Turkey: Interest Under Turkish Law-The New Legislation Brings Changes

Turkey has recently enacted two pieces of major legislation, namely the Code of Obligations (the "TCO") and the Commercial Code (the "TCC") both of which became effective on July 1, 2012. Both the TCO and the TCC along with the long existing "Law on the Legal Interest and Default Interest" (the "Interest Law") regulate the enforceability of and the rates related to interest. This article shall review the provisions of the aforementioned laws with a view to relay the limits on the implementation of interest1.

i. The TCC:

The TCC, in principle, regulates commercial affairs. Therefore the evaluations below are applicable for transactions with a commercial nature.

1. Contractual Interest:

a. If contractually undetermined by the parties:

Pursuant to Article 8 of the TCC, parties are free to determine the rate of contractual interest that will be applicable to the contract. However, in the event that such rate is not contractually determined, then pursuant to Article 9 of the TCC, interest rate under the legislation currently in effect shall be applicable. The legislation currently in effect refers to the TCO and the Interest Law. Pursuant to Article 88 of the TCO, "in the event that the contractual interest rate is not determined by the parties, then the interest rate shall be determined by the legislation currently in effect". Such rate is specifically determined under Article 1 of the Interest Law as 9 %.

b. If contractually determined by the Parties:

Pursuant to Article 8 of the TCC, in commercial affairs, parties are free to determine the rate of contractual interest that will be applicable to the contract. Pursuant to Article 19/2 of the TCC, "contractual relations qualifying as a commercial contract for one of the parties involved, shall also qualify as a commercial contract for the other unless explicitly stated otherwise in the TCC". Therefore, as long as one of the parties do not enjoy specific advantages under the TCC (i.e. qualifying as a consumer etc.), the contractual liberty in determining the interest rate shall prevail.

2. Default Interest

Currently, due to the recent enactment of the TCC and the TCO and the absence of clear cut precedent, there are two different opinions in the legal doctrine regarding the application of default interest. These are as below:

i. Pursuant to Article 8 of the TCC, parties are free to determine the rate of default interest

that will be applicable to the contract Thus, there will be no limitations on the contractually determined default interest rate.

ii. Pursuant to Article 9 of the TCC, "in commercial affairs, interest rate under the legislation currently in effect shall be applicable regarding contractual interest and default interest." To this end, it is argued that Article 8 of the TCC only covers contractual interest and excludes default interest. Therefore, the specifics regarding default interest rate would be regulated under Article 120/2 of the TCO. Pursuant to Article 120/2 of the TCO, "the contractually determined default interest rate shall not exceed two fold of the rate determined under Article 120/1". Article 120/1 refers to the legislation currently in effect which would be the rate under the Interest Law: 9 % as indicated under Article 1 and Article 2 of the Interest Law. Furthermore, pursuant to Article 2 of the Interest Law, in the event that the interest rate in advance transactions determined by the Turkish Central Bank is higher than 9 % indicated under Article 1 of the Interest Law, then such higher amount shall become applicable and govern the contract between the parties (And if such amount was lower than 9 %, then the 9 % rate would be applicable). Such interest rate in advance transactions has been determined to be 13.75 % as of December 20, 2012. Since the upper limit for contractual interest is twofold the rate referred to under Article 120/1, then following the upper limit for default interest is 27.5 % (13.75*2). Thus, this opinion, if accepted, would cover both the cases where the parties have contractually determined the default interest rate in which case any rate above 27.5 % would be considered void and cases where default interest is not contractually determined in which case the interest rate would be automatically 27.5 %.

Applying the criteria set out above, the following should be deducted regarding the application of default interest:

a. If undetermined by the parties:

In the event that the default interest rate is not contractually determined by the parties, then Article 120/1 of the TCO would become applicable. Article 120/1 refers to the legislation currently in effect which would be the Interest Law and the rate under the same; that is 9 % as indicated under Article 1 and Article 2 of the Interest Law. Furthermore, pursuant to Article 2 of the Interest Law, in the event that the interest rate in advance transactions determined by the Turkish Central Bank is higher than 9 % indicated under Article 1 of the Interest Law, then such higher amount shall become applicable and govern the contract between the parties (And if such amount was lower than 9 %, then the 9 % rate would be applicable). Such interest rate in advance transactions has been determined to be 13.75 % as of December 20, 2012.

b. If determined by the parties:

In the event that the rate of default interest is contractually determined by the parties, then the debate set out in 2.i and 2.ii above will kick-in. Therefore, if a complete liberty in determining the contractual default interest rate is accepted, then the rate indicated in the contract shall prevail. In the event that a stricter interpretation is followed as set out in 2.ii above, then the default interest may only go up to 27.5 % and any interest rate determined by the parties exceeding the 27.5 % rate shall be void and the 27.5 % rate shall govern the contract between the parties.

