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New Turkish Legislation about Foreigners Buying Property in Turkey

By Av. Coskun Yorulmaz

Laws Concerning Property Laws Concerning Property Acquisitions by ForeignersAcquisitions by Foreigners

The relevant Act is Tapu Kanunu, No 2644 ( “Title The relevant Act is Tapu Kanunu, No 2644 ( “Title Deeds Act”)Deeds Act”)

Enactments of 1984 and 1986 ( with Acts numbered Enactments of 1984 and 1986 ( with Acts numbered 3029 and 3278)3029 and 3278)

Sought to relax the application of the “reciprocity Sought to relax the application of the “reciprocity principle”principle”

The decisions of the Turkish Constitutional Court The decisions of the Turkish Constitutional Court ( Anayasa Mhk.)( Anayasa Mhk.)

Cancelled the above enactments due to Cancelled the above enactments due to incompatibility with the constitutional provisions.incompatibility with the constitutional provisions.

The enactment of 2005 ( Act no 5444)The enactment of 2005 ( Act no 5444) Some provisions has been cancelled by the CCSome provisions has been cancelled by the CC ..

Too Many Changes of Law? is Too Many Changes of Law? is it Peculiar to Turkey?it Peculiar to Turkey?

SpainSpain The Valencian “land-grab” laws The Valencian “land-grab” laws

of 1994of 1994 BulgariaBulgaria

The relevant law enacted in 2007The relevant law enacted in 2007 FranceFrance

A relevant change of law in 2007A relevant change of law in 2007

Real or Legal Persons who may Real or Legal Persons who may Acquire Real Estate in TurkeyAcquire Real Estate in Turkey

Individuals of foreign nationality ( Mr Individuals of foreign nationality ( Mr Anderson)Anderson)

Foreign Companies, e.g. companies Foreign Companies, e.g. companies registered with the Companies registered with the Companies House ( “Belgrave (UK) Ltd.”)House ( “Belgrave (UK) Ltd.”)

Turkish Company with foreign Turkish Company with foreign capital, i.e. registered with a capital, i.e. registered with a directorate of trade registry in directorate of trade registry in Turkey ( “Istanbul Ltd. Sti”)Turkey ( “Istanbul Ltd. Sti”)

PART 1

The Reciprocity PrincipleThe Reciprocity Principle Very well established principle Very well established principle

Reciprocity must exist “de jure” and “de Reciprocity must exist “de jure” and “de facto”facto”

There are different categories of countries, There are different categories of countries, e.g. List A countriese.g. List A countries

There has been no change of law with regard There has been no change of law with regard to this principleto this principle

Restriction as to the Restriction as to the Location and Type of the Location and Type of the

PropertyProperty Real estate must be situated in Real estate must be situated in

an area with a zoning planan area with a zoning plan to be used for commercial or to be used for commercial or

residential purposes residential purposes

Restrictions as to Restrictions as to sizesize

Mr Anderson or Belgrave Ltd. may, within the Mr Anderson or Belgrave Ltd. may, within the boundaries of The Republic of Turkey and at any one boundaries of The Republic of Turkey and at any one time, can own 2.5 hectares of real estate ( 25,000sqm time, can own 2.5 hectares of real estate ( 25,000sqm or approximately 6.2 acres)or approximately 6.2 acres)• The Board of Ministers (Bakanlar Kurulu) The Board of Ministers (Bakanlar Kurulu) couldcould

extend this limit up to 30 hectares. The CC cancelled extend this limit up to 30 hectares. The CC cancelled the relevant provision.the relevant provision.

The total size of land of a town or province which is The total size of land of a town or province which is owned by foreigners at any one time may not exceed owned by foreigners at any one time may not exceed 10% of the area which has been subject to a zoning i.e. 10% of the area which has been subject to a zoning i.e. spared for residential, commercial or industrial use.spared for residential, commercial or industrial use.• Prior to the decision of the CC, the ratio was 5/1000 Prior to the decision of the CC, the ratio was 5/1000

of the total area of a town or province.of the total area of a town or province.

Further Restrictions Further Restrictions Applicable to Belgrave Ltd.Applicable to Belgrave Ltd.

It may only acquire land if a specific It may only acquire land if a specific piece of legislation allows it to do so.piece of legislation allows it to do so.

Tourism Encouragement ActTourism Encouragement Act Petroleum ActPetroleum Act Industrial Zones ActIndustrial Zones Act

Acquisition of Real Estate by Acquisition of Real Estate by way of Inheritanceway of Inheritance

There has been no change in law with regard to this matter There has been no change in law with regard to this matter since 2005.since 2005.

