Co-authored by Iris Erbil and Baris Sahin

1.1 Please briefly describe the main laws that govern real estate in your jurisdiction. Laws relating to leases of business premises should be listed in response to question 10.1. Those relating to zoning and environmental should be listed in response to question 11.1.

The main laws that governs real estate in Turkey is Turkish Civil Code ("TCC") and the Code of Obligations ("TCO").

1.2 What is the impact (if any) on real estate of local common law in your jurisdiction?

Turkey is a civil law country. Therefore, in general, precedent court decisions only have an interpretative impact.

1.3 Are international laws relevant to real estate in your jurisdiction? Please ignore EU legislation enacted locally in EU countries.

No, they are not.

2 Ownership

2.1 Are there legal restrictions on ownership of real estate by particular classes of persons (e.g. non-resident persons)?

There are legal restrictions on the acquisition of real estate by foreign individuals, foreign entities, and Turkish companies with foreign capital.

Citizens of certain countries can acquire real estate subject to certain limits, whereas citizens of certain countries cannot acquire real estate in Turkey at all.

Foreign entities cannot acquire real estate, save for acquisitions made by foreign companies within the scope of the Tourism Incentive Law, Petroleum Law, and Industrial Zones Law.

Foreign capital companies, i.e. Turkish companies with foreign shareholding of 50% or more or Turkish companies under foreign control, may acquire real estate subject to a permission process.

3 Real Estate Rights

3.1 What are the types of rights over land recognised in your jurisdiction? Are any of them purely contractual between the parties?

Right of ownership, easements rights (usufruct, right of construction, and other easement rights), real estate charge, and mortgage are in rem rights that can be established over land.

On the other hand, rights arising from preliminary sale agreements, right of purchase agreements, right of first refusal agreements, and repurchase agreements are purely contractual rights. However, such rights/agreements may be annotated to the relevant land registry, and thereby be asserted vis-à-vis third parties, i.e. new land owners, in which case they cannot be classified as "purely contractual". For the same reason, while right of a lessee to use the leased property is a contractual right, it cannot be classified as "purely contractual", as the new owner of a leased real estate automatically becomes a party to the lease agreement between the lessee and the former owner.

3.2 Are there any scenarios where the right to a real estate diverges from the right to a building constructed thereon?

Yes, in some exceptional cases. For instance, a building constructed based on a right of construction, which allows the owner of the right to build a construction on a land owned by a third party, would belong to the owner of the right of construction.

4 System of Registration

4.1 Is all land in your jurisdiction required to be registered? What land (or rights) are unregistered?

In general, all land is required to be registered to the relevant land register. However, public land is not required to be registered, unless a compulsory registrable right is to be established thereover.

4.2 Is there a state guarantee of title? What does it guarantee?

The State is responsible for the proper maintenance of the records in the land register, and is, therefore, liable to compensate all damage/loss arising from the maintenance of the land registry.

4.3 What rights in land are compulsory registrable? What (if any) is the consequence of non-registration?

All rights in rem are compulsorily registrable, meaning that they cannot be established, and thus do not exist without registration.

4.4 What rights in land are not required to be registered?

Only rights in rem are compulsory registrable. Most other rights in land may be annotated to the land register on a voluntary basis, which would enable assertion of such rights vis-à-vis third parties.

4.5 Where there are both unregistered and registered land or rights is there a probationary period following first registration or are there perhaps different classes or qualities of title on first registration? Please give details. First registration means the occasion upon which unregistered land or rights are first registered in the registries.

No, there is not a probationary period following first registration. However, a provisional registration is available for claimants on unregistered lands.

4.6 On a land sale, when is title (or ownership) transferred to the buyer?

Title is transferred to the buyer upon registration to the land register.

4.7 Please briefly describe how some rights obtain priority over other rights. Do earlier rights defeat later rights?

All rights in rem other than ownership ("encumbrances in rem") have restrictive effects on right of ownership, and therefore naturally have priority over right of ownership.

The principle "earlier rights defeat later rights" applies to priority of encumbrances in rem between each other. Accordingly, encumbrances in rem established earlier have priority over those established later.

On the other hand, priority of mortgages between each other is determined by their assigned rank; as such, the principle does not apply to priority of mortgages between each other.

