What Is the Statutory Right of Pre-emption?

What Is the Statutory Right of Pre-emption?

The statutory right of pre-emption is a formative right which, where any of the co-owners sells their share to a third party, entitles the other co-owners to acquire the share sold under the same conditions.

The share may be sold in whole or in part. In addition, the statutory right of pre-emption is a right attached to the share. Whoever owns the share benefits from this right.

Where the right of pre-emption is exercised, the co-owner becomes obliged to transfer their share to the other co-owner holding the statutory right of pre-emption. For this reason, where the statutory right of pre-emption is exercised, it leads to a restriction in terms of ownership of the immovable property.

Cases in Which the Statutory Right of Pre-emption Cannot Be Exercised

The article lists the cases in which the right cannot be exercised as follows:

• The statutory right of pre-emption is exercised only where the share is sold to a third party. Therefore, where one of the co-owners sells his or her share to another co-owner, the right of pre-emption cannot be exercised by the other co-owners.
• The statutory right of pre-emption cannot be exercised in sales conducted through compulsory enforcement.
• The statutory right of pre-emption cannot be exercised where transfers made by way of gift or as an advance transfer of an inheritance share are carried out ostensibly as sales.
• The statutory right of pre-emption cannot be exercised in transfers by way of exchange (barter), where one property is exchanged for another, because this form of transfer is not in the nature of a sale. However, where such a situation arises and there is simulation, the simulated nature of the exchange may be established by any evidence, including witnesses, in the pre-emption action to be brought.

Exercise of the Statutory Right of Pre-emption and the Pre-emption Action

This right may be exercised following the sale of the share to a third party who is not a co-owner, or its transfer by a transaction similar to a sale. The reason why the right arises only from sales to third parties is to prevent other, unwanted persons from joining the co-owners and to enable the shares to be concentrated in one hand as far as possible.

The statutory right of pre-emption may be exercised by bringing an action against the buyer. There is no means of exercising it other than by action.

Following the sale, the relevant share in the immovable property will have been registered in the name of the buyer and the right of ownership will have passed to the buyer. After this transaction, the co-owners may bring a pre-emption action by directing their right of pre-emption against the buyer. However, if registration has not yet taken place, the pre-emption action must be brought against the seller. Where a co-owner has sold their share to a third party by way of sale and the purchaser donates that share to someone else, the person holding the statutory right of pre-emption is free to bring an action against both within the period for exercising the right. However, if the purchaser has sold it to someone else, they may, again within the period for exercising the right, bring a pre-emption action based on this right against the last purchaser.

Exercise of the Right by More Than One Co-owner

With regard to the exercise of the right, an immovable property may have a large number of co-owners. For the purpose of exercising the statutory right of pre-emption, the co-owners have equal rights over the share in question irrespective of their own shares. That is, if we consider an immovable property with 4 co-owners whose shares are 1/10, 1/10, 3/10 and 5/10, when the co-owner with the 3/10 share sells it and all the remaining co-owners bring an action exercising their right of pre-emption, they will each have a 1/3 right over that share. This will apply among the co-owners who exercise the right.

Time Limits for Exercising the Statutory Right of Pre-emption

“The sale shall be notified to the other co-owners by the purchaser or the seller through a notary. The right of pre-emption lapses three months after the date on which the sale was notified to the right holder and, in any event, two years after the sale.”

Turkish Civil Code, Art. 733/4-5

Under Article 733/4-5 TCC, “The sale shall be notified to the other co-owners by the purchaser or the seller through a notary. The right of pre-emption lapses three months after the date on which the sale was notified to the right holder and, in any event, two years after the sale.” and the right of pre-emption is thereby made subject to periods of forfeiture. The first period concerned here is the three-month period. The three-month period begins upon notification to the co-owners; the legislature has imposed the notification obligation on either the purchaser or the seller and has also made it subject to a formal requirement, namely that it be made through a notary.

The second period for exercising the right is the “two-year” period, which is linked to the moment the sale took place. This period applies where the co-owner has been unable to learn of the sale.

