As a result of the recent dramatic decrease in the value of Turkish Lira against foreign currencies, the Decree No. 32 on the Protection of the Value of the Turkish Lira dated August 07, 1989 ("Decree No. 32") has been amended by the Presidential Order No. 85 ("Presidential Order"), which was published on the Official Gazette dated September 12, 2018 and entered into force on the very same date ("Effective Date").
Presidential Order aims to increase the value of the Turkish Lira against foreign currencies, and sets forth certain effective yet legally questionable restrictions on the future as well as current agreements:
According to the amendments introduced by Presidential Order to Decree No.32, except for certain cases to be determined by the Ministry of Treasury and Finance ("Ministry"), prices/fees as well as any other payment obligations cannot be determined as or indexed to a foreign currency in Certain Agreements (as listed below) to be executed by and between the residents in Turkey at any time falling after the Effective Date.
In addition, Presidential Order has also introduced amendments to Decree No.32 with regard to Certain Agreements which have already been executed by and between the residents in Turkey at any time falling before the Effective Date. Accordingly, except for certain cases to be determined by the Ministry, the relevant clauses regarding the prices/fees as well as any other payment obligations determined as or indexed to a foreign currency in such agreements must be negotiated by the parties again and re-determined in Turkish Lira within 30 days following the Effective Date (until October 13, 2018).
Presidential Order has introduced the above restrictions to Decree No.32 only in relation to Certain Agreements which are stipulated as (i) sale and purchase agreements related to movable and immovable properties, (ii) all kinds of rental agreements related to movable and immovable properties including vehicle rental and financial leasing, (iii) leasing agreements, (iv) employment agreements, (v) service agreements and (vi) work agreements. Although, the Ministry has been authorized by Presidential Order to determine the exceptions to such restrictions, the issue has not been clarified yet. Therefore, until certain exemptions are rendered by the Ministry, any types of transactions which are legally construed as Certain Agreements will be subject to the restrictions introduced by Presidential Order. In terms of the scope of the Certain Agreements, it can be argued that Certain Agreements are agreements which are "legally defined in the relevant laws"[*] and therefore it does not cover atypical agreements.
As referred to above, Presidential Order has stipulated a transition period of 30 days enabling the parties of Certain Agreements executed before the Effective Date to re-negotiate the payment obligations determined as foreign currency and convert them into Turkish Lira; however any foreign exchange rate on which such conversion will be made has not been dictated nor advised. Considering the short transition period that parties have to re-negotiate the most essential provision of an agreement as well as the high level of conflict of interest, this legal gap is very likely to cause disputes between the parties rather than mutual compliance with the legislation.
Moreover, as it is explicitly stated in Presidential Order, the restrictions will only be applicable if the Certain Agreements are executed by and between the residents in Turkey, (it is construed as "regardless of their nationality"), which, as a first thing, draws attention to importers residing in Turkey, since they will no longer be able to reflect the prices that they pay to purchase the goods or services in the foreign market when they sell the same in the local market.
It is controversial as to whether the transactions conducted in breach of the Presidential Order will be null and void. Some argue that it is indeed null and void due to breach of mandatory rules; while others argue that the persons who do not comply with the obligations stipulated by the Presidential Order will be subject to an administrative fine from TRY 6.306,- to TRY 52.601,- (updated figures) according to Article 3 of Law No.1567 on the Protection of the Value of the Turkish Lira.
[*] Sale and purchase agreements are defined as agreements in which the seller undertakes to deliver an item and transfer its ownership to the buyer in consideration for a sale price which the buyer undertakes to pay to the seller as per Article 207 of the Turkish Code of Obligations numbered 6098 ("TCO").
Rental agreements are defined as agreements in which the landlord or lessor grants a right to use an object to the tenant or lessee in consideration for the rental which the tenant or lessee undertakes to pay to the landlord or lessor as per Article 299 of TCO.
Leasing agreements are defined under Article 3 of Financial Leasing, Factoring and Financing Companies Law ("Leasing Law"). According to its legal definition, financial lease means, provided that it is based on a financial lease agreement, any of the following transactions conducted for the purpose of financing of a lessee by a lessor who is authorized under the Leasing Law or relevant legislation: (i) transfer of the title of the leased property to the lessee at the end of the lease term; or (ii) granting the lessee a right to purchase the leased property for a price under its actual value at the end of the lease term; or (iii) leasing in the event that the lease term is longer than the eighty percent of the economic life of the leased property or that the aggregate current value of the rental payments to be made according to the lease agreement is higher than the ninety percent of the actual value of the leased property.
Employment agreements are defined as agreements in which the employee undertakes to perform work in subordination to the employer in consideration for the remuneration which the employer undertakes to pay to the employee under Article 8 of Labor Law numbered 4857 ("Labor Law").
Service agreements are defined as agreements in which the employee undertakes to work in the service of the employer for a limited or unlimited period and the employer undertakes to pay him a salary based on the amount of time he works (time wage) or the tasks he performs (piece work) under Article 393 of TCO. Please note that the legal provisions of TCO related to service agreements apply to the agreements which are executed with the employees who are not subject to Labor Law.
Work agreements are defined as agreements whereby the contractor undertakes to deliver a work and the customer undertakes to pay him for that work under Article 470 of the TCO.
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.