If there is reciprocity and beneficiaries are legal heirs of the If there is reciprocity and beneficiaries are legal heirs of the deceased;deceased;

Not subject to restrictions in paras 1 and 2 of Art Not subject to restrictions in paras 1 and 2 of Art 35, i.e. restrictions as to type, location or size.35, i.e. restrictions as to type, location or size.

If there is reciprocity, but inheritors are inheriting under the If there is reciprocity, but inheritors are inheriting under the provisions of a testamentary disposition, i.e. a Will;provisions of a testamentary disposition, i.e. a Will;

In this case, the restrictions will apply.In this case, the restrictions will apply.

If there is If there is nono reciprocity; reciprocity; The acquisition will be provisional to mandatory The acquisition will be provisional to mandatory

disposition of the real estate.disposition of the real estate.

PART2

Turkish Companies with Turkish Companies with Foreign CapitalForeign Capital

( “ Istanbul Ltd. Sti )( “ Istanbul Ltd. Sti ) Regulated by the Foreign Direct Investment Act, No 4875 Regulated by the Foreign Direct Investment Act, No 4875

(Dogrudan Yabanci Yatirimlar Kanunu)(Dogrudan Yabanci Yatirimlar Kanunu)

““Foreign Capital Company”: An incorporated company set Foreign Capital Company”: An incorporated company set up or with participation of ” foreign investor”s.up or with participation of ” foreign investor”s.

A Foreign Investor: A Foreign Investor: • Real Persons of foreign nationality or Real Persons of foreign nationality or

Turkish nationals resident abroad, orTurkish nationals resident abroad, or• Foreign incorporated entitiesForeign incorporated entities

Changes of Law Effecting Changes of Law Effecting Istanbul Ltd.Istanbul Ltd.

Pursuant to Art 3.d of FDI Act, it was treated no Pursuant to Art 3.d of FDI Act, it was treated no differently to Turkish Companies with Turkish Capital in differently to Turkish Companies with Turkish Capital in terms of rights as to acquisition of real estate.terms of rights as to acquisition of real estate.

The Constitutional Court cancelled Art 3.d in March 2008.The Constitutional Court cancelled Art 3.d in March 2008.

The Parliament enacted the new Art 36 of the Tapu The Parliament enacted the new Art 36 of the Tapu Kanunu.Kanunu.

““The Turkish Ministry of Public Works and Settlement” The Turkish Ministry of Public Works and Settlement” ( Bayindirlik ve Iskan Bakanligi) issued a statutory ( Bayindirlik ve Iskan Bakanligi) issued a statutory instrument to specify the implementation of Art. 39 instrument to specify the implementation of Art. 39 ( Yabanci Sirketlerin Tasinmaz Edinimine Iliskin ( Yabanci Sirketlerin Tasinmaz Edinimine Iliskin Yonetmelik)Yonetmelik)

Where Will the NewWhere Will the New Law Apply? Law Apply?

Setting up a Foreign Capital CompanySetting up a Foreign Capital Company

Title of a real estate acquired under Art. 36 is Title of a real estate acquired under Art. 36 is transferred to another Foreign Capital transferred to another Foreign Capital CompanyCompany

A Foreign Capital Company acquires shares of A Foreign Capital Company acquires shares of a Turkish company with Turkish Capital which a Turkish company with Turkish Capital which owns real estate.owns real estate.

The New Law Will The New Law Will NotNot Apply; Apply;

Where a Foreign Capital Company Where a Foreign Capital Company goes bankrupt and its foreign goes bankrupt and its foreign shareholders ( real person shareholders ( real person shareholders or otherwise) seek to shareholders or otherwise) seek to acquire the title of its real estate.acquire the title of its real estate.

In this case, Art. 35 will apply In this case, Art. 35 will apply (reciprocity, size restrictions etc.)(reciprocity, size restrictions etc.)

Real Estate acquisition of a Foreign Real Estate acquisition of a Foreign Capital Company must be for the Capital Company must be for the carrying out of its business carrying out of its business activities set out in its Articles of activities set out in its Articles of Association (Ana Sozlesme)Association (Ana Sozlesme)

The real estate must actually be The real estate must actually be used in carrying out of such used in carrying out of such activities.activities.

The ProcedureThe Procedure The “ Commission”The “ Commission”

Representatives of the Chief of General Staff, Representatives of the Chief of General Staff, the Treasury, the Police, the Ministry of Trade the Treasury, the Police, the Ministry of Trade and Industry will sit.and Industry will sit.

The commission will be chaired by the The commission will be chaired by the Governor, or a deputy Governor he will appointGovernor, or a deputy Governor he will appoint ..

