Real Estate Agenda: Overview Of Prepaid Residential Property Sales

In recent years, rising construction costs, extended payment plans, and the increasing number of ongoing housing projects have made prepaid residential property sale agreements more common and more important than ever in the real estate sector. These agreements are not only commercial transactions; they also involve significant legal risks and are therefore frequently the subject of legal scrutiny.

In practice, issues such as delays in delivery, project changes, and insufficient guarantees, along with disputes over withdrawal and termination rights, can lead to serious consequences for both consumers and developers. Against this backdrop, this article provides a general overview of prepaid residential property sales within the framework of the Law No. 6502 on the Protection of Consumers (the “Law”) and the Regulation on Prepaid Residential Property Sales (the “Regulation”), which form the legal basis of these transactions.

Legal Nature, Scope, and Formation of the Agreement

Under the Law, a prepaid residential property sale agreement (the “Agreement”) is defined as a contract in which the consumer agrees to pay the purchase price of a residential property in advance (either in full or in instalments) while the seller undertakes to transfer and deliver the property after full or partial payment. The key principles governing such agreements are set out in Articles 40 to 46 of the Law.

From a doctrinal perspective, these agreements are generally considered a form of preliminary contract, effectively reflecting a promise to sell real estate in practice. Since agreements concerning properties that are not yet built are typically structured as real estate sale promise agreements, legal doctrine broadly interprets the term “sale” in the Law to include a “promise to sell.” This interpretation is important for determining the legal nature of the Agreement, assessing whether rules applicable to promiseto-sell agreements may apply by analogy, and resolving potential disputes.

For the Agreement to fall within the scope of the Law, the property must be acquired by the consumer for non-commercial, nonprofessional purposes. Furthermore, under Article 4 of the Regulation, a “residential property” includes any independent unit subject to the Condominium Law that is used or made available for residential purposes, even if it does not formally qualify as such.

Prepaid residential property sales typically relate to units that have not yet been delivered and are often still under construction. This distinguishes them from the sale of completed, ready-to-deliver properties, where a standard real estate sale agreement applies and the specific consumer protection regime does not. However, even for properties under construction, it is not legally permissible to enter into such agreements before obtaining the construction permit. This requirement aims to protect consumers from projects lacking a proper legal and factual basis and to ensure a minimum level of security in contractual relationships.

Key Elements of the

Agreement

Formal Requirements

The Agreement must be registered with the land registry. If structured as a promise to sell, it must be executed before a notary in the form of an official deed; otherwise, it will be invalid. The Regulation further requires that the Agreement be drafted in clear, plain, and understandable language, in at least 12-point font, and that a copy be provided to the consumer.

While the Law establishes the general framework, the Regulation sets out in detail the mandatory content of the Agreement to ensure consistency in practice and effective consumer protection. Accordingly, the Agreement must include key information such as: » Details of the seller and the consumer,

• The date of the Agreement,
• Identification and characteristics of the property,
• Sale price and any additional costs,
• Payment terms and schedule,
• Interest rates and default consequences (if applicable),
• Information on withdrawal and termination rights,
• Guarantee mechanisms,
• Delivery date and method,
• Construction permit date,
• Information on common expenses,
• Dispute resolution mechanisms.

In cases of full cash payment, certain provisions, such as those relating to instalments, interest, and payment plans, do not need to be included.

Pre-Contractual Information Requirement

At least one day before the Agreement is signed, the consumer must be provided with a preliminary information form prepared in accordance with the requirements of the Ministry of Trade (“Ministry”). This form includes essential details such as information about the seller, the property, the sale price, and the consumer’s rights.

In addition, the consumer must be provided with supporting documents such as the unit plan, site layout, floor plans, and technical specifications.

Obligations of the Seller

Delivery of the Residential Property

The seller is required to deliver the property within the period specified in the Agreement and, in any case, no later than 48 months from the date of the Agreement. This deadline cannot be extended.

Delivery is deemed complete upon registration of ownership in the consumer’s name (for condominium ownership), or upon both registration and transfer of possession in a habitable condition (for construction servitude).

Project Changes

Any changes to the project must be communicated to the consumer. If the consumer does not accept the changes, they may terminate the Agreement without any cost. However, if the changes result from legal requirements or force majeure, the seller may make certain deductions.

Provision of Guarantees

Prior to commencing the sale of residential properties, if the project comprises 30 or more residential units, the seller is required to secure one of the following: building completion insurance, a bank letter of guarantee, a progress payment system, or a tied loan mechanism. If an alternative method is proposed to secure all payments made by the consumer, such method may also be accepted as a valid guarantee, subject to the approval of the Ministry.