Consequences of Exercising the Statutory Right of Pre-emption

We mentioned above that the right is exercised by way of an action. The action enables ownership of the share to be transferred to the claimant co-owner upon payment of the price to the third party. Under Article 734/2 TCC, “Before the share is ordered to be registered in his or her name, the holder of the right of pre-emption is obliged to deposit in cash the sale price and the land registry costs borne by the purchaser, within the period set by the judge and at the place to be designated by the judge.” is how the provision is worded.

“Before the share is ordered to be registered in his or her name, the holder of the right of pre-emption is obliged to deposit in cash the sale price and the land registry costs borne by the purchaser, within the period set by the judge and at the place to be designated by the judge.”

Turkish Civil Code, Art. 734/2

The pre-emption action is a formative action and the judgment given is a formative judgment. Upon this judgment becoming final, ownership of the share in the immovable passes to the holder of the right of pre-emption. On the basis of this judgment, the holder of the right of pre-emption may request the land registry officer to make a declaratory registration. The legislature has not set any time limit for registration.

Waiver of the Statutory Right of Pre-emption or of Its Exercise

Under Article 733/2-3 TCC, “A waiver of the right of pre-emption must be made in official form and annotated in the land register. Renouncing the exercise of the right of pre-emption in respect of a particular sale is subject to written form and may be made before or after the sale.” and it is thereby provided that this right may be waived by an agreement made in official form and an annotation entered in the land registry. As a rule, the official form is fulfilled by notaries. The co-owner may also state that he or she is not waiving the right entirely but merely undertakes not to exercise it in respect of the sale concerned.

The Statutory Right of Pre-emption in the Case of De Facto Partition

The Court of Cassation has held that, in immovables partitioned de facto by the co-owners, where a co-owner sells his or her share to a third party, the statutory right of pre-emption cannot be exercised, since its exercise by the other co-owners is contrary to the rule of good faith.

What Is De Facto Partition?

According to the Court of Cassation’s definition, de facto partition “the situation in which the immovable to which the share subject to the statutory right of pre-emption relates is privately partitioned among its co-owners and each co-owner uses a specific part.”

Conditions of De Facto Partition

1. Co-ownershipAs is clear from the definition, there must first of all be an immovable property subject to co-ownership.
2. De facto divisionThis immovable property must have been divided de facto among the co-owners. If it has been legally divided into parcels, co-ownership will in any case no longer continue to exist. Without co-ownership, it will not be possible to speak of the existence of a statutory right of pre-emption. The immovable property may be divided horizontally or vertically. However, if the immovable property has been leased in its entirety to a third party, or if the co-owners use it together without dividing it into shares, there can be no de facto partition.
3. AllocationThe immovable property divided de facto into shares must also have been allocated to the co-owners. In this respect, for immovable properties with a large number of co-owners, the Court of Cassation attaches importance to the existence of allocation with regard to the person selling their share and the co-owner who is the claimant exercising the statutory right of pre-emption. This is because, as a result of the de facto partition of an immovable property with a great many co-owners, each co-owner may not have an allocated share. Indeed, in a decision rendered in 2018, the Court of Cassation established the mere existence of de facto partition in the immovable property subject to the pre-emption action and held that, owing to the absence of allocation, this did not prevent the exercise of the right of pre-emption. (Court of Cassation Assembly of Civil Chambers, D. 28.2.2018, E. 2017/14-1761, K. 2018/407)

Why Is the Exercise of the Right Contrary to the Principle of Good Faith?

The reasoning behind the Court of Cassation’s case law that the statutory right of pre-emption cannot be exercised in the case of de facto partition is that it creates a situation contrary to the rule of good faith (Article 2 TCC). On this matter, the Court of Cassation does not consider the nature of the immovable; that is, it makes no difference whether there is a building on it or whether it is a building plot or land. The Court of Cassation describes the situation contrary to the rule of good faith as follows: a co-owner who, prior to the transfer, acted in accordance with the de facto partition agreement and claimed no right over the portion allocated to the co-owner transferring his or her share, and who then exercises the right of pre-emption upon the transfer of that share, engages in contradictory conduct, which constitutes a breach of the prohibition of abuse of rights under Article 2/II TCC.