Significant Precedent Change Regarding Third Parties Purchasing Real Property from Contractors in Projects of Construction In Return For Land Share

Construction agreements in return for land share, where the contractor undertakes to build on land owned by the landowner in exchange for a certain portion of the resulting independent units, are widely preferred in the construction sector. This type of agreement is commonly referred to as a construction agreement in return for flat (kat karşılığı inşaat) (“CAIRFF”) in practice.

In disputes arising from termination of the CAIRFF, the Court of Cassation’s (Yargıtay) established precedent held that title deed transfers made by the landowner to the contractor function as advance payments. Consequently, if the CAIRFF was terminated retroactively, any sales made by the contractor to third parties lose their legal basis, resulting in the re-registration of the title deed in the landowner’s name.

However, the 6th Civil Chamber of the Court of Cassation recently changed its precedent regarding the legal status of third parties who purchase property from the contractor under a CAIRFF project.

In this context, the Grand General Assembly for the Unification of Case Laws of the Court of Cassation issued a decision dated 16 May 2025 and numbered E: 2024/1, K: 2025/2 to eliminate the existing divergence in its case law.

According to the decision, if the contractor sells the land share or an independent unit acquired under a CAIRFF agreement to a third party or establishes a mortgage on the property in favor of a third party as security, and the CAIRFF is later deemed invalid or is terminated retroactively, the ownership or mortgage rights of third parties who acted in good faith and relied on the land registry will be protected, depending on the specifics of the case.

However, if it is determined that the third party did not act in good faith, the real property may revert to the landowner. The burden of proving the third party’s lack of good faith lies with the alleging party (i.e., the landowner). For example, a landowner may challenge a third-party purchaser’s good faith with evidence that the purchaser could have easily identified the true owner of the real property with a simple inquiry, had a close familial or personal relationship with the contractor, or acquired the property within a short period of time or at an unusually low price.

Additionally, the landowner can preclude third parties from asserting good faith by annotating the CAIRFF in the land registry.

This decision is particularly important for consumers purchasing real property from contractors because it has become possible to protect the ownership rights of third parties even if the CAIRFF between the landowner and the contractor is terminated.

The decision is expected to have a major impact on the construction industry as this change in the case law is binding on all chambers and assemblies of the Court of Cassation and the courts.