Dissolution of Partnership and Pre-emption Rights of Stakeholders
Joint ownership is a situation where more than one person has a common right on the same movable or immovable property. Under Turkish law, a lawsuit for dissolution of joint ownership (izale-i şuyu) can be filed to terminate the joint ownership and allow the shareholders to have independent property rights. In addition, if a shareholder sells his/her shares to a third party, the other shareholders have the right to file a pre-purchase (shufa) lawsuit in order to exercise their priority right to purchase. These two legal processes are regulated in the Turkish Civil Code in order to protect the interests of the parties in shared ownership.
In this article, the legal foundations of the action for dissolution of the partnership and the pre-emption action, the process of filing a lawsuit, its consequences, and the rights and obligations of the parties will be discussed in detail.
Elimination of Partnership Case (İzale-i Şuyu Case)
Definition and Legal Basis of the Lawsuit for Dissolution of Partnership
Joint ownership is divided into two types: joint ownership or shared ownership. In joint ownership, there are no specific shares among the partners and all partners own the entire property together. In shared ownership, each partner owns a certain percentage of the immovable property.
According to Article 698 of the Turkish Civil Code, no partner may be forced to continue the partnership and has the right to demand the termination of the partnership. However, this right cannot be abused and the right is exercised by applying to the court. If an agreement cannot be reached between the partners, a lawsuit for dissolution of the partnership can be filed with the court.
Filing and Procedure of the Case for Elimination of Partnership
A lawsuit for dissolution of partnership can be filed by any of the shareholders at the Civil Court of Peace. During the litigation process, the court examines whether it is possible to divide the immovable property in kind. If it is possible to divide the immovable property and allocate it to the shareholders, the court will issue a division decision. However, if the division of the immovable will cause a loss of economic value or is not physically possible, the court decides on the sale of the immovable and the proceeds are distributed among the shareholders in proportion to their shares.
The court may order the sale to be conducted by auction or priority purchase right. In the auction procedure, the immovable property is sold to the highest bidder, whereas in the preferential purchase right procedure, if one of the partners wishes to purchase the immovable property at a higher price than the others, the immovable property is transferred to him/her.
Pre-Purchase Lawsuit (Shuffa Lawsuit)
Definition and Legal Basis of Pre-Purchase Right
The right of pre-purchase refers to the right of other shareholders to purchase a share in the event that a shareholder sells his/her share to a third party. Pursuant to Article 732 of the Turkish Civil Code, when a shareholder wishes to sell his/her share to a third party, the other shareholders have the right to purchase that share on the same terms.
The pre-emption right can be regulated in two ways: statutory and contractual. While the statutory pre-emption right arises from the Turkish Civil Code, the contractual pre-emption right may be established by special agreements between the shareholders.
Filing and Process of Pre-Purchase Action
The shareholder who wishes to exercise the right of pre-emption must file a lawsuit within 3 months from the date he/she learns about the sale, in any case before 2 years have passed since the sale. The shareholder who wishes to exercise the pre-emption right shall apply to the Civil Court of First Instanceand declare that he/she wishes to replace the shareholder to whom the sale was made.
In a pre-emption proceeding, the court examines whether the sale is lawful and considers whether the pre-emption right holder has filed the action within the time limit. If the pre-emption right holder has filed the lawsuit within the time limit and the sale is a valid transaction, the court recognizes the shareholder’s pre-emptive right and decides to replace the third party.
Consequences of the Dispossession and Pre-emption Lawsuits
Consequences of the Case for Elimination of Partnership
As a result of the dissolution of the partnership, the co-ownership is terminated and the parties have independent property rights. If the real estate is shared through sale, the income is distributed to the partners in proportion to their share. This process ends the legal uncertainties between the partners and allows for a more economically efficient use of the real estate.
However, in case of dissolution of the partnership through sale, the partners may not be able to acquire the immovable property and it may be sold to third parties. Therefore, it is recommended that the partners agree on a solution in advance.
Consequences of a Pre-Purchase Action
As a result of the pre-emption lawsuit, the court orders the winning shareholder to purchase the immovable property. In this case, the share purchased by the third party is transferred to the shareholder who exercised the pre-emption right. However, if the pre-emption lawsuit is not filed or if the lawsuit is filed after the deadline, the shareholder loses this right and the sale becomes valid.
A pre-emption action allows shareholders to protect their ownership rights over the immovable property and prevent outsiders from becoming involved in the partnership. However, in some cases, the exercise of the pre-emption right may cause disputes between the shareholders. Therefore, it is important that the parties adopt a conciliatory attitude and make the best use of the common property.
Dissolution of partnership and pre-purchase actions are important legal processes in terms of terminating co-ownership and protecting the rights of shareholders. In cases where the partnership relationship becomes unsustainable, the parties may have independent ownership rights through the dissolution of partnership action. On the other hand, pre-emption proceedings are an important legal mechanism for shareholders to maintain the integrity of ownership.
Both types of litigation ensure the protection of property rights and eliminate legal uncertainties between the parties. However, given that litigation can involve long and complex processes, it would be beneficial for the parties to act with legal support. In particular, compromise solutions should be prioritized in order not to lose the value of the property and to prevent the deterioration of relations between shareholders.
