Owners’ Rights in Urban Transformation and Construction Contracts: Disputes with Contractors

The rights of landowners in urban transformation and flat-for-land construction projects when the contract is made and during construction, and the legal remedies available in the event of delay, incomplete and defective work, breach of contract and termination.

This article is based on the provisions of Law No. 6306, Turkish Code of Obligations No. 6098 and Turkish Civil Code No. 4721 in force as of October 2026. Assessments of case law reflect general trends; no specific decisions are cited. The Turkish version of this article prevails.

In urban transformation projects, most owners become a party to a construction contract for the first time in their lives. They usually sign the contract on a text prepared by the contractor, are unfamiliar with the technical and legal details of the process and, often after handing their home over for demolition, wait for years while paying rent. This situation weakens the owner’s hand when a problem arises with the contractor. Yet Turkish law gives the landowner a wide range of rights against the contractor’s delay, incomplete or defective work and conduct in breach of contract. Whether these rights can be used effectively depends largely on how the contract was set up from the start.

The transformation decision and making the contract

Majority decision

For buildings determined to be risky, the unanimity of all owners is not required for reconstruction. Article 6 of Law No. 6306 on the Transformation of Areas under Disaster Risk allows a decision to be taken by absolute majority of the co-owners in proportion to their shares. The shares of owners who do not join the decision are sold, under the procedure in Article 6 of the Law, by public auction to the co-owners who joined the decision, at not less than market value; if they cannot be sold, they may be purchased by the bodies listed in the Law (the Urban Transformation Presidency, the Administration or TOKİ). In 2023, Law No. 7471 reduced the decision quorum from two thirds to absolute majority and largely transferred powers to the Urban Transformation Presidency.

As the majority decision also covers the choice of contractor and the main terms of the contract, it is important that the decision meeting is held properly. The notice of meeting, the content of the decision and the communication of offers to owners who did not join the decision must follow the procedures set out in the Law and the Implementing Regulation. A breach of these procedures calls into question the lawfulness of the decision and the acts based on it.

Form of the contract

Because a flat-for-land construction contract includes the transfer of land shares to the contractor, it is subject to the official form rule for the sale of immovable property (TMK Art. 706, TBK Art. 237). The contract is therefore executed in official form before a notary. Contracts signed in simple written form risk being invalid for lack of form. Although case law accepts that, in some situations where performance has largely been completed, relying on the lack of form may be considered contrary to good faith, this is an exceptional assessment.

Contract provisions that protect the owner

A significant part of the rights the owner may assert later depends on the content of the contract. Although the statutory provisions provide general protection, clearly regulating the following matters in the contract markedly strengthens the owner’s position in a dispute:

• Dates for obtaining the permit, starting work and delivery; the obligation to obtain the occupancy permit
• The amount and payment time of the penalty and rent allowance payable in the event of delay
• Allocation, location and square metres of independent units
• Technical specifications setting material and workmanship standards
• Tying title transfers of land shares to the stages of progress of the work
• A bank guarantee letter or similar security
• Prohibiting, or making subject to consent, the contractor’s assignment of the contract or the work to third parties

The delay penalty is a penalty clause governed by TBK Arts. 179–182. Where the penalty is added to performance, the creditor can claim the penalty together with performance only if it expressly reserves this right when accepting performance (TBK Art. 179(2)). An owner who takes delivery of a flat delivered late without a reservation may find it difficult to claim the contractual delay penalty later. It is therefore important to write in the delivery report that rights relating to the delay penalty are reserved.

Disputes caused by contractors

Failure to start and delay

If the contractor fails to start work on time, delays it contrary to the contract, or falls so far behind that it is clear it will not be able to finish the work by the agreed date, the employer may withdraw from the contract without waiting for the delivery date (TBK Art. 473(1)). This provision gives the owner an early way out against the risk of waiting for years. However, for this right to be used, the delay must be attributable to the contractor and the situation must be clearly established. The assessment may differ where, for example, the failure to obtain the permit is due to the authorities.

If the delivery date passes, the rules on default (TBK Arts. 117–125) apply. The owner gives the contractor a reasonable period; if performance does not occur within that period either, the owner may, under TBK Art. 125, choose to claim performance plus damages for delay, waive performance and claim compensation for damages for non-performance (positive interest), or withdraw from the contract. Which way this choice is made should be decided according to the level the construction has reached and the owner’s priorities.

Incomplete and defective work

After delivery, the owner should inspect the building as soon as it is able to in the ordinary course of business and notify the contractor of defects within a reasonable period (TBK Art. 474). If apparent defects are not notified, the work is deemed accepted. Hidden defects that cannot be discovered by ordinary inspection must be notified immediately once they come to light (TBK Art. 477). In the event of defects, the owner may, under TBK Art. 475, use one of the rights of a price reduction in proportion to the defect, repair free of charge where this does not involve excessive cost, or withdrawal from the contract depending on the seriousness of the defect; compensation may also be claimed under the general provisions. However, for structures built on land that can be removed only with excessive harm, TBK Art. 475 does not grant the right of withdrawal; for buildings, price reduction, repair and compensation therefore come to the fore.

