Turkey: Real Property In Turkey – Is It Real?

Our readers may recall that in our previous editions we had covered the increased interest of foreigners in acquiring real property in Turkey following the amendment to Article 35 of the Title Deed Law (“Title Deed Law”) with Law No. 4916 (“Law No. 4916”), removing many restrictions so as to facilitate the acquisition of real property by foreigners.

According to Law No. 4916, there are two conditions for foreigners to acquire real property in Turkey: (i) reciprocity principle regulated under the Law on Reciprocity (Mukabelei Bil Misil Kanunu) and (ii) obligation to comply with the legal limitations as set forth under the Village Law, Law on Restricted Military Zones and Security Regions.

We had also previously reported that, according to a report dated 14 July 2004 prepared by the Title Deed Registry General Directorate 5,306 real properties corresponding to 273,408,392 square meters were purchased by foreigners upon the promulgation of Law No. 4916. However, following the promulgation of Law No. 4916, the main opposition party, the Republican People’s Party (Cumhuriyet Halk Partisi), filed a lawsuit before the Constitutional Court for abolition of Article 19 of Law No. 4916 amending Article 35 of the Title Deed Law.

Through its decision dated 14 March 2005¹, the Constitutional Court abolished Article 19 of Law No. 4916 amending Article 35 of the Title Deed Law. The Constitutional Court held that Article 35 renders the real property acquisition of foreigners only subject to the presence of the reciprocity rule and compliance with the legal limitations. The Constitutional Court stated that the said article did not set forth clear procedures and principles regarding which real properties could be acquired by foreigners. As such, the Constitutional Court noted that the relevant provisions did not clearly set forth whether or not foreigners may purchase lands or buildings, whether or not there is any restriction regarding the locations of such real properties, and whether or not the purpose of purchasing such real properties would make any difference. The Constitutional Court further argued that the pre-condition of the rule of law principle is that the laws should include clear, understandable and clear-cut provisions. However, as per the foregoing reasons, the Constitutional Court ruled that Article 35 was vague and clearly in contradiction with the rule of law principle.

The Constitutional Court also referred to Article 7 of the Constitution, which provides that “the legislative authority is used by the Turkish Grand National Assembly on behalf of the Turkish public. This authority is non-transferable.” Based on this provision of the Constitution, the Constitutional Court concluded that the Council of Ministers could not be delegated with general, unlimited and vague regulatory powers. However, the fifth paragraph of Article 35 that reads “with regard to public interest and state security, the Council of Ministers is authorized to determine where this article will not be implemented” grants the Council of Ministers an unlimited discretion since the meanings of “public interest” and “state security” are vague. This paragraph also contradicts with Article 16 of the Turkish Constitution stating that the basic rights and freedoms of foreigners can only be restricted by way of law and in compliance with the principles of international law. However, the said paragraph enables the Council of Ministers to limit the basic rights and freedoms of foreigners without the necessity of enacting a law.

According to Turkish law, decisions of the Constitutional Court enter into force on the date the decision is published in the Official Gazette. However, the Constitutional Court decided that this decision would enter into force three months after its publication in the Official Gazette, granting time to the legislator to re-regulate this very important matter. Accordingly, Article 35 was officially abolished on 26 July 2005. As a result, foreigners are no longer allowed to purchase real property in Turkey until a new legislation is enacted in this respect.

For the avoidance of doubt, it is worth noting that the Constitutional Court’s decision does not have an effect on foreign investment companies incorporated in Turkey. According to the Foreign Direct Investment Law, foreign investors are subject to equal treatment with domestic investors. Therefore, foreign capital companies that are duly established in Turkey are not considered as foreign companies, but as Turkish companies. Hence, any foreign capital company established in Turkey may freely acquire real property or rights in rem in areas where Turkish citizens can acquire real properties. It should also be noted that, all acquisitions realized until 26 July 2005 will remain valid as per the respect to vested rights.

We believe that the Government will soon introduce a new bill – in fact a draft has already been prepared and currently² lacking only two ministers’ signatures before its submission to the Turkish Grand National Assembly - before the Parliament since the current Government’s tendency is to open Turkish land to foreign investment, thus trying to lift all barriers before foreign investors.

Footnotes

17 http://www.ntvmsnbc.com/news/346217.asp
18 The decision is not published yet.
1. Published in the Official Gazette numbered 25797 and dated 26 April 2005.
2. as of 26 October 2005.

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