The Court Of Cassatıon's Reversal Of Its Jurısprudence On The "Advance Tıtle Deed

Intorduction

Construction contracts in exchange for land shares, or more commonly referred to as construction contracts in exchange for independent units, constitute a widespread practice in the construction market in our country. These contracts are not among the types of agreements regulated under the Turkish Code of Obligations ("TCO"); rather, they are hybrid, dual-type agreements that combine, in a manner not specifically regulated by statute, the elements of a promise to sell immovable property and a construction contract, which itself is a type of contract for work. Indeed, recent decisions of the General Assembly of the Court of Cassation define such contracts as 'a special type of agreement that incorporates both an undertaking to construct and a promise of sale.

For this reason, since construction contracts in exchange for land shares are not a type of agreement regulated under statute, the provisions relating to each of the two agreement types that constitute the hybrid structure of such contracts may, albeit not directly, be applied by analogy to the extent that the statutory provisions correspond to the terms of the contract. In cases where the provisions of the two agreement types conflict on a particular matter, the jurisprudence of the Court of Cassation emphasizes that the legal issue should be resolved by 'reaching an equitable solution based on a weighing of the mutual interests

The Reciprocal Obligations Undertaken by the Parties in Construction Contracts for Land Share.

Although there are opposing views in doctrine asserting that construction contracts in exchange for land shares give rise to a continuous obligational relationship, such contracts are regarded as bilateral agreements involving instantaneous performance. Recent jurisprudence of the Court of Cassation is also in line with this view. As the contract is considered to involve instantaneous performance, it is clear that, upon termination, the contract will be terminated with retroactive effect, in contrast to continuous contractual relationships where termination operates prospectively.

In construction contracts in exchange for land shares, in order to finance the construction, the contractor often acquires the land share from the landowner even before the construction is completed, and in some cases, even before construction has physically begun. Under the contract, the landowner undertakes to transfer the ownership of the specified portion of their land to the contractor in exchange for the delivery of certain independent units to be constructed by the contractor on that land

In return, the contractor undertakes, under the terms agreed in the contract, to complete the building and deliver it to the landowner, and in consideration, becomes entitled to receive the title deeds of the independent units allocated to them. These title transfers in favor of the contractor may take place before the completion of the construction subject to the contract, or, as frequently observed in practice, may be carried out progressively according to the stage of completion of the building.

The landowner's "advance" performance, undertaken to support the financing of the construction, allows the contractor to transfer the land share to third parties to generate cash flow, thereby enabling the contractor to obtain the financial resources necessary to complete the construction. In practice, the transfer by the contractor of the land share received from the landowner under the contract, even before fulfilling their own obligations, is often referred to as a "pre-construction" or "off-plan" sale.

The Problems Arising from the Failure to Complete the Construction and the Concept of the 'Advance Title Deed' Developed through the Court of Cassation's Decisions

If the contractor, having received the land shares in advance from the landowner pursuant to the agreement between the parties and having transferred them to third parties to secure financing, fails or is unable, for any reason, to complete the construction within the timeframe specified in the contract, they will face certain legal consequences.

In this case, pursuant to Article 117 of the Turkish Code of Obligations, the contractor will be deemed in default, and the landowner may consequently rescind the contract. In addition, it has been observed in practice that the landowners initiate lawsuits for annulment and registration of title deeds against third parties to whom the land shares, received in advance by the contractor, have been transferred.

As mentioned above, construction contracts in exchange for land shares are considered agreements involving instantaneous performance and, upon termination, unlike continuous performance contracts, will terminate with retroactive effect

According to the classical doctrine on contract rescission, if the contract is rescinded with retroactive effect, only the contractual obligation will be liquidated. Within this framework, the real effects of the transactions already carried out will not be affected, and in a lawsuit brought by the landowner to recover the land shares already transferred to the contractor, there will be no claim based on a real right. In this context, the landowner may only claim the payment of an amount corresponding to unjust enrichment.

It is explicitly acknowledged by the Court of Cassation that the termination of construction contracts in exchange for land shares has retroactive effect, and this is evidenced by numerous decisions in which the classical view on contract rescission has been adopted.

On the other hand, specifically in the scenario where the contractor has received the land shares in advance from the landowner under the contract, it is accepted that, upon rescission of the contract, the parties' positions will revert to their pre-contractual state as if the contract had never been concluded. In this case, any transfer made by the contractor to a third party will become ineffective, meaning that the registration will be considered void ab initio.

