Construction Contract: Rights and Obligations of the Landowner

In construction contracts based on the transfer of land shares, commonly referred to as "flat-for-land" contracts, the landowner has a range of rights and obligations vis-à-vis the contractor who undertakes to build the construction. These rights and obligations may arise from statutory provisions as well as from judicial precedents, particularly from the decisions of the Court of Cassation, and established practices.

Within the scope of this study, the rights that may be asserted by the landowner against the contractor and the obligations that must be fulfilled by the landowner will be examined in detail.

I. Construction Contract in Exchange for Land Share

Construction contracts in exchange for land share are hybrid contracts wherein the landowner agrees to transfer a certain share of the land to the contractor in exchange for the contractor constructing a building, at their own expense and with their own materials, on the said land and leaving a portion of the independent sections to the landowner.

As with any contract, the issue of remuneration arises in these agreements. In this context, the contractual consideration is paid through the transfer of the land share, rather than through monetary payment.

This study initially focuses on the rights that the landowner may assert under such contracts, followed by a detailed analysis of their obligations.

II. Rights of the Landowner

2.1. The Right to Receive the Property Completed and Without Defect

One of the fundamental rights of the landowner in such contracts is to receive the designated independent units in a completed and defect-free condition. Completion of the construction, from a legal standpoint, occurs when the contractor formally notifies the landowner of such completion. However, even without express notification, if the construction is visibly completed and usable, it may be considered implicitly delivered.

Nevertheless, if there are actual impediments to the landowner’s possession of the property, any notification by the contractor cannot be regarded as valid delivery.

2.2. Expectation of Compliance With Duties of Loyalty and Care

2.2.1. Duty of Loyalty

The landowner has the right to expect that the contractor will act in accordance with the duty of loyalty. This obligation requires the contractor to act in the best interests of the landowner and to avoid conduct that may cause harm. Any action that contradicts the interests of the landowner is in breach of this duty.

2.2.2. Duty of Care

The contractor must also perform their obligations with diligence. This includes adherence to construction standards, compliance with zoning regulations and approved project plans, and careful selection of subcontractors.

2.3. The Right to Expect Timely Commencement of Work

The landowner has the right to demand timely commencement and execution of the construction. This right reflects the contractor’s obligation to initiate and pursue the work without undue delay, which is also a manifestation of the duty of diligence. As a general principle, the contractor must begin work immediately.

2.4. Rights of the Landowner in Case of Non-performance by the Contractor

Should the contractor fail to perform their obligations or fail to protect the landowner’s rights, the landowner may invoke certain rights of a constitutive nature.

a. If the contractor fails to deliver the construction in a completed state, the landowner may exercise the optional rights under Article 125 of the Turkish Code of Obligations (TCO), including:

• - Demand performance and compensation for delay;

• - Demand compensation for damages due to non-performance or withdraw from the contract;

• - Seek compensation for losses arising from the invalidity of the contract.

b. In the event of breach of the duty of loyalty or diligence, the contractor is liable under Article 112 of the TCO for any damages suffered by the landowner.

c. As a general principle, it is the contractor who is responsible for procuring the necessary materials and equipment for the construction. In cases where the materials are supplied by the contractor, the contractor shall be held liable to the landowner in a manner akin to that of a seller, in the event that such materials are defective.

Where the materials provided by the contractor are found to be defective, the landowner is entitled to exercise certain remedial rights (also known as optional rights), including but not limited to:

• - Terminate the contract;

• - Retain the goods and demand a price reduction;

• - Request repair at the contractor’s expense;

• - Request replacement with a defect-free equivalent. 

In addition, general provisions allow the landowner to claim compensation for damages.

d. If the contractor delays or fails to commence construction for reasons not attributable to the landowner, and if it becomes evident that the project will not be completed on time, the landowner may terminate the contract immediately under Article 473(1) of the TCO.

III. Obligations of the Landowner

3.1. Obligation to Deliver the Land

A construction contract in return for land share is a mixed-type agreement incorporating elements of both a contract of work and a promise of sale of immovable property. In this context, while the contractor is obliged to perform their contractual duty—namely, to complete the construction and deliver the independent units to the respective owners—the landowner is equally required to fulfill their own obligations to enable the contractor to carry out the work. Among the landowner's responsibilities, one of the most fundamental is the obligation to deliver the subject land to the contractor.

The duty to deliver the land is among the preliminary obligations that must be fulfilled before commencement of the Works. If the landowner fails to deliver the land, the contractor cannot initiate the construction. Accordingly, under Article 97 of the Turkish Code of Obligations, the landowner is regarded as the party obliged to perform first. Pursuant to this provision, unless the landowner performs their obligation, they cannot demand performance from the contractor.

Within the scope of a construction contract in return for land share, the landowner is responsible for delivering the land in a condition that is both physically and legally suitable for construction activities. This obligation entails more than mere transfer of possession; the land must be delivered in such a manner that no factual or legal impediments prevent the performance of the construction. If the land is not structurally suitable for construction or is defective upon delivery, the landowner shall not be deemed to have properly fulfilled their delivery obligation. Similarly, in cases where there are legal impediments, such as encumbrances registered in favor of third parties or restrictions arising from zoning laws, the delivery is not considered legally sufficient. As a rule, it is the landowner’s obligation to eliminate such impediments and ensure that the land is suitable for construction.

