Judicial principles and studies
Nullity of Real-Estate Transactions, Good Faith and Stability of Ownership
Summary explaining how Article 13(b) limits the effects of nullity in real-estate transactions to protect good faith and ownership stability, and the judge’s choice between restoration and compensation.
Updated: 10 September 2026
Prepared and reviewed by: Ashraf Al-Khawaja
Subject
Nullity generally requires restoring the pre-contract situation and affects the contracting parties and third parties who acquired rights from them, since if the root is nullified the branch falls. Article 13(b) of the Real Property Law, however, authorizes the trial judge to limit nullity’s effects to protect good faith and the stability of ownership. The legislator also prioritized the public interest in ownership stability, as it relates to social security, over the individual interest of the original owner in certain cases.
Summary
Under Article 13(b) the court faces two main routes depending on facts, good-faith considerations and ownership stability: - If restoration is possible, the parties lacked good faith, and restoring status does not threaten ownership stability, the court must annul the contract and restore the prior situation. - If specific restitution is impossible, or if it would threaten ownership stability, or if a third party obtained an in rem right in good faith, the court may keep the nullity but award compensation instead of specific performance. The obligation remains but is replaced by monetary compensation assessed as of the date the action was filed. A claimant may amend requests between specific performance and compensation before judgment when appropriate. When a final criminal judgment establishes that the last registered owner is not guilty of fraud and no bad faith is shown in the nullity action, the trial court must, after weighing evidence, apply Article 13(b)(2) and order the responsible party to pay fair compensation. On appeal, the appellate court should bring other defendants into the proceeding even if they did not appeal (pursuant to Articles 175 and 114/3 of the Civil Procedure Law) to consider fair compensation against the tortfeasor and to avoid fragmenting the judgment and prolonging litigation.
Practical significance
Judges must balance good faith and ownership stability when deciding between restoration and compensation; compensation serves as an alternative where specific restitution is impracticable or would unsettle ownership, and it is valued at the lawsuit’s filing date. Appellate courts should include other defendants to determine compensation fairly and to prevent divisibility of the judgment. This is an educational summary only and does not constitute a judicial text or legal advice.
Sources and references
Verify the official text and latest amendments before relying on this material professionally.