Where more than one person holds a share in an immovable property, the sale by one of the co-owners of their share to an outsider directly affects the relationship of co-ownership. Having regard to that possibility, the legislature has afforded the other co-owners the opportunity to acquire that share in priority, on the same price and conditions. Known in practice as the right of pre-emption or şufa, this entitlement arises from the very character of co-ownership and does not need to be separately agreed.
The existence of the right is not, however, sufficient on its own. The entitlement to pre-emption produces its effect only by the bringing of an action and by the payment of the price into the court’s cash office within the period fixed by the court. Where the periods prescribed by the statute are allowed to pass, or the price is not deposited in time, the right falls away in a manner that cannot be made good.
In this briefing note we address, with an eye to practice, the transfers on which the right of pre-emption arises, the way in which the periods are calculated, the parties to the action, the conduct of the proceedings and the legal consequences of the judgment to be given.
The Action for Annulment of Title Deed and Registration Founded on the Right of Pre-emption
Where one of the co-owners transfers their share to a person not bearing the capacity of co-owner, the action brought by another co-owner in order to acquire that share on the same conditions is termed an action for annulment of title deed and registration founded on the statutory right of pre-emption. The claim is twofold: the deletion of the registration of the share made in the buyer’s name, and the entering of that same share in the name of the claimant co-owner.
The Statutory Basis of the Right of Pre-emption
The entitlement to pre-emption is a right of first refusal afforded to the remaining co-owners where, in co-ownership in shares, one co-owner sells their share to an outsider.
The basis of the right lies in Articles 732, 733 and 734 of the Turkish Civil Code No. 4721; the purpose of the rule is the protection of the relationship of co-ownership in shares. Since the right arises directly from the statute, there is no need for the co-owners to conclude a contract to that effect or to have an annotation entered on the land registry; where co-ownership in shares exists, the entitlement is treated as present of itself.
The Interest Protected by the Right in Co-ownership in Shares
Two purposes lie at the foundation of the rule: the maintenance of the existing relationship among the co-owners, and the limiting of the entry of persons foreign to the immovable as co-owners. Since the passing of a share to an outsider may generate fresh disputes for the other co-owners as regards the management of the co-ownership and the use of the immovable, the legislature has chosen to give them the opportunity of acquiring it in priority.
The Conditions for Exercising the Right and Its Limits
- Deposit of the price: The entitlement may be exercised only by way of an action. Furthermore, the pre-emption price, consisting of the sale price together with the title deed fees and expenses, must be paid into the court’s cash office within the period allowed by the court.
- The transfer bearing the character of a sale: The right operates only on genuine sales. Transactions such as exchange, gift or the distribution of an estate do not give rise to that entitlement.
- The existence of a de facto partition: Where the co-owners have divided the immovable among themselves in fact and each uses their own portion, a claim to pre-emption made by one of them upon the sale of one of the shares may, in the practice of the Court of Cassation, be regarded as contrary to the rule of good faith.
In Which Situations Does the Right of Pre-emption Arise?
For the entitlement to arise, two conditions are required to be present together: the transfer must be a genuine sale, and the share must pass to a person not bearing the capacity of co-owner. For that reason not every transfer of a share sets the right of pre-emption in motion.
Article 732 of the Turkish Civil Code No. 4721 provides that the right arises only where the share is sold to a third party. In sales made between co-owners, or in transactions such as gift that do not count as a sale, that entitlement cannot as a rule be exercised. The legal character of the transaction and the parties to it are accordingly among the fundamental criteria determining whether the right has arisen.
The Sale of the Share to a Person Who Is Not a Co-owner
Before all else, the immovable must be the subject of co-ownership in shares. There can be no question of pre-emption in joint ownership or in immovables with a single owner.
Secondly, it is required that the person taking over the share not be among the co-owners. Where that condition is satisfied, the other co-owners acquire the entitlement to obtain the share on the same price and conditions even though the transfer has been completed. The fact that the transfer has been registered at the land registry does not remove that entitlement; the registration merely produces a date to be taken into account in calculating the periods.
The Transaction Bearing the Character of a Genuine Sale
The entitlement may be exercised only in genuine transactions of sale. Transfers that do not count as a sale, such as gift, exchange — that is, the swapping of property — or devolution by way of inheritance, do not as a rule give rise to the right of pre-emption.
In practice, by contrast, situations are encountered in which a transaction that is in substance a sale is carried out under the appearance of a gift. Faced with such an allegation, the court inquires into the true character of the transaction and determines accordingly whether the right has arisen.