3. Compound Interest under the TCC:

In principle, interest on the accrued interest (i.e. compound interest) is prohibited under Turkish law. However, there are exceptions to this rule, and the following rules will apply when interest is accrued on interest:

i. Pursuant to Article 8/2 of the TCC, in loan facilities and current account, accrual of capital interest on principal payment plus previous terms' capital interest is allowed in three month intervals provided that the legal relation between the parties qualifies as a commercial affair for both parties. Accordingly, compound interest would be added to principal in three month intervals

ii. Pursuant to Article 121/1 of the TCO, accrual of default interest on the principal payment plus capital interest is allowed only if legal procedures are initiated. As this rule is not mandatory, parties can agree otherwise and the contractual arrangements will prevail.

iii. Pursuant to Article 121/3 of the TCO, accrual of interest on default interest is not allowed and this is mandatory. Parties cannot agree otherwise contractually.

ii. The TCO:

In principle, the terms of the TCO shall apply to transactions that are non-commercial in nature. Therefore the evaluations below shall be applicable for non-commercial transactions.

1. Contractual Interest

a. If undetermined by the parties

Pursuant to Article 88 of the TCO, in the event that the annual rate of contractual interest is not determined by the parties, then such contractual interest rate under the legislation currently in effect shall be applicable. Such contractual interest rate, currently in effect, is determined under the Interest Law and pursuant to Article 1 and Article 2 of the Interest Law, such rate is 9 %.

b. If determined by the parties

Article 88 of the TCO explicitly regulates that the annual rate of contractual interest may not exceed 50 % more of the interest rate determined by the legislation currently in effect. Such contractual interest rate, currently in effect, is determined under the Interest Law. Pursuant to Article 1 and Article 2 of the Interest Law such rate is 9 % and therefore the contractual interest rate to be determined by the parties may only go up to 13.5 % (9+[9/2]).

2. Default Interest

a. If contractually undetermined by the parties:

Pursuant to Article 120/1 of the TCO, the default interest rate shall not exceed the two fold of the interest rate determined by the legislation currently in effect. Such default interest rate, currently in effect, is determined under the Interest Law. Pursuant to Article 1 and Article 2 of the Interest Law, such rate shall be 9 %. Furthermore, in the event that contractual interest rate is determined by the parties while the default interest is not and the annual contractual interest rate is higher than the 9 % determined under Article 120/1 of the TCO, then such higher rate determined among the parties shall also apply as the default interest rate.

b. If contractually determined by the parties

On the other hand, the TCO also regulates certain limitations on the contractual freedom of parties in determining the rate of default interest. In this regard, pursuant to Article 120 of the TCO, the default interest rate referred to in Article 120 of the TCO may only go up to 18 %; the two fold of 9 % as determined by Article 1 and Article 2 of the Interest Law.

3. Compound Interest under the TCO:

In principle, interest on the accrued interest (i.e. compound interest) is prohibited under Turkish law. However, there are exceptions to this rule, and the following rules will apply when interest is accrued on interest:

i. Pursuant to Article 121/1 of the TCO, accrual of default interest on the principal payment plus capital interest is allowed only if legal procedures are initiated. As this rule is not mandatory, parties can agree otherwise and the contractual arrangements will prevail.

ii. Pursuant to Article 121/3 of the TCO, accrual of interest on default interest is not allowed and this is mandatory. Parties cannot agree otherwise contractually.

Footnotes

1. Please note that the interest rates indicated below are current as of the date hereof for Turkish Lira based transactions and the rates for Turkish Lira based transactions and foreign currency based transactions may differ and be subject to change at any time.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions