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Aktif Makale Real Estate Summary-Turkey

Yazan : Av.Kemal Çelik,ll.M. [Yazarla İletişim]


1. Legal Sources

The regulation of real estate law is set forth in section four of the Turkish Civil Code, named as Law of Property. This section stipulates the subject matter of real property,procedure for acquisition and termination of ownership rights and main principles of property law. In addition, the said section of property law deals with non-proprietary interests to real estate, such as easements, real estate obligations, mortgage and charge over property.

In the foregoing section,the Turkish Civil Code addresses various matters pertaining to title deed. The provisions dealing with law of real property may also be found in other sections of the Civil Code, such as the provisions concerning legal capacity to act are contained in the Law of Persons, the provisions concerning Marriage Property Regime are found in the Family Law and they may be applied as long as they are related to Real Property Law.

In addition, some private laws regulated the area of real property law warrant attention as the legal sources of Real Property Law:the Land Register Law No. 2644 of 1934, the law against prevention of real estate possession No. 3091 of 1984, Expropriation Law No. 2492 and Common Hold Law of 1965, having great importance in Turkish Law concerning great deal of storeys in residences of 1965 can be indicated as the sources pertaining to Real Property Law.

Particularly, after 1980’s an extreme migration to the cities and increasing of population caused the cities overpopulated that is the old restoration Law that has been regulated according to the old mentality,taking the central administrative style into consideration in a great scale and falling back the needs of country have been replaced by new Restoration Law of 3 March 1985 No. 3194.

Besides, in order to adopt the changing conditions of Turkey, Restoration Law and Temporary Land Survey Law have been abolished and replaced by New Land Survey Law in 1987.In this way, the ambiguity and contradiction emerging from different laws being valid in the same matter have been removed.

Besides, Multiple Residential Law as one of the sources of Real Property Law,Slum Area Law aiming at the prevention of slum construction because of the fast overpopulation of cities, Environment Law and Shore Law, etc.

As for the acquisition of Real Properties by means of new amendments have recently been realized in Land Register Law and Village Law to facilitate the formalities and restrictions in this field.After abrogation of some articles in new amendments, the law has been regulated again and implemented.Consequently, new law have especially enabled to bring facilities in the field of reciprocity.

Besides the Law OnLease of Real Estate, being applied in the relations between the landlords and tenants is aimed to protect the rights of tenants.

In short,the legislation in Turkish Law concerning the Regulations of Real Property Law has not been frequently amended in general. The necessary amendments were adopted in order to update the legislation in conformity with the developments of the real estate market.

2. Real Estate Definition

Turkey, being located in the point where continents meet, has a surface area of 814,578 square kilometers.Almost 39% of these lands are under governmental ruling and disposal, and the rest is subject to private ownership. Also, considering its high population and the construction sector's significant share in country's economy due to the residence need arising from the population, it is a fact that real estate law is extremely important in Turkey. Last years' rapid decrease in bank interests, which had rose to 5.5 per month during the crisis in 2001, and residence loan interests decreasing to 0.99 percent per month caused a major increase in residence purchase. According to the General Directorate of Land Register and Cadastrate's data, 571 thousand real estates, worth of USD 20.8 billion were sold in 15 major cities during January to September period of the year 2005. 145 thousand residences sold within 9 months in Istanbul, which has the biggest share in residence scale, worth USD 7.5 billion. In January to September period, number of hypothecated residences have raised to 200 thousand. These data show the size of the real estate market in Turkey.

In this area, legislation in Turkey has developed a lot. In recent years, some facilities were brought, by legal regulations, for the foreigners intending to make investment to and purchase immovable property in Turkey.

Objects, which cannot be moved from one place to another and are fixed in their location, such as field, land, independent portion are called immovable property. According to the Turkish Civil Code, lands, independent and permanent right in land registry, and mines are considered immovable property.Issues such as registering land in land registry, and registering independent portions subject to condominium as immovable property are subject to special law provisions.

According to the Turkish Civil Code, publicly benefited waters and uncultivatable placed may not be, in any way, subject to private ownership, unless it is proved that they do not meet such specifications. Town forests' ownership may not be transferred and they are operated by the state. Ownership of such forests may not be obtained by lapse of time and an easement right may not be established in respect of them unless it aims public benefit.