As for priority between mortgages and other encumbrances in rem, the main principle applies with a slight modification that enables reserving a mortgage rank before the establishment of an actual mortgage right. In such case, mortgage right is considered as an "earlier right", if the reserved rank, not the mortgage right itself, is established earlier.

4 The Registry / Registries

5.1 How many land registries operate in your jurisdiction? If more than one please specify their differing rules and requirements.

There are 970 land registry directorates in Turkey. Directorates of land registries operate under 22 regional directorates, which operate under the General Directorate of Land Registry and Cadastre. All land registries are subject to the same regulations, and do not have substantially differing requirements.

5.2 Does the land registry issue a physical title document to the owners of registered real estate?

Yes, the land registry issues a title deed.

5.3 Can any transaction relating to registered real estate be completed electronically? What documents need to be provided to the land registry for the registration of ownership right? Can information on ownership of registered real estate be accessed electronically?

Real estate transactions cannot be completed electronically.

Documents showing identity/authorisation, a copy of the title deed, photos (for real persons), mandatory earthquake insurance policy (for buildings), a document obtained from the relevant municipality showing real estate tax basis, and other documents as may be requested by the land registry must be provided.

It is possible for some public institutions and state-owned companies to access information on ownership of registered real estate electronically. Information available for other persons/companies is very limited.

5.4 Can compensation be claimed from the registry/registries if it/they makes a mistake?

Yes, it can.

5.5 Are there restrictions on public access to the register? Can a buyer obtain all the information he might reasonably need regarding encumbrances and other rights affecting real estate?

The land register is open to every person who proves legitimate interest. However, in practice, land registries do not generally allow third party access to the register due to confidentiality concerns. A buyer can still obtain information on encumbrances by requesting the seller to provide an encumbrance document obtained from the relevant registry.

6 Real Estate Market

6.1 Which parties (in addition to the buyer and seller and the buyer's finance provider) would normally be involved in a real estate transaction in your jurisdiction? Please briefly describe their roles and/or duties.

Real estate agents are normally hired by sellers to facilitate the sale. Also, real estate appraisal companies may be involved in real estate transactions on a voluntary or mandatory basis.

6.2 How and on what basis are these persons remunerated?

Real estate agents are awarded a success fee as a percentage over the sale price, which is normally borne on the buyer. On the other hand, real estate appraisal companies work on a fixed fee basis.

6.3 Do you feel there is a noticeable increase in the availability of capital to finance real estate transactions in your jurisdiction, whether equity or debt? What are the main sources of capital you see active in your market?

The main sources of capital for real estate markets are banks and real estate investment trusts. For Turkey, 2016 has not been a year of noticeable increase in available capital.

6.4 What is the appetite for investors and developers in your region to look beyond primary real estate markets and transact business in secondary or even tertiary markets? Please give examples of significant secondary or tertiary real estate transactions, if relevant.

The appetite for investors/developers for secondary markets is relatively high in Turkey.

6.5 Have you observed any trends in particular market sub sectors slowing down in your jurisdiction in terms of their attractiveness to investors/developers? Please give examples.

Yes, the housing market has slowed down in the eastern Black Sea region.

7 Liabilities of Buyers and Sellers in Real Estate Transactions

7.1 What (if any) are the minimum formalities for the sale and purchase of real estate?

The seller and the buyer shall apply to the relevant land registry and sign an official deed prepared by the registry.

7.2 Is the seller under a duty of disclosure? What matters must be disclosed?

Under TCO, the seller is liable for the defects that compromise the value or use of the real estate. However, the seller is not liable for defects known (or would have been known upon sufficient examination) to the buyer before the conclusion of the deal, which creates an incentive, if not a duty, for the seller to disclose defects.

7.3 Can the seller be liable to the buyer for misrepresentation?

Yes, a seller can be liable to the buyer for misrepresentation.

7.4 Do sellers usually give contractual warranties to the buyer? What would be the scope of these? What is the function of warranties (e.g. to apportion risk, to give information)? Are warranties a substitute for the buyer carrying out his own diligence?

