Turkey: The Draft Law On The Amendment Of Land Registry Law And Cadastre Law

Abstract

Articles 35 and 36 of the Land Registry Law Numbered 2644 ("Land Registry Law") are the two main articles which regulate the foreigners' right to acquisition of property in Turkey. The Draft Law on the Amendment of Land Registry Law and Cadastre Law ("Draft Law") introduces new legislation which decreases the restrictions imposed on foreigners' right to acquisition of property in Turkey.

1. The Current Legislation

a) Acquisition of Real Property by Foreign Natural Persons

Articles 35 and 36 of the Land Registry Law Numbered 26441 ("Land Registry Law") are the two main articles regulating the foreigners' right to acquisition of real property in Turkey. Article 35 (1) of Land Registry Law stipulates that "With reservation of reciprocity and compliance with legal restrictions, foreign natural persons can acquire real property in Turkey for the purpose of using it as residence or as business place, provided that such real properties are allocated and registered in the implemented development plans or localized development plans for these purposes". This paragraph further stipulates that the same conditions apply to the establishment of a 'restricted real right'2 and that the surface area of this real property and independent and continuous restricted real right, which a foreign real person can acquire country-wide, cannot exceed 2.5 hectares.

The last sentence of this paragraph, which authorized the Council of Ministers to increase the aforementioned surface area up to 30 hectares, was annulled by the Supreme Court's decision dated April 11th, 2007 and numbered 2006/35 E. and 2007/48 K.3. The annulled sentence initially stated that "the Council of Ministers is authorized to increase this area up to 30 hectares, within the framework of the same conditions set forth in this paragraph ". This remark was annulled by the Supreme Court through its aforementioned decision4, which was published in the Official Gazette of January 16th, 2008 along with its reasoning. According to the reasoning of the Supreme Court, the relevant sentence was annulled because it granted an excessive authority to the Council of Ministers to increase the legal limit that is 2.5 hectares to (2.5 x 12) 30 hectares. The Supreme Court considered this discretionary power to be emptying the purpose of the limitation that was deemed necessary by the legislature. Consequently, the maximum surface area of real property and the independent and continuous restricted real right, which foreign natural persons may acquire, remained to be solely 2.5 hectares.

On a final note, as per Article 35 (1) of Land Registry Law, reciprocity is one of the conditions, the existence of which is sought for the acquisition of real property and restricted real right by foreign natural persons in Turkey. Article 35 (6) of Land Registry Law stipulates that both legal and de facto status shall be taken into consideration when determining whether reciprocity regarding the relevant matter does exist between Turkey and the country in question. Article 35 (6) of Land Registry Law further stipulates that countries, which do not allow personal ownership of real property, should grant the same rights to citizens of Turkey, to which they grant their own citizens, regarding acquisition of real property.

b) Acquisition of Property by Foreign Legal Persons

As for foreign legal persons; the same article, i.e., Article 35, rules that solely the commercial companies, that have legal personality and are established in a foreign country in accordance with the local law of that foreign country, are allowed to acquire real property and restricted real rights in Turkey, as long as they fall under scope of certain specific legislation. It should be noted that the specific legislation allowing foreign legal persons to acquire immovable property and restricted real rights in Turkey is fairly limited.

This being said, Article 36 (1) of Land Registry Law stipulates that the companies having legal personality, which are established by foreign investors in Turkey, or in which foreign investors own shares, may acquire and use real property and restricted real right in Turkey to carry out the activities mentioned within the Articles of Association of the relevant company. Thus, the companies having legal personality, which are established by foreign investors in Turkey, or in which foreign investors own shares, can well acquire and use real property and restricted real rights in Turkey, to the extent that that they do so, to carry out the activities mentioned within their Articles of Association. In fact, Article 3 (d) of the Law of Direct Foreign Investments5 had stipulated that companies having legal personality, which are established by foreign investors in Turkey, or in which foreign investors own shares, could acquire and use immovable property and restricted real rights in Turkey, regardless of whether their purpose is to carry out the activities mentioned within their Articles of Association, or not. However, the relevant sub-paragraph was annulled by the Supreme Court's decision dated March 11th, 2008 and numbered 2003/71 E. and 2008/79 K.6. Consequently, Articles 35 and 36 of Land Registry Law continue to be the sole regulations regarding acquisition of real property by foreign legal persons.

An additional restrictive legislative tool regarding the acquisition of real property by foreigners, either real or legal persons, is stipulated under the Law of Military Forbidden Zones and Safety Zones7. Article 9 of the relevant law stipulates that foreign real or legal persons cannot acquire any real property within certain military forbidden zones. Additionally, as per the same article, they are not allowed to enter into these zones and buy or lease real property there.