The Right Not Arising on Transfers Between Co-owners
Where the share is sold to another co-owner, no right of pre-emption arises. For in such a transfer no person foreign to the immovable acquires the capacity of co-owner, and the interest sought to be protected is already secured.
Sales taking place between co-owners are for that reason, as a rule, not apt for the exercise of the entitlement to pre-emption.
Concealed or Simulated Sales
The parties may from time to time carry out the sale under the appearance of another transaction with a view to forestalling the exercise of the right of pre-emption. Indeed, examples are encountered in which, although the price has been paid, the transaction is presented as a gift or as a different legal act.
In that eventuality the court inquires into the true nature of the transaction. If it emerges that the transfer effected is in substance a sale, the conclusion is reached that there is no obstacle to the exercise of the entitlement to pre-emption.
How Is the Right of Pre-emption Exercised?
The entitlement to pre-emption does not produce its effect of itself. Its exercise depends on an action being brought within the periods afforded by the statute and on the price being paid in due form. Making an oral declaration, or sending a written notification to the other side, does not mean that the right has been exercised.
Article 734 of the Turkish Civil Code No. 4721 states that the right is to be exercised by bringing an action and that the deposit of the price within the period allowed by the court is compulsory. For that reason the accurate calculation of the periods and the timely payment of the price are decisive as regards the success of the action.
The Right Being Exercisable Only by Way of an Action
The entitlement to pre-emption takes effect only by being asserted before the court. That the co-owner has become aware of the sale, or has stated orally a wish to take the share, produces no legal consequence.
The co-owner who wishes to exercise their entitlement must bring the action before the statutory period expires, meet the court fees and litigation costs, and pay the pre-emption price into the court’s cash office. Once those three steps are complete, the court may adjudge that the sale is to take effect in favour of the claimant co-owner.
Learning of the Sale and the Commencement of the Periods
The statute has prescribed two preclusive periods, independent of one another, for the exercise of the right. One of those periods is tied to knowledge of the sale, the other to the date on which the sale was made.
Under Article 733 of the Turkish Civil Code No. 4721, the action must be brought within 3 months from the day on which the sale was notified to the holder of the right and, whether or not notification has been given, within 2 years from the date of the sale in every case. Since those periods are preclusive in character, if they are missed the entitlement to pre-emption comes definitively to an end and no action may be brought thereafter.
Payment of the Pre-emption Price into the Court’s Cash Office
One of the most critical conditions for the exercise of the right is the deposit of the pre-emption price within the period allowed by the court. Practice characterises that obligation as a procedural requirement.
After the action has been brought, the court grants the claimant a specified period and requires the price to be paid into the cash office. If payment is not made within the period granted, the action is dismissed.
For that reason, holding the price ready in advance and paying it in within the period are matters that directly affect the outcome.
The Parties to the Action
In pre-emption actions, the accurate identification of the parties is important if the proceedings are to run soundly. As a rule the claimant is the person holding a share in the immovable, and the respondent is the third party who has taken over the share. Where the share has passed to more than one person, or has subsequently changed hands again, it may be necessary for the claim to be directed against everyone concerned.
Establishing standing incompletely is a serious error leading to the dismissal of the file on procedural grounds or to the proceedings being needlessly prolonged.
The Capacity of Claimant
The entitlement to pre-emption is afforded to the co-owners in an immovable that is the subject of co-ownership in shares; as a rule, therefore, only co-owners may bring the action.
That entitlement is not confined to a single person. The co-owners may bring the action alone or may act together; should a co-owner die, the right of action passes to their heirs; if there is a legal person bearing the capacity of co-owner, the action is brought by that legal person.
Where there is more than one co-owner, each may exercise their right independently. In cases where several co-owners have brought separate actions in respect of one and the same share, the court assesses those claims together.
The Persons Against Whom the Claim Is to Be Directed
The action is as a rule directed against the third party who took over the share; for at the end of the proceedings the share will be taken from that person and registered in the name of the claimant co-owner.
The other persons who may fall within the scope of standing to be sued are as follows: those holding a right in rem over the share, owners who subsequently took over the share, and, where there is more than one buyer in the sale, the buyers in their entirety.
Situations Calling for Compulsory Joinder of Parties
In certain situations it is unavoidable that the action be directed against several persons together. The share having been sold to more than one buyer acting together, the share being subsequently passed on to another person, or a mortgage or other limited right in rem having been established over the share are examples of that situation.