Buyers usually request warranties regarding lawful ownership, validity of licences/permits, and ownership without any encumbrance, existing expropriation procedure, legal dispute, and other claims. The function of warranties is to clearly set forth the expectations of the buyer and to form a base for legal proceedings upon their breach, rather than to substitute buyers' due diligence.

7.5 Does the seller warrant its ownership in any way? Please give details.

Under TCO, the seller is liable for the seizure of real estate by a third party based on a claim existing at the time of sale, provided that the seller is not aware of the risk of seizure at the time of the sale.

7.6 What (if any) are the liabilities of the buyer (in addition to paying the sale price)?

The buyer should also pay sale-related costs.

8 Finance and Banking

8.1 Please briefly describe any regulations concerning the lending of money to finance real estate. Are the rules different as between resident and non-resident persons and/or between individual persons and corporate entities?

Banking Law and the Regulation on Bank Loans are the main regulations directly concerning the lending of money. Furthermore, the Law on Protection of Consumers contains rules on real estate financing that are only applicable to consumer financing.

8.2 What are the main methods by which a real estate lender seeks to protect itself from default by the borrower?

Lenders request security, which is commonly mortgage on the target real estate. Lenders also seek protection with the provisions of loan documentation, particularly with acceleration provisions that are aimed at enabling acceleration at early indicators of default risk.

8.3 What are the common proceedings for realisation of mortgaged properties? Are there any options for a mortgagee to realise a mortgaged property without involving court proceedings or the contribution of the mortgagor?

Realisation of mortgaged properties is commonly made by way of official public auction, and the mortgagee has two paths to reach the public auction stage. The mortgagee can either apply to the relevant execution office to initiate foreclosure proceedings before obtaining a court order, or it can first obtain a court order and then apply to the relevant execution office for enforcement. Foreclosure without a court order is more convenient and therefore common, since such proceeding would involve a court proceeding only upon debtor's objection, which is discouraged by compensation liability imposed for unjustified objections.

8.4 What minimum formalities are required for real estate lending?

The buyer first needs to apply for a loan and, once the loan is approved, sign a loan agreement with the bank. The buyer and the seller should then sign an official sale agreement before the relevant land registry and thereafter register the change of title. Simultaneously with the registry of the change of title, the buyer and the lender should sign and register an official mortgage agreement before the registry.

8.5 How is a real estate lender protected from claims against the borrower or the real estate asset by other creditors?

Real estate lenders customarily request mortgage to secure their loan and, save for certain taxes/duties relating to the mortgaged real estate, mortgagees have priority over foreclosure proceeds of the mortgaged real estate.

9 Tax

9.1 Are transfers of real estate subject to a transfer tax? How much? Who is liable?

Real estate sale transactions are exempt from stamp duty. However, parties must pay a land registry fee at the rate of 4% of the purchase price. Each party normally pays 2% of the purchase price separately, but parties may negotiate the distribution of the fee.

If parties prefer to execute a preliminary sale agreement, whereby the parties agree to sign a sale agreement at a future time, a stamp duty at the rate of 0.948% over the purchase price with an upper limit of TRY 1,797,117.30 (as of 2016) needs to be paid. Parties of a preliminary sale agreement may contractually determine the party that will be liable to pay the stamp duty, but even so they will be jointly liable vis-à-vis tax authorities.

9.2 When is the transfer tax paid?

A land registry fee must be paid before the registration of title change.

Stamp tax payable in respect of a preliminary sale agreement needs to be paid at notary before notarisation.

9.3 Are transfers of real estate by individuals subject to income tax?

Yes; if the real estate is held for less than five years, and financial gain generated from the sale is in excess of a certain amount (TRY 11,000 as of 2016), transfer is subject to income tax.

9.4 Are transfers of real estate subject to VAT? How much? Who is liable? Are there any exemptions?

The sale of real estate by legal entities is subject to VAT; whereas sale by individuals is not subject to VAT in principle.

The VAT rate is in general 18%, but is 1% for the sale of residential real estate with a surface area below 150m2.

VAT must be paid by the buyer to the seller, and the seller must pay VAT to the relevant tax authority.

If a company holds a real estate for two years, the sale of such real estate would not incur VAT, but this exemption does not extend to companies that engage in real estate business.

9.5 What other tax or taxes (if any) are payable by the seller on the disposal of a property?

There are none.