The ways to obtain immovable property ownership may be classified as follows:

a) original acquisition and derivative acquisition,
b) acquisition with registering and acquisition without registering.

An original acquisition is acquiring a property right on an immovable property free of property right of third persons. Acquisition of ownership for ownerless immovable properties, nationalization, sale through execution proceeding and lapse of time resulting in acquisition may be given as examples.

A derivative acquisition is a person obtaining ownership right by way of transfer, on basis of the former owner's ownership right. An acquisition through purchase and sale, donation and inheritance may be given as examples of derivative acquisition.

An acquisition with registering is in accordance with the general principle ruling that ownership right to immovable property may only be acquired by registering in the land registry. Along with it, the Turkish Civil Code provides for ways of acquisition without registering,e.g.: inheritance, occupation, nationalization, judicial enforcement and court order.

3. Classification of Real Estate Objects

3.1. Real Estate Objects

By way of stating that subjects of real property are objects that are fixed in their location, the Turkish Civil Code declares that lands, independent and permanent real rights in land registry and mines are viewed as real estate. In short, under Turkish law,the Turkish Civil Code makes a tripartite distinction for subject of real property.

Under the Turkish Civil Code, fixed objects such as land and mines are adopted real estate, and their complimentary parts are also considered to have the same quality and occasionally held them subject to the provisions regarding immovable property.

Also, the special property form, called condominium, is very important and common in Turkish law. Under the Act on Condominium it is provided for that “independent property rights can be exercised on a completed building's independent portions that are suitable for independent usage”. For instance, garage is included in the concept of condominium in this sense though it is out of the independent portion. Under this law, each independent portion is assigned a land share proportional to its value, whereby property of land share is bound to independent portion's property.

In real estates subject to condominium, property holders are not granted, by law, the first refusal clause and are not entitled to demand dissolution of partnership. But co-owners of each independent portion are entitled to first refusal clause and to demand dissolution of partnership against each other.

Condominium owner have common property right over building's places, which are not qualified as independent portion, and those that are assigned to common usage. They cannot be transferred independently from the condominium.

4. Classification of Rights to Real Estate

Real Estate Law is a sub-branch of Real Law which derives from Private Law. For this reason, it is subject to the Real Rights/Personal Rights distinction, which is a basis to right under Private Law.

Real rights are defined as absolute rights that give persons a direct control on objects.

Real rights means absolute right on objects and they grant their holders powers peculiar to absolute right on material assets. Ranging accordingly, the Real Rights are restrictively enumerated in law, can be asserted to anyone and grants its holder a direct control on the object.

The material asset called rem is subject to a dual distinction. The object in question may have characteristics of a movable or immovable object.

Immovable objects are the objects that may not be moved from one place to another without damaging its nature. As per the relevant article of Turkish Civil Code, “subject of immovable property are the objects fixed in their location”.

Types of real rights, including real estate rights, are

a) Property right,
b) Limited real rights.

Property right is one of the unchangeable basic rights of contemporarylaw systems. Under Turkish law, some properties of property right protected in the Constitution are the following:

A person holding the property right of an object (owner) can dispose of such object in any way he/she wished.

A distinction between movable and immovable object is important for arrangement of property right. Turkish Civil Code contains separate provisions for these two types of property. Accordingly, the subject of immovable property can be enumerated as: land, independent and permanent additional rights in land registry, and mines. As an addition to those enumerated Act on Condominium provides for that each independent portion of a structure, which registered to Condominium registry and is completed, is among subjects of immovable property. On the other hand, under Turkish Execution and Bankruptcy Code “ships registered to ships registry” are considered immovable property.

Along with property rights, limited real rights (non-proprietory rights) also cover a significant portion of real estate rights. Limited real rights are assignment of the titles, granted through property right to the owner, to anyone else independently from the property right. As the owner has to tolerate exercise of the limited real rights by their holders, limited real rights also constitute a limitation of the property right arising from the will of the owner. Viewing the types of limited real rights, we see the rights of easement in favor of an immovable property, as a significant portion of real estate rights. These are easement rights that charge a real estate with a burden in favor of another real estate. And the personal easement rights can be enumerated as usufruct right, right of habitation and surface right.

5. Registration of Title to Real Estate

Since the real estates bear great importance for society, a different institution is necessary that will inform the people’s rights to others and will provide their security in their transfer, other than possession.