Pursuant to the Regulation, the seller is obliged to fulfil a number of core obligations under prepaid residential property sale agreements, including delivering the residential property within the agreed time and in accordance with the agreed specifications, ensuring that the Agreement contains all mandatory elements, providing the required guarantee where applicable, submitting the preliminary information form and its annexes, duly implementing the consumer’s rights of withdrawal and termination, and notifying the consumer of any project changes. If the seller fails to fulfil any of these obligations, a bank letter of guarantee secures the repayment of all amounts paid by the consumer, payable immediately and upon first demand.

In this respect, a bank letter of guarantee constitutes a definitive and unconditional commitment by the issuing bank to repay, upon first demand and without delay, the amounts paid by the consumer if the seller fails to perform its obligations.

Where the consumer’s payments are secured through a progress payment system, the consumer is required to deposit payments into an account opened in the seller’s name at a bank specified in the Agreement. The funds held in this account remain blocked until the transfer or delivery of the residential property and may only be released in proportion to the progress of construction (progress payments).

If the prepaid sale is financed through a tied loan, the loan amount itself is deemed to constitute the required guarantee.

Furthermore, any compensation, guarantees, or similar protections provided under building completion insurance are legally ring-fenced; they cannot be included in bankruptcy or liquidation estates, nor can they be subject to attachment, injunctions, or precautionary measures.

Consumer Rights

Right of Withdrawal

The consumer may exercise the right of withdrawal from the Agreement within 14 days from the date of its execution, without providing any reason and without incurring any penalty. In this respect, it is sufficient for the consumer to notify the seller of the exercise of this right through a notary public within the prescribed period.

As of the date on which the seller receives the consumer’s notice of withdrawal, the seller is obliged to refund all amounts to be returned to the consumer and to return any documents that place the consumer under obligation within 14 days. The consumer, in turn, must return any acquisitions within 10 days following the seller’s refund.

The burden of proof that the consumer has been duly informed of the right of withdrawal rests with the seller.

Where the residential property is purchased through a tied loan, the loan agreement shall only become effective upon the expiry of the withdrawal period, with effect as of the date of execution of the Agreement. If the consumer exercises the right of withdrawal within this period, the seller must immediately notify the relevant housing finance institution, and no loan obligation shall arise. Similarly, any building completion insurance obtained by the seller shall only become effective upon the expiry of the withdrawal period. Accordingly, the consumer does not assume any financial obligation during this period, and the responsibilities of the seller, the bank, and the insurer are aligned with the withdrawal period.

Right of Termination

The consumer may exercise the right to terminate the Agreement without providing any reason within 24 months from the date of its execution. In this context, it is sufficient for the consumer to notify the seller, through a notary public, of the exercise of this right within the prescribed notification period. If the consumer terminates the Agreement, the seller may request the payment of expenses arising from taxes, duties, and similar legal obligations incurred due to the sale or the promise to sell of the residential property. In addition, the seller may request compensation from the consumer as follows:

• up to 2% of the Agreement price for the first 3 months,
• up to 4% for the period between 3–6 months,
• up to 6% for the period between 6–12 months, and
• up to 8% for the period between 12–24 months.

However, in certain cases, the consumer may exercise the right to terminate the Agreement without paying any compensation, taxes, or similar charges, until the transfer or delivery of the residential property. These cases are as follows:

• the seller’s failure to perform its obligations at all or duly,
• the death of the consumer,
• the consumer’s permanent loss of income, rendering the consumer unable to make the advance payments,
• the seller’s refusal to accept the consumer’s proposal to replace the Agreement with an instalment sale agreement to be concluded under ordinary conditions due to the consumer’s permanent loss of income.

If the same residential property has been sold to more than one consumer, the consumer may terminate the Agreement without paying any fee until transfer or delivery.

As of the date on which the seller receives the consumer’s notice of termination, the seller shall refund the amounts to be returned to the consumer and return any documents that place the consumer under obligation within 180 days.

If the residential property has been purchased through a tied loan, the amount paid by the consumer shall be refunded by the seller, after deducting the relevant compensation and expenses, to the housing finance institution, which shall in turn reimburse the consumer in accordance with the Law. Following such reimbursement, the consumer shall return any acquisitions within 10 days.

Conclusion and Assessment

Prepaid residential property sales constitute a significant investment decision for consumers, while at the same time giving rise to substantial legal and financial obligations for sellers. The regulatory framework established under the Law and the relevant Regulation is designed to strike a balance of interests between the parties and to protect consumers through provisions governing the form of the Agreement, its mandatory content, guarantee mechanisms, and the consumer’s rights of withdrawal and termination.

Considering the issues commonly encountered in practice, such as delivery delays, project modifications, and deficiencies in guarantees, full compliance by sellers with the applicable legislation, as well as the clear and transparent disclosure of consumers’ rights and obligations, are of critical importance in preventing disputes. In this regard, strict adherence to the provisions of the Law and the Regulation in both the drafting and implementation of prepaid residential property sale agreements will be decisive in ensuring legal certainty and in fostering a sustainable environment of trust within the sector.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.