According to longstanding jurisprudence of the Court of Cassation, title deeds transferred in advance to the contractor are considered to be of an 'advance' nature. If the contractor, having received these deeds as an advance, subsequently transfers them to a third party, the landowners are entitled to request the annulment of the deeds transferred to the third party without entitlement and their registration in their own name.

Indeed, in a decision of the Constitutional Court concerning an individual application regarding the right to property, it was also recognized that, if the contractor fails to perform their obligations, the landowner acquires the right to reclaim the immovable property.

Indeed, the Court of Cassation, through the aforementioned decisions, has gone so far as to establish a presumption of bad faith, ruling that third parties cannot even benefit from the protection of good faith acquisition under Article 1023 of the Turkish Civil Code. It has been held that third parties who purchase a land share at the foundation stage or acquire units at the beginning of construction cannot be considered to be acting in good faith.

Moreover, it is not possible to make a conditional transfer of ownership in the land registry. Therefore, it is not possible to agree that a land share is transferred to the contractor as an 'advance' and that ownership will only be acquired upon the contractor's performance of their obligation. Under Turkish Civil Law, ownership is acquired automatically upon registration in the land registry. In this context, the transfer between the landowner and the contractor is based on a valid registration, and the contractor becomes the legal owner of the land share. Accordingly, this transfer of ownership cannot be considered an 'advance' contingent upon the performance of any obligation. In this respect, the concept of an advance deed was inconsistent with the existing legal framework.

In this context, the long-standing practice of the 'advance deed', the issues discussed above, and the resulting decisions were clearly in conflict with the fundamental principles of Turkish Civil Law, particularly with the principles of publicity and reliability of the land registry and the principle of acquisition of ownership based on registration. This approach, which caused significant grievances and uncertainties in practice, has also been the subject of intense criticism in doctrine.

The Latest Decision of the Grand Plenary Assembly for the Unification of Judgments of the Court of Cassation and the Abandonment of the 'Advance Title Deed' Jurisprudence

Fortunately, as mentioned above, the Court of Cassation has decided to abandon its practice, which had given rise to numerous grievances and criticisms.

In this context, the Court of Cassation first issued a press release on 16 May 2025 regarding the matter, followed by the decision of the Grand General Assembly for the Unification of Case Law of the Court of Cassation, published in the Official Gazette No. 32959 on 18 July 2025, bearing file number 2024/1 E., 2025/2 K., and dated 16 May 2025, which provides as follows: "In the event that, after the immovable property subject to a construction contract in exchange for land shares has been transferred to the contractor in the land registry, the contractor sells the land shares or independent units to third parties or establishes a mortgage thereon, and the contract is subsequently declared invalid or rescinded with retroactive effect, the claims of third parties asserting that they acquired real rights in good faith and in reliance on the land registry shall be considered, and the acquired ownership or mortgage rights shall be protected; however, if it is determined in the concrete case that the third parties were not in good faith, the immovable property may revert to the landowner."

It is considered that the Court of Cassation has adopted a new approach in its established jurisprudence on construction contracts in exchange for land shares, giving priority to the principle of reliance on the land registry and the protection of bona fide third parties. This shift was prompted by the grievances caused in practice by the previous established case law and the criticisms in doctrine arising from its inconsistency with the Turkish Civil Code. Indeed, in its decision, the Grand General Assembly for the Unification of Case Law of the Court of Cassation stated regarding the prior jurisprudence: "In disputes arising from construction contracts in exchange for land shares, the established case law providing for the annulment of the immovable property deeds transferred to third parties and their registration in the name of the landowners, without considering the claims of good faith by third parties, in cases concerning either the retroactive rescission or the invalidity of the contract, is contrary to the principles of Turkish Civil and Obligations Law regarding the relativity (personal nature) of rights, the publicity of the land registry, reliance on the land registry, and the protection of good faith."

In this context, the Court of Cassation has abandoned its previously highly debated practice in doctrine and, by resolving the legal uncertainties related to title deed transferred in advance, has laid the groundwork for a predictable and consistent application. This represents an important step toward eliminating the uncertainties caused by the practice known as "advance title deed", ensuring the security of the land registry and providing legal stability.

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