Applications to be lodged with “Valilik Il Planlama ve Applications to be lodged with “Valilik Il Planlama ve Koordinasyon Mudurlugu”( The Provincial Directorate Koordinasyon Mudurlugu”( The Provincial Directorate of Planning and Co-ordination)of Planning and Co-ordination)

Quite a few of documents to go in with the application Quite a few of documents to go in with the application ( Please refer to Art. 4 of the SI (Yonetmelik).( Please refer to Art. 4 of the SI (Yonetmelik).

Assessment of the Assessment of the ApplicationApplication

PDPC will enquire with;PDPC will enquire with; The office of the Chief of General Staff or its representative The office of the Chief of General Staff or its representative

for this matterfor this matter Military security zone, security zone or strategic zoneMilitary security zone, security zone or strategic zone

The General Directorate of Security ( Emniyet Genel The General Directorate of Security ( Emniyet Genel Mudurlugu)Mudurlugu)

Private security zonePrivate security zone

The provincial Directorate of trade and IndustryThe provincial Directorate of trade and Industry the areas of activity specified in its Articles of the areas of activity specified in its Articles of

AssociationAssociation

The authorities above will have 30,20 and 7 days The authorities above will have 30,20 and 7 days respectively, within which to respondrespectively, within which to respond

Outcome of the assessmentOutcome of the assessment If the real estate is located outside a restricted zone of any typeIf the real estate is located outside a restricted zone of any type

The Commission will make a decision, taking into The Commission will make a decision, taking into consideration of the opinion of the provincial directorate consideration of the opinion of the provincial directorate of trade and industryof trade and industry..

If the real estate is located within a private security zoneIf the real estate is located within a private security zone Same as aboveSame as above

If the real estate is in a military zone, andIf the real estate is in a military zone, and The opinion of military authorities is negative, then this The opinion of military authorities is negative, then this

opinion will be conclusiveopinion will be conclusive If their opinion is positive, then the Commission will If their opinion is positive, then the Commission will

make a decisionmake a decision

Violations and SanctionsViolations and Sanctions

A Foreign Capital Company must acquire and use real A Foreign Capital Company must acquire and use real estate in compliance with the Art.36estate in compliance with the Art.36

If violation is established, If violation is established, Mandatory dispositionMandatory disposition The Commission will inform the Ministry of FinanceThe Commission will inform the Ministry of Finance MoF will notify the companyMoF will notify the company To dispose of the real estate within 6 months from To dispose of the real estate within 6 months from

notification ( may extend a further 6 months)notification ( may extend a further 6 months) If company fails to do so, the ministry will liquidate If company fails to do so, the ministry will liquidate

the real estatethe real estate

PART 3

Limited Rights in REMLimited Rights in REM Mr Anderson needs to borrow to finance the Mr Anderson needs to borrow to finance the

purchasepurchase

He applies to Z Bank in Turkey for a mortgageHe applies to Z Bank in Turkey for a mortgage Z Bank lends him 70%Z Bank lends him 70%

He asks Mr Dawn to lend him the balanceHe asks Mr Dawn to lend him the balance Mr Dawn lends him 15%Mr Dawn lends him 15%

He borrows from Belgrave Ltd 15%He borrows from Belgrave Ltd 15%

Z Bank is a Foreign capital company in the sense of FDI Z Bank is a Foreign capital company in the sense of FDI Act.Act.

The SI requires an application to the CommissionThe SI requires an application to the Commission

The Ministry of Public Works and Settlement issued a The Ministry of Public Works and Settlement issued a circular earlier this month (Genelge No:1671)circular earlier this month (Genelge No:1671)

There is no more a requirement to apply to the There is no more a requirement to apply to the commission each and every time an hypotec is commission each and every time an hypotec is created.created.• They will obtain the certificate from the Governorship of They will obtain the certificate from the Governorship of

the city where their head office is located.the city where their head office is located.• They will submit this certificate to any Land Registry They will submit this certificate to any Land Registry

one time only.one time only.• Only applies to “hypotec” and not any other form of Only applies to “hypotec” and not any other form of

limited right in rem.limited right in rem.• Applicable to all FDI Companies? “Banks, financial Applicable to all FDI Companies? “Banks, financial

institutions and other companies”institutions and other companies”

Mr Dawn and Belgrave Ltd. are not Mr Dawn and Belgrave Ltd. are not subject to the previous regulations.subject to the previous regulations.

They may create an hypothec They may create an hypothec without being subject to restrictions without being subject to restrictions mentioned in Art.35 of the Tapu mentioned in Art.35 of the Tapu Kanunu.Kanunu.