Protection of the Bona Fide Third Party's Acquisition in Case of the Retroactive Termination of a Construction Contract in Return for Land Share

Introduction

Property law is the branch of law that governs individuals’ rights and powers over tangible assets that are the subject of real rights. In Turkish law, the commonly accepted characteristics of a “thing” include having a physical presence, being subject to delimitation (i.e., not being part of one’s personality), being susceptible to control or domination, and possessing economic value.

The general principles governing property law serve as part of the “essence of the law” under Article 1/I of the Turkish Civil Code (TCC) and play a vital role in the application and interpretation of the relevant provisions. The term “essence of the law” should not be construed solely in its literal sense; rather, it must be understood in light of the spirit, purpose, and systematic coherence of the legislation. In the context of property law, this essence consists of the core legal principles that structure the field. These principles are of fundamental importance in determining the nature of real rights and in regulating legal transactions involving immovable property. In this article, key principles shaped within the framework of the TCC and general legal doctrines will be outlined, followed by an analysis of longstanding Court of Cassation precedents that have, in contradiction to the principle of reliance on the land registry, given rise to controversial rulings.

Keywords: Property Law, Principle of Publicity, The Principle Of Trust In The Land Registry, Bona Fide Third Party, Advance Title Concept, Turkish Civil Code.

1.    General Principles Governing Property Law

A.   Principle of Specificity

The principle of specificity requires that a property subject to real rights must be existing, individual, clearly defined, and distinguishable. Therefore, it is legally impermissible to establish real rights over generic goods (genus items), future goods not yet in existence, or assets expressed in abstract, collective terms. For example, ownership cannot be established over “a car to be purchased in the future” as the object does not yet exist, thereby violating the principle of specificity. In contrast, a right of ownership or a mortgage established over an immovable property explicitly registered in the land registry complies with this principle and allows for the validity of the real right vis-à-vis third parties. Accordingly, the principle of specificity is an indispensable requirement for both the creation and protection of real rights.

B.   Principle of Numerus Clausus (Closed Number of Real Rights)

The numerus clausus principle in property law dictates that the types and content of real rights are strictly determined by law, and parties are not permitted to create new real rights beyond those explicitly recognized, nor to alter the existing rights beyond the statutory limits. According to this principle, individuals cannot freely invent new categories of real rights; only those rights expressly stipulated in legislation—such as ownership, limited real rights, and rights of pledge—may be validly constituted. This restriction serves to safeguard the legal security of third parties, as real rights have erga omnes effect, unlike personal rights, which bind only the parties involved. Within the Turkish legal system, in addition to the right of ownership, limited real rights such as usufruct, easements, real encumbrances, and pledge rights (movable and immovable) are regulated in accordance with the numerus clausus principle. Hence, attempts by parties to create novel forms of real rights outside the established legal framework are considered legally invalid. The numerus clausus principle thus serves as a fundamental mechanism for ensuring legal certainty in property law.

C.   Principle of Continuity of Real Rights

This principle refers to the perpetual and uninterrupted nature of real rights. For instance, the right of ownership does not lapse through the passage of time unless the owner explicitly renounces it; a person may assert this right even after many years. Since real rights are absolute in nature and confer direct authority over property, they are not extinguished by statute of limitations. However, this principle is not without exceptions. In cases such as the loss of possession or the acquisition of ownership through adverse possession, real rights may be indirectly terminated.

D.   Principle of Publicity

By their nature, real rights are enforceable against everyone, and such enforceability necessitates that the rights be publicly known. This allows individuals to ascertain whether a property is subject to any rights, the type of right, and the identity of the right-holder. For movable property, this is achieved through possession, while for immovable property, it is ensured through the land registry.

In the case of immovables, possession alone does not create a presumption of ownership. Article 1020 of the TCC, titled “Openness of the Land Registry,” explicitly states that the registry is public. This includes not only the main land register but also supplementary registries such as the condominium registry and the daybook. However, the fact that the entire land registry is technically public does not mean that anyone can access any record at any time. Only persons who demonstrate a legitimate interest may inspect the relevant entries. According to the second paragraph of Article 1020, such interest must be legally protected and demonstrable, typically through an appropriate request or declaration.

As a natural consequence of the publicity principle, no one may claim ignorance of entries recorded in the land registry. It is presumed that anyone acquiring rights over immovable property does so with knowledge of existing registry entries. Hence, good faith is protected only in situations where publicity is established through official registration.

E.    Principle of Reliance on the Land Registry and Protection of Bona Fide Third Parties

The legal foundation of the principle of reliance on the land registry is established under Article 1023 of the Turkish Civil Code. According to this provision, the acquisition of a right based on an entry in the land registry by a person acting in good faith shall be legally protected.

As previously mentioned under the principle of publicity, publicity is achieved through possession for movables and through registration in the land registry for immovables. Possession alone is insufficient to disclose, transfer, or protect real rights over immovable properties. Consequently, determining the owner of immovable property based solely on external appearances is incompatible with the ordinary course of life. The legal system, therefore, requires mechanisms to ensure transparency and certainty in property relations.

Within this framework, the Turkish Civil Code adopts the land registry system as the primary mechanism for disclosing real rights over immovables and for asserting such rights against third parties. Pursuant to Article 1023, acquisitions based on reliance on the land registry are protected. In other words, a third party who acquires ownership or another real right in good faith based on a registry entry is deemed to have acquired the right lawfully. Due to the principle of publicity, no person may claim to be unaware of the contents of the land registry. Accordingly, one cannot evade liability by asserting a lack of access to registry information. Otherwise, the legal security of transactions made in reliance on the state-maintained registry would be severely undermined, damaging public trust in the legal system and the state itself.