As it is known, this institution is a requisite for the official registration of real estates by state and that is calledtheLand Register that will enable to determine the boundaries and the rights based on them.

Land Register is a kind of Registration Office informing the rights on real estates under the responsibility of state in compliance with the principle of registration and publicity.

As the dimensions, kinds and their owners are shown in the Land Register along with easement, annotations, pledges are also recorded in the section of declarations. The General Directorate of Land Register and Land Survey is in charge of this duty. This directorate’s duty has been defined by laws; to carry out the transactions and all kind of registries, to determine legal and technical situations of real estate and to record them actually. The above mentioned Land Register Directorate is the place where we can obtain knowledge about the legal situations of the concerning real estates pertaining to the matters “whose and how” and their technical situations from Land Survey Directorate.

Those who want transaction in the Land Register Directorate apply by themselves or proxies or by their guardians, custodians and legal represantites, if they have any.

The legal deeds of covenants pertaining to ownership and rights in rem other than owner are arranged by Land Register Directorate in the presence of the owners or their representatives by Land Register Directorate and as to the contractions that doesnot need any agreements are arranged according to the documents of request. The transactions that are arranged by the Land Register Directorate related to real estates are of three kinds:

a) Covenant arrangement, selling, donating, life long protection agreement, partition, barter, mortgage, succession, common hold and flat easements, etc.
b) Transactions of registrations; changing the kind, parceling, confusion, building registration of real estates.
c) Transactions of knowledge; samples of land registry, correspondence, etc., requested mainly by courts and executive bureaus and other public institutions and establishments.

The Central Europe system has been adopted in general. The assets to be recorded to Land Register as real estates are enumerated in that way:

a) Land;
b) Independent and permanent rights on real estates,
c) Mines.

The main elements of Land Register are of four kinds of registrations and documents according to the regulations of Land Register. They are land register, commonhold register, day-book, official documents. Land register is deemed as the main element of land registry system. All of the rights in rem on real estates are depicted on it and become valid being registered on them. What we call as day-book is a book where the transactions concerning rights in Rem are recorded on Land Register. The main function of Land Register is that the rights registered on it become valid just when they were registered. There is another institution in Turkish Law as the Code of Commonhold. The real estates converted into commonhold are to be recorded to Commonhold Register based on system Land Register.

As for the main principles of Land Register in Turkey can be listed, as follows; First of all, in order to acquire rights of rem, they should be recorded in the Land Register. However, they are some very limited exceptions to the main principle such as succession, occupation and expropriation where the rights in rem can be acquired without registration. Another principle is that the validity of the registration in Land Register depends on the legal reason based on it.

If the cause isnot valid then the registration will not be, as well. Besides according to Turkish Law anybody whose interest is understood with the recorded real estate may examine the records in the Register.

Additionally there is another principle that bona fide purchasers are protected if they obtain rights in rem trusting the records in Land Register as these records are under guarantee of the State. According to Turkish Civil Law Article 1023, the records protect the other third people who get propriety or another kind of Right in Rem depending or the records in Land Register. Even if the record isnot valid, it will give the same effect from the point of third persons unless the said person has bona fide. There is another principle connected with that one, the state will be responsible from the losses due to the wrong records in the Land Register.

In this way, not only the persons having bona fide are protected but the real owners of right are also protected against false and illegal records by means of state's guarantee. As to the first stipulation for the responsibility of State by the faults in Land Register that the Land Register should be recorded illegally that is the transactions concerning the rules of Land Register aren't in compliance with Law. Besides a real damage should occur. Unless a concrete damage occurs, the State isnot held responsible. Finally, there must be a causality between the loss and wrong recording of Land Register.

Some examples may be given to such situations; the boundaries and square measure of the real estate has been recorded by mistake, those who are not entitled by special authorization have been deemed authorized, the errored Land Record transaction depend on counterfeit power of attorney or certificate of interest, double land recordings, etc.

Because of the wrong recording of Land Register are tried in civil courts, there is a 10 years prescription here, but the beginning of this period is not the date of wrong recording but the time when the damage occurred.

Registration of deeds and Land Survey works in Turkey havenot been completed yet though they are going on. It is not possible to claim that even half of the Land Survey of Real Estates havenot been realized so far in Turkey.