In the situations enumerated, all those concerned must be joined to the proceedings; otherwise the action may be dismissed for want of a proper respondent.
Preclusive Periods
The exercise of the entitlement to pre-emption depends on an action being brought within the periods laid down by the statute. Since the periods are preclusive in character, the entitlement comes to an end of itself upon their expiry and no possibility of bringing an action remains thereafter. The court has regard to those periods of its own motion even if the parties do not raise them.
Under Article 733 of the Turkish Civil Code No. 4721, the right must be exercised within specified periods beginning on the date on which the sale was notified to the holder of the right. Both the day on which the sale became known and the date of the sale are for that reason of decisive importance as regards the calculation.
The Three-Month Period from Notification
The right must be exercised within 3 months of the sale being notified to the co-owner. The period in question is preclusive in character; it is not interrupted, does not stand still and cannot be extended.
Notification is for the most part effected by way of official service carried out by the Land Registry Directorate. Where service has been effected in due form, the three-month period begins to run on that date, and if the period expires without an action being brought, the entitlement comes to an end.
The Two-Year Absolute Period from the Date of Sale
The second period is the absolute period of 2 years running from the day on which the sale was made. The commencement of that period is independent of whether the sale was notified to the co-owner.
In other words, even if no notification at all has been given, the entitlement to pre-emption becomes incapable of exercise once two years have passed since the date of the sale.
By reason of that character, the two years in question are treated in practice as an absolute upper limit that cannot be exceeded.
The Effect of the Land Registry Notification on the Period
The official notification made by the Land Registry Directorate is the act determining the commencement of the three-month period. Where the notification is made in due form, the period begins to run from that date.
If no notification has been made at all, or it has been made irregularly, the three-month period does not begin to run; the absolute period of two years running from the date of the sale, by contrast, is unaffected by this and continues to elapse.
The regularity of service is for that reason one of the subjects most frequently argued over in pre-emption actions.
The Consequence of Missing the Period
Where the prescribed periods are allowed to pass, the possibility of bringing an action falls away entirely. In that event the court dismisses the action without entering upon the merits of the matter.
The expiry of the preclusive period brings about the ending of the entitlement to pre-emption, the removal of the possibility of bringing an action, and the finality of the transaction of sale.
The Proceedings
Pre-emption actions fall within the group of actions arising out of rights in rem over immovable property and are conducted within a particular procedural discipline. Bringing the action before the correct court, calculating the periods accurately and depositing the price in due form are decisive as regards obtaining a judgment allowing the claim.
At the beginning of the proceedings the court verifies three points: whether the right has arisen, whether the action was brought in time, and whether the price has been paid in. Complete preparation before the action and the fulfilment of the procedural conditions are for that reason of importance.
The Courts with Subject-Matter and Territorial Jurisdiction
In actions for annulment of title deed and registration founded on the right of pre-emption, subject-matter jurisdiction belongs to the Civil Court of First Instance.
As to territorial jurisdiction, the action is heard before the court of the place where the immovable is situated; the jurisdiction in question is exclusive in character.
Application for an Interim Injunction
An interim injunction may be sought with a view to preventing the share in dispute from being passed on to third parties while the proceedings continue. The application is for the transfer of the share to be halted or for an annotation to be entered on the title deed record.
Where the application is allowed, acts of disposal over the share are restricted until the action is concluded; the claimant’s right is thereby prevented from being rendered ineffective in fact.
The Deposit of the Pre-emption Price
After the action has been brought, the court allows the claimant a period and requires the price to be paid in. If that obligation is not fulfilled, the action is dismissed. Since the period granted is peremptory in character, proceeding on the assumption that a request for an additional period will be granted constitutes a serious risk.
Proof and Evidence
The claimant is obliged to prove that they are a co-owner, that the sale took place, and that they brought their action in time. That the price has been deposited must likewise be established by the documents to be submitted.
The evidence most frequently relied on in practice may be listed as follows:
- Examination by a court-appointed expert
- The testimony of persons with knowledge of the events
- Documents establishing the capacity of co-owner
- Service documents and records relating to the notification
- The contract relating to the sale
- Title deed records
Assessing that evidence as a whole, the court determines whether the right has arisen and whether the conditions of the action have materialised.
Court Fees and Litigation Costs
Pre-emption actions are as a rule subject to an ad valorem court fee. When the action is brought, the fee calculated on the value of the share in dispute must accordingly be paid.