For immovable structures, claims arising from defects are subject to a five-year limitation period from delivery; for defects resulting from the contractor’s gross fault, the period is twenty years (TBK Art. 478). Incomplete work, unlike a defect, refers to the part of the work that has not been done at all and is assessed under the rules on non-performance. As establishing incomplete and defective work is a technical matter, expert examination often determines the outcome of the dispute.

Conduct in breach of contract

A frequent problem in practice is the contractor changing the project to build more independent units than provided for in the contract, or changing the location, size or quality of the units belonging to the owner. Buildings contrary to the approved project create the risk of not obtaining an occupancy permit and of sanctions under zoning legislation. For the owner, this means both a breach of contract and a reduction in the value of the property.

Sales by the contractor to third parties

The contractor often sells the independent units allocated to it during construction. Where land shares were transferred early, these sales may take place at the land registry; where they were not, they are made through a promise to sell or an assignment of receivables. If the contract ends, what rights these buyers can assert against the landowner is assessed according to the extent to which the contractor performed its obligations to the landowner. Tying the transfer of land shares to the progress of the work is therefore one of the owner’s most effective means of protection.

Withdrawal from and termination of the contract

Where the contractor is in default, the owner’s withdrawal from the contract as a rule sets the contract aside retroactively: the parties return what they received, and land shares transferred to the contractor return to the owner. However, where construction has progressed significantly, setting the contract aside retroactively may lead to inequitable results. In case law there is an approach that, in such situations, withdrawal produces the effects of termination with prospective effect and the value of the work done by the contractor is taken into account. This distinction between termination and withdrawal directly affects what happens to title transfers and sales to third parties.

The owner may file an action for cancellation of the land register entries for the independent units that were to belong to the contractor and for registration in its own name. In such actions, it is important to prove the contractor’s breach of contract and that the notice of withdrawal or termination was given properly. Requesting an interim injunction to prevent transfer of the properties to third parties until the case is concluded should be considered. The general framework of title actions is on our Title Deed Cancellation and Registration Actions page.

Dispute resolution routes

Notice and determination of evidence

The first step in a dispute is usually sending the contractor a notice through a notary. The notice is important for recording default, giving a reasonable period and notifying the alternative rights chosen. The current state of construction should be recorded through a determination of evidence under Article 400 et seq. of Code of Civil Procedure No. 6100 before the site is handed over or work continues with a new contractor. The proportion and quality of the work done are the main basis for determining compensation and the consequences of termination in the subsequent action.

Mediation and litigation

Whether mediation is a mandatory pre-condition depends on the nature of the dispute. In commercial cases concerning payment of a sum of money (including actions for annulment of an objection, negative declaratory actions and restitution actions), mediation is a mandatory pre-condition under Article 5/A of Turkish Commercial Code No. 6102. Mandatory mediation has also been provided for certain real estate disputes, such as those arising from condominium ownership, by Article 18/B added to Law No. 6325 by Law No. 7445 in 2023. Which category a dispute arising from a flat-for-land construction contract falls into should be assessed separately according to the specific file. Where it is not a mandatory pre-condition, mediation may also be used voluntarily.

The competent court is the civil court of first instance or the commercial court of first instance, depending on the status of the parties and the nature of the dispute. For actions concerning rights in rem over immovable property, the court for the place where the property is located has exclusive jurisdiction. If the contract contains an arbitration clause, the dispute is resolved before arbitrators.

Frequently asked questions

Assessment

In urban transformation projects, the relationship between owner and contractor spans years and involves large values. The owner’s rights in this relationship are secured by law; however, whether these rights can be used effectively depends on careful preparation of the contract from the start, regular correspondence and records during construction, and not missing time limits.

When a dispute arises, the first step is to record the situation with documents and to choose carefully which right to use. Where delay, incomplete work and breach of contract arise together, how the alternative rights affect one another should be assessed separately. For details, see our Flat-for-Land Construction Contracts, Construction Law and Urban Transformation and Zoning Law pages, and for State support, our article on the Yarısı Bizden campaign.

References

• Law No. 6306 on the Transformation of Areas under Disaster Risk (in Turkish)
• Turkish Code of Obligations No. 6098 (in Turkish)
• Turkish Civil Code No. 4721 (in Turkish)
• Code of Civil Procedure No. 6100 (in Turkish)
• Mediation in Civil Disputes Law No. 6325 (in Turkish)
• Ministry of Environment, Urbanisation and Climate Change