6. Holders of Rights to Real Estate

Property right, as an absolute right granting its holder the largest titles, is provided for in Civil Code under Turkish law. Civil Code also handles real estate owner's rights.

In Article 35 of the Constitution of 1982, property right was accepted as a basic constitutional right, but a constitutional annotation on it was made stating that it cannot be exercised against public benefit and can be limited for public benefit.

Under real estate law, therefore under Turkish Civi Law, owner is granted 2 types of rights;

a) To use the real estate within the legal limits, the way owner wishes;
b) To protect the real estate against the infringements thereto.

First type of right is classified into three:

a) Right to use;
b) Right to benefit;
c) Right to Dispose.

First of them is the right to use. The owner can use his/her real estate the way he/she wants on his/her own or with other people.

Secondly, an owner can benefit from the real estate, whose property right the owner holds, and can collect revenues therefrom. Right to lease is the situation which illustrates this condition the best. Owner of a real estate can lease out his/her immovable property to anyone he/she wishes and can even sublease the same if the leaseholder is allowed by the lessor. And the last of them is owner's right to dispose on the real estate. Property holder can assign his/her title on the real estate or can restrict it with other limited real rights. Owner can also abandon the real estate without any permission from anyone necessary.

Turkish Civil Code states that property holder's title to dispose of the real estate is not restricted. Such title can be restricted by law and legal acts, just like other titles. Some of these restrictions aim to protect public benefit and some for protecting the interests of individuals. The most important restriction in this issue is “rule of honesty” provided for in Turkish Civil Code. Just like any right, the real estate right is required to be exercised by its holder in compliance with rules of honesty. For instance, a transaction must be made at land registry office for purchasing a house. If the transaction is not made, then the transfer will be invalid. But if the seller infringes a right by doing that on purpose, rule of honesty will apply here and the transfer will be valid. Act on Buildings, Act on Forests or Act on Zoning can be given as examples for restrictions aiming public benefit.

The owner can exercise the aforementioned titles on his/her own, without permission or assistance of third parties. If these titles are exercised by other people without owner's approval, the owner can protect his right through exercising legalremedies and by action of replevin or civil nuisance.

An action of replevin is an action filed by the owner, based on his/her property right, against a person, whose possession on the real estate (or chattel) is not based on a lawful ground. This action is not subject to time bar, because it is an action in rem. For registered real estates, action for correction of land registry, action for determination of boundaries has the same function with the action of replevin. Owner cannot transfer his/her such right separate from his/her property right. Civil nuisance action can be filed by the owner for preventing any unjustified infringement or for end the infringement if already started.

7. Financing of Real Estate

The current methods for financing real estate include(a) residence credit and (b) leasing. The mortgage system hasnot been fully implemented yet. When the legislation process is completedthen the mortgage institutions will be established in the first stage and these institutions will provide house credits to the persons who want to buy houses under various conditions.

(a) The residence credits are provided to individuals who are in need of buying residences. The term of maturity for such credits ranges from 5 to 20 years. Unless the residence to be considered is finished, its credit may not be given.However for such a nearly completed residence, a special agreement can be made between the bank whose credit can be expected and the buyer.
The necessary documents to obtain residence credits in Turkey consists an identity card, income declaration (for the people getting wages),a photocopy of the title-deed or its equivalent. Currently, the percentage of residence credits is from 25% up to 35% considering compound interests.

(b) Leasing is regulated by the Financial Lease Code No. 332G as “it is a contact whereby the lessor releases the possession of affixed equipment bought from a third party or acquired in another way based on the demand and preference of the lessee, on condition that to be benefited in anyway from it and a certain amount of lease to be paid and the contract not to be terminated for a certain period of time.

In leasing the party that leases should be a joint-stock company situated abroad and hasnot got any branch in Turkey, then the contract should be confirmed by the ministry that the Under secretarial of Treasury and Foreign Trade is bound. Leasing can only be acted for four years,is subject to the permission of above mentioned official organizations only for certain fixed equipments whose valves are to be determined by Under secretarial of Treasury and Foreign Trade.

When a leasing terminates the equipment whose propriety belongs to the lessor company has to be given back. However, in many cases at the end of the period, a right purchasing is given to the lessee for a small price.Besides even the contract may contain a clause that the equipment will directly belong to the lessee at the end of four years.

