Turkey: Acquisition Of A Real Estate Or Limited Rights In Rem Over A Real Estate By Foreign Investors In Turkey As Per The Latest Amendments Made In Land Registry Law

The purpose of this guide is to provide brief information on the legal status of the acquisition of a real estate or limited rights in rem over a real estate in Turkey by foreign investors in accordance with the latest amendments made in Land Registry Law numbered 2644 ("Land Registry Law") by the Law numbered 6302 dated 3 May 2012.

We have thought that these amendments would be of huge importance since the citizens of many countries have become eligible for the purchase of real estates in Turkey by these latest amendments.

In this regard, this memorandum consists of two (2) sections respectively dealing with (i) brief summary of former regulation evaluating the legal status of the acquisitions by foreign individuals, foreign commercial companies and Turkish companies partially or wholly owned/directed by foreigners (ii) explanation of current legal status of real estate acquisitions by foreign individuals, foreign commercial companies and Turkish companies partially or wholly owned/directed by foreigners

1. THE LEGAL STATUS OF REAL ESTATE ACQUISITIONS BY FOREIGN INDIVIDUALS AND COMPANIES WITHIN THE CONTEXT OF FORMER REGULATION

Foreigners intended to purchase real estate in Turkey have been subject to various versions of Article 35 and 36 of Land Registry Law due to numerous amendments that had been made in the past.

If we define the legal framework constituted by the former version of Land Registry Law, we would have to make a tripartite analysis that can be itemized as:

• Acquisition by Foreign Individuals
• Acquisition by Foreign Companies
• Acquisitions by Turkish Companies Wholly or Partially Owned by Foreign Legal Persons or Individuals

Acquisition by Foreign Individuals

Latest version of Article 35 (1) which was defining the legislation related to acquisition of real estate properties by foreign individuals was determined as follows:

So this Article was bringing four main rules for the acquisition of a real estate property by a foreign individual:

The same rule was applied if a foreign individual acquires limited rights in rem (such as easements, usufructs, etc.) over a real estate in Turkey.

In addition to that, paragraph 7 of Article 35 was bringing the limitation that the total area of the lands owned or over which limited rights in rem are acquired by foreign individuals in a specific district (ilçe) cannot exceed 10% of the total area within the implemental zoning plan or the regional zoning plan of such district.

We are of the opinion that a special focus shall be made on the matter of "reciprocity" since it was the main impediment for the acquisition of real estate properties by many individuals of many countries.

Article 35 paragraph 6 of the former regulation was not only requiring that home country of the purchaser applies legal reciprocity with Turkey, it was also requiring a

"de facto" reciprocity when determining whether reciprocity regarding the acquisition of properties does exist between Turkey and the country in question. Thus, citizens of

many countries who were willing to acquire property in Turkey were being disappointed since they were unable to purchase properties due to the fact their country was not allowing Turkish citizens to acquire property from their country. However, with the adoption of latest regulations, the authority to determine the eligible counties regarding the acquisition of properties have been given to Turkish Council of Ministers which have resulted as the "abolition of reciprocity rule", as will be explained below.

Acquisition by Foreign Companies

The former regulation was only allowing foreign commercial companies as the only foreign legal persons entitled to acquire a real estate in Turkey. However, such allowance was a limited one as might be expected. As per paragraph (2) of Article of 35, foreign companies were able to acquire real estate or limited rights in rem in Turkey (i) if the purchase was being made by a company that had been incorporated only for commercial purposes; and (ii) it was deemed eligible to acquire real estate under the limited circumstances provided in certain specific laws, such as the Privatization Law, Mining Law, Petroleum Law, Tourism Incentive Law, Law on National Parks, Electricity Market Law, Industrial Zones Law. In other words, foreign legal entities such as foundations, associations, societies, etc. cannot acquire a real estate or limited rights in rem over a real estate in Turkey.

Acquisitions by Turkish Companies Wholly or Partially Owned by Foreign Legal Entities or Individuals

As per former regulations, Turkish companies, founders or shareholders of which are foreign persons (either individual or legal person) was able to acquire real estate properties to the extent that such acquisition is made in order to carry out the activities listed in the Articles of Association of the said company (Land Registry Law, Article 36 (1)). The Ministry of Finance was deemed authorized to order the disposal of the property and to sell the same if it was discovered that the related property was not used in accordance with the provisions in the Articles of Association defining the activities of the companies.

As can be seen from the brief summary given above in relation to acquisition of real estate properties by foreigners, the previous regulations had established many

impediments such as reciprocity rule to be fulfilled by the country of the purchaser individual, need for special laws for the acquisition of properties by foreign commercial companies or conformity of the activity of the purchaser Turkish

company shareholder or director which is a foreign individual/legal person with the use purpose of the real estate.

Despite the fact that some of these requirements still exist, we expect to have a big increase in the real estate acquisitions to be made by the foreign person/entities with the latest amendments made in the Land Registry Law.

