Lease agreements are executed in Turkey for many different purposes, such as settling in Turkey, establishing a company, leasing real estate for commercial purposes, or renting out a property after acquiring it for investment purposes or through investment-based Turkish citizenship. In this article, we will address certain aspects of lease law that are of particular interest to foreign real estate investors.
Lease Relationship
A lease agreement is a contract whereby the lessor undertakes to grant the lessee the use and enjoyment of a property, and the lessee undertakes to pay the agreed rent in return.
A lease agreement may be executed not only for real estate, but also for movable property, vehicles, products, or for commercial purposes.
Form of the Lease Agreement
Lease agreements are generally executed in ordinary written form. In practice, parties usually use standard template agreements and only add specific details such as the rental amount, deposit amount, lease term, and the fixtures or furnishings to be delivered together with the property.
However, in order to give the agreement a more official character—particularly for companies with high commercial volumes or for premises leased from associations or foundations—it is also possible to have such written agreements notarized before a notary public.
Determination of Rent in Foreign Currency
When the Law on the Protection of the Value of Turkish Currency, the relevant regulations, Presidential Decree No. 32, and all amending decrees are evaluated together, it is understood that, for contracts executed in Turkey between Turkish residents, the contract price and all other payment obligations arising from such contracts cannot be determined in foreign currency or indexed to foreign currency.
From the perspective of this provision, if one of the parties is not resident in Turkey, this means that the contract may be executed in foreign currency. Being non-resident may generally be understood as not residing in Turkey, not benefiting from social and political rights in Turkey, and not maintaining the major part of one’s life in Turkey.
With regard to companies, in addition to the place where the company is established and resident, it is also possible to execute lease agreements in foreign currency where the tenant is:
– a branch, representative office, liaison office, or office in Turkey belonging to persons resident abroad,
– a company in which persons resident abroad directly or indirectly hold 50% or more ownership or joint control and/or control,
– or a company operating in free zones within the scope of free zone activities.
Foreign diplomatic and consular missions in Turkey, as well as the personnel working within such missions, may also execute lease agreements in foreign currency in Turkey.
Diplomatic Clauses
In many cases, personnel appointed by foreign diplomatic missions remain in Turkey for a limited assignment period and leave the country once their duty ends.
In order to protect both the tenant and the landlord in such situations, diplomatic clauses may be added to the lease agreement, allowing the expiration of the assignment period to constitute a valid termination ground.
Consequences of Violating the Foreign Currency Lease Ban
Lease agreements executed in violation of the foreign currency restrictions by persons who do not fall within the exceptions provided under the legislation are deemed invalid only with respect to the rental amount provision. In other words, while the contractual relationship itself remains valid, the provision regarding the rent amount will not be enforceable.
In such cases, it will generally be sufficient for the parties to determine the rental amount in Turkish Lira either by executing an additional protocol or by mutually amending the agreement.
Where a contract has been executed in violation of the prohibition and payment has already been made in foreign currency, reimbursement of the unlawful payment may also be claimed. It is possible that payment made in foreign currency exceeds the amount that should have been paid in Turkish Lira. In such cases, reimbursement of the excess amount may be requested.
In addition, executing agreements in violation of the foreign currency contract prohibition may also result in administrative sanctions. Accordingly, administrative fines may be imposed on the parties to such agreements executed contrary to the applicable legislation.