Leasing are bound to a very strict formality.They are absolutely got to be confirmed by a Notary Public situated in the lessee’s location.

As for the leasing concerning real estates, it is obligatory for them to be registered to Land Register where the real estates are situated. Unless this prerequisite that the registration is carried out the leasing will be valid. By means of this formality, even if the owners of the real estate changes, the lessee can bring forward the leasing against the new owners.Besides on account of the bankruptcy of the leasing company the equipments that are the subject matters of leasing cannot be legally converted to cash.

8. Mortgage

In Turkey, there is no regulation that enables people, who do not have residence, become house-owner easily. As it is known, housing loan is a system which charges the purchaser with heavy burden in short term. Since there is no such practice in long term, Turkey Grand National Assembly considered to actualize the practice called “mortgage”. On the other hand, the demand will direct to healthy and habitable residences instead of unhealthy residences, because mortgages seeks some conditions in residences such as a certain building safety and compatibility to zoning. Since these residences will provide certain levels as of earthquake safety, the system will contribute to formation of safe residences and cities. Mortgage law has not got into effect, yet. But it will be useful to make explanations about it.

According to Draft Act on Mortgage, interest rate of loans for residence financing will be determined according to fixed basis, variable basis or both bases.

If the interest rate is fixed, then the rate determined in the contract at the beginning cannot be changed without consent of both contractual parties. As for adopting the variable interest; the rate agreed at the beginning can be changed on basis of a widely-accepted and commonly used index, which is specified in the agreement. If the rates are set as variable, it will be an obligation to inform the consumers about the possible consequences of this method. Central Bank will determine the indices to be used for such purpose, and Ministry will determine the procedure and regulations regarding the method of informing the consumers.

Consumer using mortgage can pay, beforehand, the total amount he/she owes and can make one or more payments before the maturity date. In both situations, the lending organization will make the necessary interest reduction for the tranches repaid before the maturity.

If interest rate is agreed to be on fixed basis, and one or more payments are made before the maturity date, lending organization may claim early payment charge from the consumer, on condition that it is provided for in the contract. If consumer does nor repay the loan in full but it pays it in part, then he/she will make one more payment over the remaining amount. This payment can be reflected to the remaining amount by 2 percent, the most. If the rates are agreed to be on variable basis, it will not be possible to claim early payment charge from the consumer.

By the provisional article, residence financing covers the housing loan and financial loan given before effectiveness date of the act, regardless of the contract date. According to the draft, leasing companies cannot engage in residence financing within two years from effectiveness date of the act. The draft adds among the definitions, Residence Financing Organization, to Act on Protection of Consumer, for the purpose of protecting the consumer utilizing residence financing. So, organizations engaged in residence financing are becoming subject to provisions relating to Act on Protection of Consumer.

In case consumer falls under default, residence financing organization will be obliged to notify the debtor with registered mail within 5 business days from the default date. If the financial establishment kept reserved its right to claim the whole loan amount in case of failure to make repayments, then such right can only be exercised in case of two consecutive payment defaults, at least. Financing organization's ability to exercise this right requires service of a maturity warning with 1 month of grace period. In cases, where personal guarantee is given as a security for the financing facility utilized, the residence financing organization will not be able to claim the repayment of the loan from personal guarantor before resorting to the principal debtor and other guarantees. Draft prohibits financial establishments to bind the payment to a negotiable instrument or securing the loan by accepting a negotiable instrument.

In proceedings for collection of the receivables secured by pledge arising from residence financing, it will be possible to follow up the proceedings through liquidation of pledge and seizure can be enforced.

9. Real Estate Taxation

There are two important points in the regulation of the real estate tax. One is the tax based on real estates and the other is the duty being collected during the selling and buying transactions of real estates.

According to the Code of Real Estates, the real estate tax is paid for land, lot and building. Those who own this real estate are committed to pay real estate tax. The first installment of the tax is paid on March - April - May and the second equal installment on November. It is up to the taxpayer to pay them before the due time.

Real estate tax relating to lots, lands and job sites is calculated according to the minimum actual value. The tax rates for lots 3% for its value, for lands is 1%, for residences 1% and for job-sites. If a tax payer doesnot pay the tax on time, he has to penalty for delay pursuant to the Code number 6183 according certain rate of penalty for every delayed installation.