9.6 Is taxation different if ownership of a company (or other entity) owning real estate is transferred?

Similar to real estate sales, financial gain on share transfers is subject to income tax, which can be avoided in joint stock companies by holding the shares of the company for two years. Real estate sales and share transfers are both exempt from stamp duty. In contrast to real estate sales, share transfers are not subject to VAT.

10 Leases of Business Premises

10.1 Please briefly describe the main laws that regulate leases of business premises.

Lease of business premises are regulated under the TCO.

10.2 What types of business lease exist?

Under the TCO, there are two types of business lease: roofed business lease; and land business lease, for which the TCO provides different rules.

10.3 What are the typical provisions for leases of business premises in your jurisdiction regarding: (a) length of term; (b) rent increases; (c) tenant's right to sell or sub-lease; (d) insurance; (e) (i) change of control of the tenant; and (ii) transfer of lease as a result of a corporate restructuring (e.g. merger); and (f) repairs?

  1. The length of term varies depending on the differing needs of businesses.
  2. Rent increases are in general indexed to inflation.
  3. A tenant's right to sublease is typically subject to the consent of the landlord.
  4. Landlords are typically in charge of insurance.
    1. Landlords are typically in charge of major repairs, while tenants are in charge of minor repairs.
    2. Change of control or corporate restructuring of the tenant does not in general effect the lease agreement.
    1. Landlords are typically in charge of insurance and major repairs, while tenants are in charge of minor repairs.

    10.4 What taxes are payable on rent either by the landlord or tenant of a business lease?

    Parties must pay stamp tax at the rate of 0.189% over the rent. While the landlord and tenant are jointly liable for the stamp duty, the full amount is usually paid by tenants. If the landlord is a commercial legal entity, the tenant must pay VAT at a rate of 18% over rent payments. On the other hand, if the landlord is an individual, tenants need to pay withholding tax at a rate of 20%.

    10.5 In what circumstances are business leases usually terminated (e.g. at expiry, on default, by either party etc.)? Are there any special provisions allowing a tenant to extend or renew the lease or for either party to be compensated by the other for any reason on termination?

    Business leases are usually terminated on expiry or default. Lease agreements for definite term frequently include automatic extension provisions as well as compensation provisions, particularly for termination of the lease before the term or without complying with the notice period.

    10.6 Does the landlord and/or the tenant of a business lease cease to be liable for their respective obligations under the lease once they have sold their interest? Can they be responsible after the sale in respect of pre-sale non-compliance?

    Upon change of title in the leased property, the new owner becomes a party to the existing lease agreement. However, there can be circumstances where a former landlord and tenant are responsible towards each other in respect of pre-sale non-compliance.

    Under a TCO provision, which will come into force in July 1, 2020, the landlord of a business lease cannot withhold without good reason its consent for assignment by the lessee. However, in such case, the lessee is jointly liable with the assignee until the earlier of two years or the expiry of the lease.

    10.7 Green leases seek to impose obligations on landlords and tenants designed to promote greater sustainable use of buildings and in the reduction of the "environmental footprint" of a building. Please briefly describe any "green obligations" commonly found in leases stating whether these are clearly defined, enforceable legal obligations or something not amounting to enforceable legal obligations (for example aspirational objectives).

    Such clauses are uncommon in Turkey.

    11 Public Law Permits and Obligations

    11.1 What are the main laws which govern zoning and related matters concerning the use and occupation of land? Please briefly describe them and include environmental laws.

    The main legislation governing zoning and related matters is the Zoning Law and related regulations. The law is aimed at urbanisation with a plan in compatibility with science, public health, and environmental conditions.

    11.2 Can the state force land owners to sell land to it? If so please briefly describe including price mechanism.

    The State can expropriate real estate for public interest. Conditions/procedures of expropriation is mainly provided under Turkish Constitution and Expropriation Law ("Expropriation Law"). Under the regular expropriation procedure, a public institution that duly resolves to expropriate a real estate should first make an internal valuation and then approach the owner(s) for a negotiated sale. If an agreement cannot be reached, the public institution needs to initiate court proceedings for determination of the expropriation price and registration of the real estate. There is another expropriation procedure, immediate expropriation, which allows, under certain circumstances, application to the relevant court for seizure and utilisation of the target property before completion of the expropriation process. In each case, the relevant court assigns an expert commission for valuation of the target property.