2. THE LEGAL STATUS OF REAL ESTATE ACQUISITIONS BY FOREIGN INDIVIDUALS AND COMPANIES WITHIN THE CONTEXT OF AMENDMENTS DATED 3 MAY 2012

As will be seen below, as a result of the politics of current government aiming to attract foreign investment in Turkey and to ensure a strong cooperation with eastern countries, the procedure for the acquisition of real estate by the foreigners has been clearly softened with the latest amendments made in the Land Registry Law.

The first aspect that seems to have changed is that Council of Ministers has obtained many of the previous authorities that had belonged to the legislation.

Abolition of Reciprocity Rule

The most important one of these authorities allocated to the government is to determine the citizens of the countries able to acquire real estates and the restrictions to be applied to the same. Thus, the "reciprocity" principle, which had brought the requirement for the country of the foreigner to ensure the legal and practical opportunity of purchasing real estate properties for Turkish persons so that such foreigner would be deemed eligible for the purchase a real estate property, has been abolished. Some of the new eligible countries are UAE, Azerbaijan, Qatar, Kuwait, Saudi Arabia, Russia.

The related part of amended Article 35 has become as follows:

Additionally, in the third paragraph of Article, Council of Ministers has been provided with the authority to determine and limit the acquisition on the basis country, persons geographical region, duration, number and surface.

Expansion of Types of Properties

As already explained in the first part of our guide, foreign individuals and foreign commercial companies were only entitled to acquire properties for residential or commercial purposes. This restriction has been removed and in addition to residential and commercial purposes, foreigners have become able to acquire lands whether with an agricultural nature or not. In case these immovables are purchased, a project shall be developed and submitted to the related Ministry within two years. However, the list published by Council of Minister still prohibits citizens of certain countries from purchasing some types of properties. (Please kindly be aware that you can contact us in order to find out the restrictions brought for the citizens of the country you are interested in.)

We also would like to underline that foreign individuals and commercial companies are entitled to obtain limited rights in rem provided that they comply with the other requirements brought by the regulations.

Restriction Related to Upper Limit

As explained in the first part, the total area of all the real estate owned by a foreign individual was not allowed to exceed 2.5 hectares (25,000 m2) as per the previous regulations. This upper limit has been increased with the latest amendments made on 03.05.2012. The new provision foresees that foreign individuals shall be allowed to acquire properties total sum of which shall not exceed 30 hectares (300,000 m2) throughout the whole country. The Council of Ministers has been exclusively authorized to double this amount.

In addition to that, the new legislation has kept the limitation regarding the total surface of the properties or rights in rem owned by foreign individuals. As per such provision, the total surface of properties owned by foreign individuals cannot exceed 10% in a district (ilçe).

Status of Foreign Legal Entities

In accordance with the previous regulations, foreign legal entities other than the legal entity commercial companies, such as foundations, institutions, communities, unions, cannot acquire immovables and limited rights in rem. Foreign commercial companies are only able to acquire properties within the context of special laws as was the case during the previous regulations.

The amendments also protect the previous legal status in relation to establishment of mortgages whereas every foreigner individual or commercial company are eligible to acquire a right of mortgage without being subject to any kind of legal restriction determined in Article 35. (i.e. being in the list determined by the Council of Ministers, requirement of special legislation for the purchase of property of commercial companies)

Status of Turkish Companies Wholly or Partially Owned by Foreign Legal Entities or Individuals

As described above, during the previous legislation it was enough for Turkish companies to have a foreign shareholder in order to be subject to the limitation brought by the Land Registry Law which foresees the limitation of Turkish companies with foreign participation regarding the acquisition to the extent that they purchase the same in order to perform the activities defined in their Articles of Association. Foreign participation was enough in order Turkish companies to be subject to the legal limitation.

On the other side, the latest amendments have softened the previous rule and brought the provision that Turkish companies fifty percent or more shares of which are possessed by international institutions and/or foreign individuals and/or legal entities or even though the aforesaid share ratio is not possessed by the same and where the assigning and releasing rights of the majority of the persons with management rights are granted to the same foreign persons, these companies are only entitled to acquire and use immovable property or limited right in rem in order to conduct the operations set under their Articles of Association.

The main difference between two regulations is the fact that the participation ratio for the application of the limitation brought by the Law has been diminished. In paragraph 4 of Article 36 it has been clearly determined that Turkish companies with foreign capital outside the scope of the abovementioned definitions may acquire and utilize immovable property and limited right in rem within the frames of provisions domestic capital companies are subject to.

Another remark shall be made regarding the fact that the Land Registry Law still requires that an application shall be made to military authorities regarding the acquisitions of properties in military zones and to governorships in special security zones. However, it is a known fact that the Turkish legislator is intended to fasten this process by sending all the documents regarding the properties in military areas to title deeds and implementing the related information regarding the same in order to eliminate the permission to be granted as a result of the application made.

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.