The real estate tax also bears importance in buying and selling real estates. Especially, one who is willing to buy already inhabited real estates should examine whether there is any previous year debts or unpaid taxes. Because prior to the last paragraph of Real Estate Law Article 330, both the seller and buyer of the real estate, subject to the transaction between them, are jointly and severally liable for unpaid debts for every year that the real estate was sold and past years. In such a case, the person who acquired real estate may revocate the previous owner of bygone years also it is occurred interest.

Besides, while the transactions of real estates and during the statement of their title deed values, the specifications of the stated amount from the point of income tax and duties, and the first real estate declaration, buying for the spouse or children, should be taken into consideration.

The real value of real estates is quite important for these points: in case a real estate is sold within 4 years after its acquisition the profit from its transaction should be declared and its income tax must be paid. Those who consider to sell the real estate, should not declare the buying price lower than the normal based on its cost. Otherwise, that will mean that an over profit above the real one will have been declared that will be taxed. As for the duties based on the value of real estates, increased after the beginning of 2001, it is possible the real value to be recorded to the title deed during the concerning transactions. This situation specially interests public servants pertaining to their "declaration of assets" and within the coming years for tax payer, pertaining to their inquisition "Where did you acquire it from".

As for the rate of duties, both the seller and the buyer have to 1.5%, based on the title duties, based on the title deed price, separately.

Besides if an income has been acquired ever 3.5 billion New Turkish Liras, an income tax varying from 20-45 percent is calculated 10% of the income tax is assessed as "fund share".

10. Real Estate Transactions

10.1. Acquisition of Real Estate

There is no any direct law and codification regulating the profession of real estate commission in Turkish Law.According to Turkish Commercial Law (Article 12), and the Law of Commercial Register (Article 14) deem the institutions to be established dealing with brokery, commissionaire and intermediary profession as business firms and its managers as merchants.As to the Turkish Code of Obligations,real estate commissionaries arenot valid unless theyacted in written form. For this reason, as a result of provisions of Turkish Commercial Law, Article Law, there is a relation between brokers and real estate commissionary, his fee and his way managing the job has been partially regulated. But there is no institution regulated by law that collecting the Real Estate Commissionaries under a structure. Though the said sector is quite widespread in our country,it cannot be called as having strict supervisions. Nowadays,there is a draft law that the persons dealing with real estate commissionary jobs are to be university graduates and necessity having a certificate will increase the quality of profession.In general, in this sector is one that can be damaged by anybody and it doesnot need a great sum of capital is a source of employment, better than being unemployed, in Turkey. If the contract of commissionary hasnot been acted without legal aid of a lawyer, it can be donated with many articles causing the losses of clients and consequently giving way to many conflicts.Nowadays some internationalreal estate agencies have established agencies in Turkey.

However, as these agencies cannot be duly registered and they act on basis of contracts providing them exempt from the conflicts and matters, put the investors into difficult position who deal with these real estate commissionies trusting the above mentioned international agencies.

In order to prevent such situations the investors who are after investing in the field of real estates, should absolutely take legal advice as there is any sworn real estate advisers or counselors.Besides, records of Real Estates in Municipality and Land Register office should absolutely be investigated as to avoid any deficiencies.The permission of restoration plan if the place is a lot, or any deficiencies against the restoration plan especially any expropriation already present or planned on the Real Estate should absolutely be examined.

In Turkey, Real Estate Investment companies regulated by capital markets commissions under the framework of Capital Market Law based on the Real Estate projects and investing the intermediaries of capital market, have been acting in that way. As it is known, the aim of Real Estate Investment companies, is to invest the Real Estates or projects based on Real Estates whose income are high, to get rent in their portfolio and by rent and buying selling to get high income from Real Estates.An investor buying the shares of a Real Estate company is profited from the Real Estates having high incomes being indirectly as an shareholder himself.

Real Estate Investment companies can only act or the field of portfolio managing based on real estates as, a result of their quality. Besides, they cannot perform project, but they can finance the projects being realized by other companies.A company may convert into Real Estate Investment company on conditions that leaving all of the present activities.

There are three kinds of Real Estate Investment companies in Turkey as follows:

a) Having a deadline in order to a certain project to be realized;
b) Having a deadline or without it, in order to invest in the fields of tourism, health, etc.;
c) Having a deadline or without it, in order to invest in a field of certain projects or investments.

