In a market where housing is produced by large-scale companies, projects comprising hundreds of independent units are marketed through sale promise agreements before the foundations have even been laid. Although the purchaser pays the price agreed in the contract in full, in some cases the company fails to carry out the transfer of the title deed. Where matters reach such an impasse, the principal legal instrument available to the entitled party is the action for annulment of the title deed and registration.
This type of action enables ownership of an immovable to change hands by judicial decision. The same route may also be taken against a construction company which has undertaken an obligation to transfer but has failed to perform it, so as to secure registration of the immovable in the name of the entitled party.
What Is an Action for Annulment of Title Deed and Registration?
This action arises where the registration in the land registry is for any reason unlawful and wrongful, or where the claimant holds a right to demand that ownership be transferred to them.
Registration claims directed against a construction company may arise from land share in return for construction agreements, and they are equally available in respect of immovables acquired by way of a real estate sale promise agreement.
For the general framework of the subject, our note on actions for the annulment of title deeds and registration may be consulted.
Grounds on Which the Action May Be Brought
The basis of the action essentially falls under two headings. The first of these is wrongful registration. Here a registration has been effected in the land registry, but that transaction must be unlawful for some reason. A person who suffers loss as a result of that unlawfulness may bring an action seeking that the wrongful registration be remedied.
The second situation is where the claimant holds a right to demand the transfer of ownership. The contract between the parties confers on the claimant the power to demand that the title deed be transferred to them. In this scenario, even if there is no wrongful registration, the claimant may seek registration by asserting that the obligation has not been performed.
Validity of Agreements Creating an Obligation to Transfer
In the second scenario noted above, the action rests on a contract conferring on the claimant the power to demand transfer. The disputes forming the subject of this note arise predominantly from contracts concluded between construction companies and entitled parties.
Under the Turkish Civil Code No. 4721, the validity of contracts intended to transfer ownership of an immovable depends on their being drawn up in official form. Accordingly, the transfer agreement between the construction company and the consumer must be concluded in official form before the land registry or a notary. Otherwise the contract is deemed invalid and registration cannot be sought on the strength of that instrument.
In practice, however, companies mostly draw up the instruments they sign with consumers in ordinary written form. Such contracts generally set out matters such as the date on which the immovable is to be delivered, the purchaser’s payment schedule and the characteristics of the independent unit to be acquired.
Although the statute makes official form mandatory, in the face of companies drawing up the instrument in ordinary written form the Court of Cassation treats these contracts as valid, so that the entitled party in the weaker position does not suffer detriment.
According to the practice of the Court of Cassation, where the entitled party has paid the company the purchase price owed under the contract, they may thereafter seek registration on the basis of that contract. A company which has accepted the payments within the framework of the contract cannot subsequently raise a defence of defect of form; the contrary stance amounts to an abuse of right.
In its decision of 13.07.2020, File No. 2019/3306, Decision No. 2020/2240, the 15th Civil Chamber of the Court of Cassation expressed this point as follows:
“Since real estate sale promise agreements and land share in return for construction agreements also involve the transfer of the land share in the land registry, they must, pursuant to Article 706 of the Turkish Civil Code, Article 213 of the Code of Obligations No. 818, Article 26 of the Land Registry Act No. 2644 and Article 60 of the Notary Public Act No. 1512 as in force on the date the contract was signed, be made in official form, and being made in official form is a condition of validity. However, where, although the contract has been made in ordinary written form, a share transfer has been effected in the land registry on the basis of that contract or the performances have been completed to a large extent, raising the defect of form will, pursuant to Article 2 of the Turkish Civil Code, be regarded as an abuse of right; therefore the dispute must be resolved by giving no weight to the claim or defence of invalidity of the contract and by accepting the contract as valid.”
As can be seen, although official form is the rule for contracts concluded between entitled parties and construction companies providing for the transfer of ownership, instruments in ordinary written form are also accepted as valid according to the circumstances of the particular case.
The Construction Company’s Obligation to Transfer
An entitled party who has performed their contractual obligations, and for whom the term and the other conditions provided for in the instrument have materialised, is thereafter in a position to demand that the immovable be registered in their own name.
Faced with that demand, the company is obliged to carry out the transfer. Where the obligation is not performed, the passing of ownership is secured by the judgment to be given at the conclusion of an action for the annulment of the title deed and registration.
Within the framework of the Turkish Code of Obligations No. 6098, a creditor is entitled to apply to the debtor and demand the debt once it falls due. In obligations concerning the transfer of an immovable, however, where the company avoids the transfer the remedy in every case lies through the courts.
According to the settled practice of the Court of Cassation, in such a case annulment of the title deed and registration may be sought from the court.