As the proceedings advance, further items such as the fee to be paid to the court-appointed expert, the expenses of the on-site examination, costs relating to witnesses and the cost of service also arise. As a rule, the expenses in question are left at the end of the action to be borne by the losing party.
Attorney Fees
At the end of the proceedings, an attorney fee recoverable from the opposing side is adjudged in favour of the successful party on the basis of the Minimum Attorney Fee Tariff.
In these actions the fee is determined on a proportional basis, having regard to the value of the share in dispute.
Apart from that, the attorney fee arising out of the contract between the client and the lawyer may also come into question; that item may be claimed separately according to the outcome of the action.
Appellate Remedies
Judgments given in pre-emption actions are open to review by way of the appellate remedies. Against the judgment of the court of first instance, an appeal may be lodged within the period of 2 weeks running from service.
If the decision given at the end of the appellate examination exceeds the monetary threshold laid down in the statute, it may be taken to appeal on points of law.
The Outcomes of the Action
The court examines first of all whether the right has arisen, whether the action was brought in time, and whether the price was paid in due form. If it is established that those conditions have materialised, the sale takes effect in favour of the claimant co-owner.
That said, not every pre-emption action ends with the claim being allowed. Where the period has been missed, the price has not been paid in, or it becomes apparent that the right never arose, the action may be dismissed.
The Passing of the Share to the Claimant
The court that finds the conditions to have materialised decides that the sale is to take effect in favour of the claimant co-owner. The ownership of the third party who took over the share thereby comes to an end and the share in dispute is registered in the claimant’s name.
Put another way, the claimant co-owner comes to occupy the position of party to the relationship of sale and is treated as having acquired the share on the same conditions.
Registration of the Share in the Claimant’s Name
Where the claim is allowed, the court adjudges the annulment of the title deed record together with the registration of the share in the claimant’s name. Upon the judgment becoming final, the share passes to the claimant in law.
At that stage the entry in the registry is corrected and the claimant co-owner becomes the new holder of a share in the immovable.
Payment of the Price to the Respondent
Where the right is exercised, the pre-emption price paid by the claimant into the cash office is paid over to the respondent. The sale is thereby treated as having taken place between the claimant co-owner and the respondent.
In that respect the pre-emption action is not an action that sets the sale aside altogether; it produces only a legal consequence that changes the party on the buyer’s side.
The Position Where the Action Is Dismissed
A pre-emption action is dismissed where it becomes apparent that the claimant is not a co-owner, where the transfer bears the character of a transaction that gives rise to no right of pre-emption, where the price has not been deposited within the period granted, or where the action was brought after the period had expired.
With the judgment of dismissal the sale retains its validity and the right of ownership of the person who took over the share continues. Since, if the preclusive period has expired, it is also impossible to bring a fresh action in respect of the same sale, the judgment of dismissal brings the dispute to an end in fact.
Related Topics
The other headings connected with the subject are as follows:
- The Action for Dissolution of Co-ownership
- What Is an Action for Annulment of Title Deed and Registration? In Which Situations Is It Brought?
- The Action for Prevention of Interference
- The Action for Compensation for Unjust Occupation
The Independent Legal Assessment
In pre-emption disputes the fate of the action is most often determined at the procedural stage, before any argument on the merits. The date from which the three-month and two-year periods began to run, and whether the price was paid in within the period granted, are the two fundamental thresholds that cause a file to divide one way or the other between success and dismissal.
The second critical point is the difference between the outward appearance of the sale and the true character of the transaction. Establishing by evidence an allegation of simulation in transfers presented as gifts, and, conversely, setting out the pattern of use of the immovable in files where a defence of de facto partition is raised, carry weight capable of changing the course of the proceedings.
In devising a strategy in a particular file, the following headings should be addressed as a matter of priority:
- Documenting from the outset the regularity of the notification made by the Land Registry Directorate and the date of service
- Checking without fail, before the action, the absolute period of two years running from the date of the sale
- Calculating and holding ready the pre-emption price by adding the title deed fees and expenses to the sale price
- Scanning the chain of transfers of the share and directing the claim against all buyers and subsequent owners
- Submitting the evidence of simulation at the pleading stage where it is alleged that the transfer was carried out under the appearance of a gift
- Preparing evidence by way of on-site examination and witnesses as to the manner of use of the immovable against a defence of de facto partition
Independent Legal provides advisory and litigation services throughout the whole of the process in disputes arising out of co-ownership in shares, from the assessment of the right of pre-emption through to the implementation of the judgment of registration at the land registry.