In Turkey, structures of Real Estate Investments are formed in that way:

a) First of all, in these companies there must be an undertaker in other words a leader, who has got 25% share of capital either a real person or a legal entity partner or any of the members of the company.
b) A constructor who undertakes the matters concerning the buildings to be realized which take place in the portfolio of the Real Estate projects.
c) A counseling enterprising company, managing the hotels, hospitals, shopping centers,job sites, commercial parks, commercial stores, residence sites, supermarket or similar real estates either owned or rented by the company, aiming commercial benefits.
d) Expertise companies having great importance and serving to determine the cash market values of the real estates, real estate projects and right in rem, based on real estate.

The above mentioned real person and legal entities are included in the structure of Real Estate Investment Companies.As for the prohibited jobs of the Real Estate Investment companies have been defined in the law, as follows:

a) Such kind of companies, cannot collect deposit or any kind of job or service they will result collecting deposits;
b) They may notengage in any kind of commercial, industrial or agricultural jobs;
c) They may not engage in any activity related to capital market job except on behalf of their selves portfolio managing activities, limited by the being permitted field of investment;
d) They may not undertake building matters of the Real Estate on their behalf and cannot employ personnel and equipments for this reason;

e) They may not manage hotels, hospitals, shopping centers, job sites, commercial parks, commercial stores, residence sites, super markets or similar real estates for the commercial aims and may not employ personnel for these reasons;
f) They may not aim to dominate any of the companies capital and administration of the partnership where they bought their shares and they can’t obtain more than 5% five percent share or suffrage in no way;
g) They may not invest to gold and precious minerals;
h) They may not invest in capital markets means that donot activate in the stuck market or organized in the markets outside the stuck market.It is obligatory for the stuck market means selling and buying transactions by way of the stuck market;
i) They may not invest the forward buying connection agreements or goods;
j) They may not afford commission fees or similar ones that exceed more than 3% (three percent) on account of the portfolio selling and buying transactions except taxes, duties, or similar charges that they legally obliged;
k) They may not buy and sell real estates having short maturity dates, in a permanent way.

On the other hand, the field where the Real Estate Investment Companies are specifically defined in the law, as follows:

a) They can buy and sell real estates such as offices, residences, job-sites, shopping centers, hotels, commercial stores, commercial park or similar one to get selling and buying profit or rent income;
b) They can buy lots and lands to get selling and buying profit or establish storey easement right aiming to develop real estate project;
c) They can establish usufructs on real estates and use that right;
d) They can establish time share usufructs on real estates;
e) They can be right of construction obligators on the lots they own to get commercial profits;
f) They can sell real estates established abroad to obtain their ownership;
g) They can invest to the companies established abroad on condition that their field of activity merely real estates and invest the capital market means on condition that based on real estates;
h) They may not rent real estates or rent them again to others to get rental profit on condition that clauses of private agreements are suitable.

There are some restrictions related to the investments companies:

As for the Real Estate Investment or based on them, are important for investors as they are secure. Besides, by means of distribution of the risks,it is an important and attracting factor for the investors such Real Estate Investment Companies, especially in Turkey where the foreign exchange market suddenly depicts fluctuations.

According to Turkish Commercial Code, an investor who invests to a Real Estate Investment Company will have various rights.To obtain a share of the company’s profit is the most important of them.Besides, in case liquidation of a company, right of getting liquidation shares. To obtain shares freely issued by the company because of capital investment from the own sources of the company. Besides, to participate, to discuss to present proposals and suffrage of the Real Estate Investment Company’s general assemblies.

Additionally, they have naturally got the right of getting information, investigation, and supervision on the activities and accounts of the partnership that they have invested.

The investors who are willing to invest, to any of the Real Estate Investment Company, can be their shareholders, by getting their shares, through an intermediary institution which is authorized to deal in the stock market. However, they must obtain information about the situation of profit, its financial structure, activities and investments of the Real Estate Company where an investment will be realized.

10.2. Real Estate Lease

A major part of real estate leases in Turkey are concluded through estate agencies in recent years. Wage to be paid to an estate agent for a lease agreement to be made by mediation of estate agent, is 12% of net annual lease price, regardless as to whether the object is a commercial office or a residence.

