What to watch in construction-for-share agreements

In a construction-for-share agreement, the landowner undertakes to transfer certain land shares to the contractor, and the contractor undertakes to build and hand over certain units to the landowner in return. This model, common in Bodrum, binds both sides together for years.

Form requirement

Because the agreement includes a promise to transfer land shares, it must be made in official form under Article 237 of the Code of Obligations, in practice as a notarised deed. A contract that does not meet this form is in principle invalid and may prevent the parties from claiming transfer of title. Under Article 1009 of the Civil Code, rights arising from such agreements can be annotated on the land register.

What the agreement should cover in detail

The division of units and floor plans, the delivery date and delay penalty, the brand and quality of materials, responsibility for permits and the occupancy certificate, who bears taxes and fees, guarantees and what happens if the contractor abandons the work.

Linking title transfers to the progress of construction, with each stage documented by an independent technical inspection, is one of the most effective ways to protect the landowner. Transferring all shares before construction begins leaves the landowner exposed if the work is not completed.

Delay and defects

Since the agreement is also a works contract (Article 470), after delivery the landowner must inspect the work as soon as practicable and notify defects to the contractor within a reasonable time (Article 474). For defective work, the landowner may, depending on the circumstances, withdraw from the contract, claim a price reduction or demand free repair (Article 475).

When the contractor is in default, giving a reasonable time to perform under Article 123 is often a precondition for further steps. Either party may ask for the work to be examined by an expert and the findings recorded in a report.

Our view

These agreements are usually signed in a spirit of trust, but they are read when things go wrong. Drafting with the worst case in mind does no harm to a project that goes well and limits the loss on one that does not.

Related reading: Construction law; Real estate law.