The obligation to deliver the land constitutes a principal obligation under the construction contract in return for land share, as the contractor’s ability to commence the works is contingent upon being granted effective control over the land. Should the landowner fail to duly perform this obligation, the contractor cannot be deemed in default. Moreover, the landowner would not be entitled to invoke the contractor’s default to exercise any remedial rights under the contract. This reflects the general legal principle that a party who obstructs performance cannot rely on the other party's default (Articles 112 and 125 of the Turkish Code of Obligations). The Turkish Court of Cassation has consistently emphasized this point in its jurisprudence, clearly stating that the obligation to deliver the land in a vacant and construction-ready condition is a fundamental element of the contract and that a breach of this obligation cannot give rise to liability on the part of the contractor.

3.2. Obligation to Transfer Land Shares (As Contractual Consideration)

Instead of paying a monetary price, the landowner is obliged to transfer a portion of the land or units to the contractor. This obligation may be structured in three ways: Transfer upon contract execution (entire or partial), transfer after completion of construction, gradual transfer based on construction progress.

Each method carries different implications for risk allocation and incentive structure. Commonly, a phased transfer based on construction milestones is preferred, as it balances interests and promotes timely completion.

3.2.1. Transfer Upon Execution of the Contract

Following the execution of a construction contract based on the exchange of a land share, the landowner may fulfill the obligation to transfer the relevant share of the land. Subject to the specific provisions of the contract, such transfer may pertain either to the entirety or to a portion of the land share.

The contractor, who acquires title to the whole or part of the land share upon the formation of the agreement, is subsequently obligated to re-transfer to the landowner the proportionate share as stipulated in the contract, upon completion of the construction.

In instances where the land share is transferred concurrently with the conclusion of the contract, it is common practice to secure the landowner’s position through the registration of a mortgage on the immovable property. This mortgage is typically released in proportion to the advancement or completion of the construction works.

3.2.2. Transfer After the Completion of Construction

In cases where such an arrangement is stipulated within the contract, the landowner may perform the obligation to transfer the land share subsequent to the completion of the construction. This option, which permits the transfer of the land share to the contractor only upon completion, is often perceived by landowners as a more secure alternative.

However, deferring the transfer of the land share until after the construction is finalized may hinder the contractor’s ability to benefit from certain public financing mechanisms and tax incentives. Consequently, this approach may, to some extent, impede the expeditious and efficient completion of the construction project.

3.3.3. Transfer Based on Construction Progress

The obligation of transfer, the performance of which is deferred by agreement of the parties, may be fulfilled progressively in proportion to the level of completion of the construction works. In this arrangement, the landowner transfers to the contractor either a portion of the land share or certain completed independent units, in accordance with the progress of the construction and as specified in the contract.

This method of performance, which is more commonly encountered in practice, serves to encourage both parties to act diligently and fosters timely completion of the construction by providing the contractor with incremental incentives.

3.3. Obligation to Issue a Power of Attorney

The landowner bears several obligations toward the contractor, including the delivery of the immovable property, the transfer of the land share or an independent unit, and, importantly, the duty to act in cooperation with the contractor. This duty of cooperation should be interpreted broadly and is capable of manifesting itself at all stages of the construction process. While not strictly an obligation in the legal sense, it may be classified as a encumbrance imposed on the landowner for the proper execution of the contract.

Acts such as delivering the land free of defects and in a condition suitable for construction, obtaining necessary approvals for architectural projects from the municipal authorities, and securing the construction permit (building license), all fall within the scope of this duty of cooperation.

In practice, the effective and complete fulfillment of these procedural steps by the landowner in cooperation with the contractor is typically facilitated through the issuance of a power of attorney in favor of the contractor. This document authorizes the contractor to act on behalf of the landowner and generally details the powers granted in accordance with the terms of the underlying agreement signed by the parties.

Failure to grant such a power of attorney may prevent the contractor—despite possessing the requisite expertise—from completing the construction in a timely manner, potentially resulting in delayed delivery or other disruptions. In such scenarios, the landowner would not be entitled to invoke the contractor’s default (temerrüt) or exercise any associated remedial rights, as the failure would stem from the landowner’s own breach of their duty to cooperate.

Conclusion

Construction contracts in exchange for land share give rise to a complex legal relationship between the parties, characterized by its hybrid nature and the necessity of meticulous performance. This study has examined in detail the rights granted to the landowner and the obligations that must be fulfilled. It has been established that the landowner possesses fundamental rights such as receiving the independent sections in a complete and defect-free condition, expecting the contractor to act in accordance with the duties of loyalty and diligence, and demanding timely commencement of the construction. In parallel, the landowner is also subject to essential obligations including the delivery of the land in a legally and physically suitable condition for construction, the transfer of land shares in accordance with the contract, and the issuance of a power of attorney within the framework of necessary cooperation.

In cases where the contractor fails to properly fulfill their obligations, the optional rights and claims for compensation available to the landowner have been assessed within the scope of the Turkish Code of Obligations. In particular, the jurisprudence of the Court of Cassation has been referenced to clarify how these legal remedies are applied in practice. Throughout the study, emphasis has been placed on how the landowner's legal position is safeguarded within the bounds of the law, especially in terms of maintaining the contractual balance and protecting the mutual trust between the parties.

In this regard, the importance of legal predictability, careful contract drafting, and transparent communication between the parties in the execution of construction contracts in exchange for land share has once again been underscored.