    11.3 Which bodies control land/building use and/or occupation and environmental regulation? How do buyers obtain reliable information on these matters?

    Various public authority bodies, including relevant municipalities, governorships, ministries and the Ministry of Environment and Urbanization, are involved in planning control. Information on zoning may be obtained from publicly available zoning plans.

    11.4 What main permits or licences are required for building works and/or the use of real estate?

    A construction licence and a building use permit must be obtained from the relevant municipality/governorship, respectively, before starting construction or use.

    11.5 Are building/use permits and licences commonly obtained in your jurisdiction? Can implied permission be obtained in any way (e.g. by long use)?

    Construction licences and building use permits are commonly obtained in Turkey; however, in a considerable amount of cases, building use permits cannot be obtained due to incompatibility of the construction with the construction licence. Implied permission cannot be obtained.

    11.6 What is the appropriate cost of building/use permits and the time involved in obtaining them?

    Costs are determined on a per/sqm basis by the relevant municipality. A construction licence and building use permit can usually be obtained within 30 days, assuming that all documents are complete and the relevant municipality/governorship does not request extra documents.

    11.7 Are there any regulations on the protection of historic monuments in your jurisdiction? If any, when and how are they likely to affect the transfer of rights in real estate?

    Law on Protection of Cultural and Natural Heritage and related regulations aim to protect, among others, historic monuments. Pursuant to the law, transfer of historical monuments owned by state/public institutions is subject to the approval of the Ministry of Culture and Tourism. The law also imposes restrictions on the use of historical monuments owned privately and provides that in the case of expropriation of such, valuation will be made without taking into account age, rarity, and artistic merit of historic monuments, which of course hinder the transfer of such monuments.

    11.8 How can e.g. a potential buyer obtain reliable information on contamination and pollution of real estate? Is there a public register of contaminated land in your jurisdiction?

    The Ministry of Environment and Urbanization has recently established an information system for contaminated areas; however, the information system does not function as a public register.

    11.9 In what circumstances (if any) is environmental clean-up ever mandatory?

    Pursuant to Environment Law, whoever contaminates the environment shall procure environmental clean-up. Related regulations, particularly regulations on soil control, provide details on contamination evaluation and how it may trigger clean-up liability.

    11.10 Please briefly outline any regulatory requirements for the assessment and management of the energy performance of buildings in your jurisdiction.

    Energy Efficiency Law and the Regulation on Energy Performance of Buildings issued thereunder are the main pieces of legislation concerning energy performance of buildings. The regulation requires assessment of energy performance and obtainment of energy performance certificates for buildings.

    12 Climate Change

    12.1 Please briefly explain the nature and extent of any regulatory measures for reducing carbon dioxide emissions (including any mandatory emissions trading scheme).

    Under Turkish legislative framework, save for the regulations concerning greenhouse gas emissions, there does not exist any specific piece of legislation which directly aims to reduce carbon dioxide emissions. Having said the foregoing, the Ministry of Energy and Natural Resources supports the resources concerning carbon dioxide emission capture and carbon dioxide storage technologies.

    12.2 Are there any national greenhouse gas emissions reduction targets?

    Turkey is a party to several conventions on the protection of the environment, including Kyoto Protocol and the United Nations Framework Convention on Climate Change (the "Convention"). Consequently, Turkey is a part of the initiatives to reduce greenhouse gases. Having said the foregoing, pursuant to the Convention, Turkey is required to develop and apply policies which aim to fight climate change and to notify of the existing greenhouse gas emissions and provide data concerning such existing greenhouse gas emissions.

    12.3 Are there any other regulatory measures (not already mentioned) which aim to improve the sustainability of both newly constructed and existing buildings?

    Yes. The following laws and regulations, by imposing energy efficiency requirements, measures and standards, aim to improve the sustainability of both newly constructed and existing buildings:

    • The Standard of Thermal Insulation Requirements for Buildings (TS 825).
    • The Regulation on Heat Insulation in Buildings for New Buildings.
    • The Building Energy Performance Regulation.

    Originally published by ICLG

    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.