In its decision of 21.3.2018, File No. 2017/3-991, Decision No. 2018/499, the Assembly of Civil Chambers of the Court of Cassation made the following assessment:
“Real estate sale promise agreements, which derive their source from Article 29 of the Turkish Code of Obligations No. 6098 (Article 22 of the Code of Obligations No. 818), are, pursuant to Article 237 of the Turkish Code of Obligations No. 6098 (Article 213 of the Code of Obligations No. 818), Article 706 of the Turkish Civil Code and Article 89 of the Notary Public Act, a type of contract which must be drawn up by the notary of their own motion, in other words whose validity is made subject to the requirement of official form, which imposes obligations on both parties and which confers a personal right. Where performance is not rendered, the promisee may, in the action for the annulment of the title deed and registration to be brought pursuant to Article 716 of the Turkish Civil Code, demand that the obligation be performed by judicial decision against the seller who has undertaken the obligation to transfer ownership under the real estate sale promise agreement.”
The decision establishes that an action for registration may be brought on a contractual basis against a seller who has undertaken the obligation to transfer ownership by way of a sale promise agreement.
In the proceedings the court examines whether the company has undertaken an obligation to transfer and, if it concludes that the conditions are satisfied, orders the registration of the immovable in the claimant’s name. Here ownership is acquired by the judgment before registration; the entry made in the register is merely declaratory in nature.
Courts with Subject-Matter and Territorial Jurisdiction
In an action to be directed against a construction company which avoids the transfer, subject-matter jurisdiction is determined according to the nature of the dispute. If the purpose for which the immovable was acquired falls within the scope of a consumer transaction, the Consumer Courts have subject-matter jurisdiction.
Where, by contrast, the immovable has been acquired for a commercial purpose, subject-matter jurisdiction lies with the Commercial Courts. A separate assessment must be made in each case on the question of jurisdiction. Furthermore, recourse to a mediator before bringing an action in the consumer courts is a procedural requirement.
For details on this point, our note on mandatory mediation in consumer actions may be examined.
Territorial jurisdiction is determined in accordance with the provisions of the Code of Civil Procedure No. 6100. Since the action concerns rights in rem over the immovable, the court of the place where the immovable is situated is regarded as having exclusive territorial jurisdiction.
Statute of Limitations and Preclusive Periods
As a rule, actions for the annulment of the title deed and registration are not subject to a preclusive period or to a statute of limitations. The scope of that rule, however, covers only the case of wrongful registration.
Actions to be brought against a construction company which avoids the transfer are in essence directed at the performance of a contract, and therefore the statute of limitations laid down for contractual obligations applies here as well. Accordingly, such actions are subject to a ten-year statute of limitations.
Court Fees and Litigation Costs
As in every set of proceedings, certain fees and costs must be met here as well. Since actions for the annulment of the title deed and registration are subject to an ad valorem fee, the fee is required to be completed over the value of the immovable. In addition, items such as the cost of the on-site examination, the court-appointed expert’s fee and postal expenses are borne by the claimant.
In files where the Consumer Courts have subject-matter jurisdiction, no court fee arises, since consumers are exempt from fees under the Consumer Protection Act No. 6502. By contrast, items such as the cost of the on-site examination, the court-appointed expert’s fee and postal expenses must still be paid by the consumer.
For detailed information, our note on litigation costs and fees in the consumer courts may be consulted.
Finality of the Judgment and Its Enforcement
These actions are among those whose judgments cannot be made the subject of enforcement proceedings before they become final. Where the court allows the action and orders the registration of the immovable in the name of the entitled party, the appeal and appeal on points of law stages must also be completed before the judgment can be implemented.
On this point, our note on court judgments that cannot be enforced before becoming final may be examined.
Implementation of the judgment is secured by a letter of request sent by the court to the land registry directorate. Since ownership has already passed by the judgment, the transaction carried out at the land registry directorate consists merely of the formal correction of the position in the register.
Independent Legal Assessment
In registration files pursued against a developer, the factor determining the outcome is more often than not the purchaser’s ability to demonstrate that they have performed their obligation in full, rather than the form of the contract. The Court of Cassation’s approach of upholding contracts in ordinary written form becomes operative in files where it can be documented that the price was paid and that the performances were largely completed. Bank records, receipts and correspondence on delivery therefore form the backbone of the file.
Another risk frequently encountered in practice is the transfer of the immovable to third parties during the proceedings. Placing an annotation on the land registry record or seeking an interim injunction ensures that the judgment obtained remains capable of being applied in practice.
When a dispute is being assessed, the following headings should be prioritised:
- Determining at the outset whether the contract is a consumer transaction or an acquisition for a commercial purpose
- Assembling the records showing that the payments have been completed before the action is brought
- Calculating the starting point of the ten-year limitation period on the basis of the term and the delivery undertaking
- Completing the application for mediation as a procedural requirement where the consumer court has subject-matter jurisdiction
- Assessing the scope for an injunction or an annotation in order to prevent the transfer of the immovable
- Planning the process accordingly, bearing in mind that the judgment cannot be enforced before it becomes final
Independent Legal provides litigation services in transfer disputes arising from land share in return for construction agreements and sale promise agreements, from the review of the contract through to the enforcement of the registration judgment.