a notary, and of the scope of the authorities in the power of attorney
- Definition of the immovable property in a manner leaving no room for doubt, with block, parcel and independent section details
- Having the annotation entered simultaneously with the contract, and putting the five-year period into the calendar
- Linking the payment plan and the timetable for the transfer of title reciprocally to one another
- Establishing by documents, for limitation purposes, the date on which the transfer of title became capable of being demanded
- Examination of the building permit, occupancy permit and condominium ownership position before the contract in contractors’ projects
Independent Legal provides advisory and litigation services across the whole of the process in relationships involving a promise to sell immovable property, from the drafting of the contract through to the conduct of an action for compulsory registration.