In real estate purchase and sale transactions, it is not always possible for the parties to carry out the transactions personally. In particular, individuals living abroad, elderly persons, or those facing health issues or heavy workloads often appoint an attorney-in-fact to handle real estate transactions on their behalf. However, the power of attorney relationship is fundamentally based on trust, and the abuse of this trust may lead to serious legal disputes.
Under Turkish law, abuse of the power of attorney frequently arises, particularly where real property is transferred by the attorney-in-fact in a manner contrary to the will and interests of the true owner. In such cases, actions for cancellation and registration of title deeds, as well as claims for damages, may be brought. The case law of the Court of Cassation has also developed a substantial body of precedents on this issue over the years.
I. Legal Nature of the Power of Attorney Agreement
Pursuant to Article 502 of the Turkish Code of Obligations, a power of attorney agreement is an agreement whereby the attorney-in-fact undertakes to conduct a transaction or manage affairs on behalf of the principal.
The proxy relationship is based on mutual trust. Therefore, one of the attorney-in-fact’s most important obligations is the duty of loyalty and care. Pursuant to Article 506 of the Turkish Code of Obligations, the attorney-in-fact must perform the entrusted duties with loyalty and diligence while safe guarding the legitimate interests of the principal.
For significant transactions such as the transfer of real estate, a general power of attorney is not sufficient; specifically determined authority is required. The power of attorney must expressly authorize the sale of real estate.
II. The Concept of Abuse of Power of Attorney
Abuse of power of attorney occurs when the attorney-in-fact exercises the authority of representation in a manner contrary to the principal’s will, instructions, or interests.
The most common examples encountered in practice are as follows:
- Transfer of the property to the attorney-in-fact himself/herself;
- Sale of the property to a relative or close associate of the attorney-in-fact;
- Sale at a price substantially below market value;
- Failure to remit the sale proceedings to the principal;
- The attorney-in-fact providing benefits to third parties through secret arrangements;
- Transfer of property by taking advantage of the trust of an elderly or ill person.
According to the Court of Cassation, even when the attorney-in-fact has been granted authority to “sell to any person at any price,” this does not mean that the attorney-in-fact may act contrary to the principle of good faith. In all circumstances, the attorney-in-fact is obliged to protect the interests of the principal.
III. The Position of Third Parties in Real Estate Transactions
One of the most important issues in cases involving abuse of power of attorney is whether the third party purchasing the property acted in good faith.
A. Good Faith of the Third Party
Pursuant to Article 1023 of the Turkish Civil Code, the principle of reliance on the land registry is protected. Accordingly, a person purchasing real estate is deemed to be in good faith if he or she neither knew nor was required to know that the attorney-in-fact was abusing his or her authority.
In such a case:
- The sale transaction remains valid;
- Ownership of the property remains with the third party;
- The principal may only seek compensation for damages from the attorney-in-fact.
B. Bad Faith of the Third Party
If the third party:
- Knows that the attorney-in-fact has abused his or her authority;
- Ought to have known of such abuse; or
- Acted in collusion with the attorney-in-fact for mutual benefit,
The third party cannot benefit from the protection granted to purchasers acted in good faith.
In such circumstances, cancellation of the title deed registration and re-registration of the property in the name of the former owner is possible. The established case law of the Court of Cassation is in this regard.
IV. Lawsuit for Cancellation and Registration of Title Deed and Conversion of the Claim into a Monetary Claim
The primary legal action available in cases of abuse of power of attorney is a lawsuit for cancellation and re-registration of title deed.
In such lawsuits, the claimant seeks to prove that:
- The attorney-in-fact abused his or her authority;
- The transaction was contrary to the claimant’s interests; and
- The third party acted in bad faith.
The court evaluates the following factors:
- The difference between the sale price and the actual market value;
- Family ties or close relationships between the parties;
- Whether the sale price was actually paid;
- The age and health condition of the principal;
- Economic conditions at the time of the transaction;
- The actions of the parties before and after the transaction.
V. Evidentiary Challenges
One of the most significant challenges in cases involving abuse of power of attorney is proving the claim.
Courts place particular importance on the following evidence:
- Bank records;
- Land registry transaction documents;
- Witness statements;
- Expert reports;
- The market value of the property on the date of the transaction;
- Correspondence between the parties.
Although a sale at a price significantly below market value is not sufficient on its own, it is regarded as an important indicator of bad faith.
If the bad faith of the third party purchaser cannot be proven, the lawsuit for cancellation of title deed will be dismissed. However, at that stage, the proceedings may continue as a compensation claim against the attorney-in-fact.
VI. Criminal Law Aspect
The attorney-in-fact’s conduct may give rise not only to civil liability but also to criminal liability.
Depending on the circumstances of the case, the following offences may arise:
- Abuse of trust;
- Fraud;
- Forgery of official documents.
Accordingly, both a criminal investigation and a civil action for cancellation of title deed may be pursued in relation to the same facts.
VII. Protective Measures
Property owners should pay attention to the following matters when granting a power of attorney:
- Drawing up a limited and special power of attorney rather than a general one;
- Specifying a minimum sale price in the power of attorney;
- Determining the duration of the authority granted;
- Terminating the power of attorney immediately after the transaction is completed;
- Avoiding to grant broad powers to persons other than those who are highly trustworthy;
- Monitoring land registry transactions regularly.
Conclusion
Although powers of attorney are frequently used in real estate transactions due to practical necessities, significant losses of rights may arise when the broad authority granted to an attorney-in-fact is abused. Under Turkish law, the attorney-in-fact’s duty of loyalty and care constitutes the principal mechanism for protecting the principal. Where the attorney-in-fact acts in breach of these obligations, lawsuits for cancellation and registration of title deeds, claims for damages, and, where appropriate, criminal consequences may arise. In particular, the good or bad faith of the third-party purchaser is one of the most important factors determining the outcome of the dispute. Therefore, it is of great importance for property owners to clearly define the limits of authority when granting a power of attorney and to maintain control over the attorney relationship following the transaction.