Moreover, Article 28 of the Law of Military Forbidden Zones and Safety Zones stipulates that the Council of Ministers is authorized to determine additional zones in which foreigners cannot lease real property, unless a permit is obtained, or acquire real property. The same article rules that the reason for determining such zones can be either due to proximity to the military forbidden zones or due to other reasons. Article 29 of the Law of Military Forbidden Zones and Safety Zones additionally rules that the Council of Ministers is authorized to decide whether the foreigners, who own real property within the zones falling under scope of Article 28 of the Law of Military Forbidden Zones and Safety Zones, should discharge their real property, which is located within the zones stipulated under Article 28, or not.

II. The Draft Law on the Amendment of Land Registry Law and Cadastre Law ("Draft Law")

The first difference which stands out is that Draft Law no longer stipulates that reciprocity is required for the acquisition of real property and restricted real right by foreign natural persons. Instead, Draft Law introduces quasi a list, which is to be determined jointly by Ministries of Environment and Treasury, and upon receipt of the opinion of the Ministry of Foreign Affairs, in cases where national benefits so require, and stipulates that the citizens of the countries found within the aforementioned list may acquire immovable property and restricted real rights. This list is to be drawn up jointly by Ministries of Environment and Treasury, and upon receipt of the opinion of the Ministry of Foreign Affairs, in cases where national benefits so require8.

Another amendment which is introduced by Draft Law is concerning the maximum surface area of real property and the independent and continuous restricted real right, which foreign natural persons may acquire. While the current legislation determines it to be 2.5 hectares, as explained above, under Section 1 (a), the Draft Law regulates that the relevant surface area may not exceed 30 hectares9. Additionally, as per Article 1 of Draft Law, the Ministries of Environment and Treasury have the authority to double the relevant amount, in cases where the national benefits so require.

The Draft Law does not differentiate between the main handling of acquisition of real property and restricted real right by legal foreign persons. The Draft Law, as does the current legislation, stipulates that only the commercial companies, that have legal personality and are established in a foreign country in accordance with the local law of that foreign country, are allowed to acquire real property and restricted real rights in Turkey, as long as they fall under scope of certain specific legislation.

One of the changes the Draft Law brings along is that foreign natural persons, acquiring real property without any buildings on, should submit the project which they will develop on the acquired real property, to the approval of the relevant ministry. The relevant ministry will thereafter send the said project to the land registry, where the acquired real property is registered, for the said project to be annotated to the explanations part of the land registry. It is then the relevant ministry's responsibility to follow up whether the promised project is realized or not. In case the approval is not applied for, or the project is not realized on time, then the discharging of the immovable property and restricted real right will be realized as per Article 1 of Draft Law.

III. The Reasoning of the Draft Law

The official reasoning of the Draft Law10 refers to the legislation prior to the current legislation. The legislation prior to the current legislation stipulated that the surface area of real property and restricted real right, which a foreign real person can acquire country-wide, could not exceed 30 hectares. It was furthermore stipulated that the acquisition of real property and restricted real rights exceeding the aforementioned amount was possible upon permission of the Council of Ministers. Thus, the former law rendered it possible that a real foreign person could acquire immovable property and restricted real rights with a surface area of an unrestricted amount, provided that the permission of government was obtained and that reciprocity existed. Thus, the amendment brought by the current legislation, i.e., the decrease of such amount to solely 2.5 hectares, was of a dramatic nature. The Draft Law states that with its proposed amendment, a similar approach to that of the legislation prior to the current legislation, which was in force for almost 70 years, was adopted regarding the maximum surface area of real property and restricted real right, which a foreign real person can acquire country-wide.

Above being the case, because the Supreme Court annulled a similar regulation, which was one to authorize the Council of Ministers to increase the maximum surface area of real property and restricted real right, which a foreign real person can acquire country-wide, up to 30 hectares, through its aforementioned decision11, it is likely that the Supreme Court will annul the relevant provision of Draft Law as well. On a different note, for the first time in history, the principle of reciprocity is left out of the relevant legislation

The general public response was positive to Draft Law and it is widely believed that the adoption of Draft Law would ease investments especially from the Gulf Countries, Russia and Turkic states. Thus, overall public opinion on Draft Law is welcoming.

Footnotes

1. The Land Registry Law No. 2644, published on the Official Gazette numbered 2892.

2. A restricted real right under civil law is one which grants the owner only one or two of the rights of usus, fructus, abusus; as opposed to unrestricted real right of ownership, which grants the owner all three of the aforementioned rights.

3. Supreme Court Decision, E: 2006/35, K: 2007/48, published in the Official Gazette numbered 26758.

4. Id

5. The Law of Direct Foreign Investments No. 4875, published on the Official Gazette numbered 25141.

6. Supreme Court Decision, 2003/71 E. and 2008/79 K, published in the Official Gazette numbered 26849.

7. The Law of Military Forbidden Zones and Safety Zones No. 2565, published on the Official Gazette numbered 17552.

8. Article 1 of Draft Law.

9. Article 1 of Draft Law.

10. The official reasoning of the Draft Law is available in Turkish on the website of the Prime Ministry, www.basbakanlik.gov.tr/Handlers/FileHandler.ashx?FileId=12472

11. Please see Footnote 6.

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.

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