Right of Pre-emption Under Turkish Law

Right of Pre-emption Under Turkish Law

Turkish Civil Code provides two types of pre-emption rights without providing a definition: one is the contractual pre-emption right and the other one is the legal pre-emption right.

A contractual pre-emption right is one conferred by a contract. Any property owner can conclude a contract with anybody empowering him/her to be the owner of the property where a property is sold to a third party. This is a contractual right and can only be claimed against the owner, who has given this right. Indeed, where a property is sold, neither the previous owner or the contractual pre-emption right holder has a right to claim the property itself from the new owner. Instead, the only effect of this contractual pre-emption right is to provide a legal cause for compensation from the previous owner as he/she did not perform the contract. However, Turkish Civil Code Artilce 1009/I states that a contractual pre-emption right can be annotated on the property’s entry pages it the Land Registry. Hence, it gains the effect of a real right and can be claimed against anybody who obtained an interest in the property after the contractual pre-emption’s annotation date. As a result, anybody, who purchases a property with an annotated pre-emption right, is always at risk of losing the property. As my main aim in this section to discuss the legal pre-emption right there, all the criticism about the effect of this right will be made under the legal pre-emption right.

Where a co-owner sells his/her share in land subject to co-ownership by shares to a third party, the other co-owners have a pre-emption right to buy back this share. In other words, all co-owners have a pre-emption right to buy back this share. In other words, all co-owners have the statutory right to purchase the share of any of the other co-owners by using their pre-emption rights if they conclude a sale contract with a third party for his/her share. This right enables the co-owners to purchase that share at the same price and conditions of the sale contract agreed with the third party.

There are four elements about the right of pre-emption to be discussed here. Firstly, the most important prerequisite of using this right is that the share should be sold to a third party. Where one co-owner sells his/her share to another co-owner, any other co-owners do not have pre-emption right against the purchaser co-owner.

Secondly, in circumstances where more than one co-owner wants to use their pre-emption rights, the share subject to the sale is equally distributed between such claimant co-owners. Whilst, Turkish Civil Code does not provide an explicit rule what happens where more than oen co-owner execise the right of pre-emption. Yargitay’s Decision of the General Board for Unification of Opinions dated 1/6/1947 and no. 5/18 clarifies that the right of pre-emption can be used by all the co-owners. In this case the share subject to sale is shared by all the claimant co-owners without considerin their original share in the property. For instance, A, B, C, D, and E are the owners of a property with the shares 10%, 10%, 20%, 30%, and 30% respectively. Where C sells his share to a third party and A and E use the right of pre-emption, the property will be owned by A (20%), B (10%), D(30%) and E (40%). As seen, only the claimant co-owners can benefit the right of pre-emption and they benefit from it equally without taking into consideratin their existing shareholding.

Thirdly, Turkish Civil Code Article 733/3 creates an obligation on the seller and the purchaser of a share in a co-owned property subject to co-ownership by shares. It provides that a sale of share in a co-owned property should be advised to the other co-owners by the seller and the purchaser of the share via a public notary. Paragraph 4 of the same article continues that “the right of pre-emption should be exercised within three months after the notification of sale and the maximum within two years after sale in any case”. Thus a claimant co-owner has a limited time to exercise the pre-emption right.

Finally, Turkish Civil Code Article 734/I requires that this right be claimed through a legal action in the court. The pliantiff would normally be the co-owner claiming the right of co-ownership and the defendant would be the purchaser. However, if the share has been sold but not yet registered, the seller co-owner would be the defendant. If the claimant’s case was accepted, the court would decide that share be conveyed to the claimant co-owners providing that they repaid the purchase money to the purchaser.

The ratio legis of the statutory right of pre-emtiom is to prevent a stranger from entering the co-ownership relationship with the existing co-owners without their consents. The ability to sell a share of a property in co-ownership by shares has always provided a risk that a stranger may seek to enter the relationship and participate in the use and management the co-owned property. However, the legislation provides an opportunity to the existing co-owners to prevent a stranger from being a co-owner by providing them with the right of pre-emtiom.

The right of pre-emtiom also serves another purpose. As mentioned above, the number of co-owners in Turkish law is not limited. Theoretically, the number of co-owners can reach hundreds. Consequently, exercising this right results in reducing the number of co-owners. Returning to the example given previously, imagine that C sells his share to four different persons (F, X, Y, and Z). If the other co-owners do not use their pre-emption right, the co-owners will be A, B, D, E, F, X, Y, and Z. In toher words, there will be eight co-owners. However, if A and E exercised their pre-emtion rights, only four persons would own the property. Where the number of co-owners is not limited the regulation of their rights as a statutory right seems essential.

Despite those benefits, the statutory right of pre-emtiom is controversial because of lack of the protection for the purchasers. A purchaser of a share in a co-owned property incurs a risk of losing his/her interest in the property in the three months of notifying the other co-owners of the sale. Although by completing the sale at the Land Registry office, the purchaser obtains the capacity of a co-owner. If any of the existing co-owner exercises his/her pre-emtion right by taking a legal action against him/her at the court, the purchaser would be under an obligation to convey the share to the claimant co-owners in return for repayment of the purchase money paid plus their expenses. Hence, it can be said that even though the sale is completed, the capacity of being a co-owner is in suspense in the three months after the notification of the sale. This period can be extended to two years if the purchaser does not fulfil his/her obligation to notify the existing co-owners about the sale.

While the regulation can be praised for the function of reducing the number of co-owners, it can be criticised in respect of the lack of protection of purchasers. It is a dilemma. The turkish legislator has chosen to endeavour to prevent strangers entering the co-ownership relationship and to keep the number of co-owners down at the cost of purchaser’s protection.

By |2018-02-27T11:50:52+00:00February 27th, 2018|Real Estate|Comments Off on Right of Pre-emption Under Turkish Law