As such, the principles of publicity and reliance on the registry are interdependent. Without effective publicity, the principle of reliance cannot function properly. The land registry is expected to reflect the factual situation accurately. The principle of reliance not only pertains to real rights but also plays a critical role in ensuring the legal security of property transactions. Nonetheless, this protection is limited to those acting in good faith; individuals who act with malice or gross negligence are excluded from this safeguard.

2.    Precedents of the Court of Cassation Contrary to the Principle of Reliance on the Land Registry

As previously stated, one of the primary purposes of the principle of reliance on the land registry—as a reflection of the publicity principle—is to ensure that third parties may access and rely upon current entries in the registry, including rights, annotations, and declarations concerning immovable property. This principle allows for legally valid consequences to be produced even when the registry does not reflect the actual legal status of the property, provided that the third party acts in good faith.

A construction contract in return for a share of land is a bilateral and complex agreement in which the contractor undertakes to construct a building on a specified land, and the landowner agrees to transfer ownership of certain land shares to the contractor as consideration. If the contractor defaults on their principal obligation to build, and additional conditions are met, the landowner may exercise the right of rescission under Article 125 of the Turkish Code of Obligations. For a long time, scholars debated whether such rescission should operate retroactively or prospectively. This debate was resolved by a decision of the Grand Assembly for the Unification of Judgments of the Court of Cassation. According to that decision, if construction has been completed at a rate of 90%, the contract will be deemed rescinded with prospective effect pursuant to the principle of good faith under Article 2 of the TCC; otherwise, the contract will be considered retroactively rescinded.

This article focuses specifically on the scenario in which, prior to the retroactive termination of such a contract, the contractor transfers land shares acquired under the agreement to third parties. Despite the presumption that such third parties should be protected under Article 1023 of the TCC, the Court of Cassation has repeatedly ruled against protecting these acquisitions, prompting scholarly criticism.

According to established jurisprudence, if the contractor sells and registers ownership of independent units with third parties under the construction contract, and the contract is later retroactively rescinded, those third-party acquisitions will not be protected—even if the parties acted in good faith. This stance has long been criticized in legal literature as being contrary to the principle of reliance on the registry and the publicity principle embodied in Articles 1020 and 1023 of the TCC. Nonetheless, the Court has maintained its position, arguing that the transferred share constitutes an advance granted by the landowner, and that if the contractor fails to perform, the landowner may rescind the contract and recover the advance. Thus, the third party’s acquisition is invalid.

Although the decisions do not explicitly reference it, this reasoning is grounded in the theory of rescission with proprietary effect. This theory accepts that the rescinded contract ceases to exist retroactively, but it differs from the classical theory by attributing proprietary consequences to the rescission. According to this approach, since the contract is deemed never to have existed from a proprietary standpoint, any real rights based on it are void ab initio. Therefore, a third party who acquires shares from a contractor lacking ownership title acquires nothing, and the registration is considered invalid.

This jurisprudence, inconsistent with the principle of reliance on the land registry, has been widely criticized. Legal scholars have pointed out that denying protection to good-faith third parties undermines confidence in state-maintained registries and thus erodes public trust in the legal system. We concur with this critique and assert that the failure to protect good-faith acquirers jeopardizes the stability and reliability of the property law system.

Following extended debate, the Grand Assembly for the Unification of Judgments of the Court of Cassation revised its position in a public announcement on May 16, 2025. It overturned the longstanding precedent of the 6th Civil Chamber, ruling that the good faith claims of third parties acquiring immovable property from a contractor must be considered, and that the burden of proving bad faith lies with the landowner. This decision, grounded in Article 1023 of the TCC and consistent with the principle of reliance on the land registry, is in our view a welcome and correct development.

Conclusion

In conclusion, the principle of reliance on the land registry, as a corollary of the principle of publicity, is an indispensable and inviolable component of property law. Ensuring that individuals have confidence in the protection of their real rights—and, consequently, trust in the legal system and the state—requires that the state-maintained registry be reliable and legally binding. This obligation forms a core duty of any rule-of-law-based state.

For many years, the Court of Cassation’s 6th Civil Chamber maintained the view that, in the event of the retroactive rescission of a construction contract in return for a share of land, third parties who acquired independent units from the contractor could not be considered rightful owners. The reasoning held that since the construction had not yet been completed, the transferred shares were merely advances, and third parties could not rely on the contractor’s title. Consequently, these third parties could not benefit from the good faith protection afforded under Article 1023 of the TCC. This stance was extensively debated in the legal literature, especially on the grounds that it is impossible for good-faith third parties to be aware of unregistered real rights. The resulting erosion of trust in the legal system was a matter of serious concern.

The most recent decision by the Grand Assembly for the Unification of Judgments has corrected this longstanding inconsistency. It affirmed that good-faith acquisitions by third parties who purchased immovable property from the contractor must be protected under Article 1023 of the TCC and as a requirement of the principle of reliance on the land registry. Accordingly, the previous precedent was overturned. We believe that this is the correct approach: acquisitions made in reliance on a state-maintained public registry by good-faith third parties must be protected in order to prevent unjust losses and to maintain public confidence in the rule of law.