10.3. Transaction Costs

Professional real estate operations in Turkey do not have long history. In this parallel, professional services in this area are also developing recently when compared to their counterparts in America an Europe, however, there are a several professional organizations in this area. In large-scale real estate operations different from it is explained in Lease and Purchase sections, a service charge is determined by the negotiations between both parties.

11. Real Estate Construction

11.1. Licensing of Construction Activities

Unfortunately there is no obligation to obtain a particular licence for contractors. The rapid growth in construction sector causes many people, whose actual job is not contractorship and are engaged with the occupation so called “build-and-sell”, to enter the sector. Unfortunately, due to people, who used to work at constructions as headworker and hurrier, entering, after a period of time, into the market as contractor, it cannot be easily said that people, whose experience, equipment and capital are notable, make out sufficient quality work in the market. This shows that the legal regulations about contractorship is not sufficient.

It is alleged that 65 percent of the buildings in Turkey were built against the zoning plan, since capacity for making building is not sought in those who make buildings. The fact that establishment of a limited liability company is enough for acting as contractor, attracts attention as a big deficiency in this area.

As for auditing the buildings, contractors are granted the construction permit by municipalities for the areas within municipality and by special provincial administration under province governor's office for the areas outside the neighboring area of municipalities. Municipalities are responsible for auditing the building by their own teams and their audit organizations until the construction is complete. By Act 4708 on Building Audit, which was enacted after the last large-scale earthquake in Turkey, constructions are audited strictly through audit organizations in 19 provinces. Data regarding the buildings, owner of the building, the builder, the architect, project and building auditors are provided to concerned units of Ministry of Public Works, in construction permit stage.

11.2. Construction Contract

Under Turkish law,construction contracts are composed of three elements: creation of work, wages and agreement. The work means, in general terms, the result that contractor makes effort to create on behalf of the client. It is handled in a wide range including creating the work on a construction area, making a new building, making modification on an existing building, making addition to an existing building, repairing an existing building or demolishing the same. Another element of the contract is the wage payable by client as a consideration for the work to be created. A construction contract is a contract that charges both parties with obligation. For this reason, creation of a building work must absolutely be contracted in consideration of a wage. Issues regarding wage may be specified beforehand, but a failure to specify them will not change the effect: it is required to pay a wage in return of creation of the work.

Basically, a construction contract is generally formed by two mutual parties as undertaker (contractor) and job provider (client). Job provider is the party that orders the building and can be anindividual or a legal person. The undertaker is the party that undertakes to implement the ordered building. Undertaker can be an individual or a legal person, especially a commercial partnership such as joint stock company, limited liability company or a collective company. Undertakers can gather as an unincorporated company and implement the building together, which is seen in practice often under the types of “joint venture” and “consortium”. In a building project there are many parties along with the undertaker and job provider, such as designers, sub-contractors, material-equipment suppliers, bank and insurance companies.

Under Turkish law, a formality condition is not required by law. However, in practice, these kinds of contracts are made in writing and in official formality. Generally,according to Act 4734 on Public Tenders, the public works must be provided for by a contract. Notarization of the signatures under these contracts are required for effectiveness.

Termination of construction contracts can apply upon fulfilment of the contractual obligations or upon parties' withdrawing from the agreement. Under law, if the actual price significantly exceeds the appraised price, without influence of the client, then the client is entitled to withdraw from the contract in course of production of the work or thereafter. In this instance the client, who withdraws from the contract, is obligated to pay damages to the contractor. Also, the agreement will be invalidated if performance of the subject of the contract became impossible due to an unexpected cause. Under Article 368 of Obligations Code, if the work that wasnot delivered, dissolves in part or in full due to an unexpected cause, then the undertaker may not claim the wage for the work, nor the expenses therefor. If the work dissolves after the delivery then the risk will pass to the client from that moment and the job provider will be charged with the damages to be incurred. Violation of the contract by one of the parties is another cause for termination of the contract. In addition, the Obligations Code grants the client the power to terminate the contract without any rightful cause on condition of compensating all damages of the contractor.

Out of construction contracts, there is another type of contract under Turkish law called “contract for building in return of a land share”. Parties to contract of this type are contractor and land owner. In this type of contract the land owner demands construction of certain apartments by transferring the contractor certain shares of land instead of money, whereby land owner parlays his/her land better by acquiring apartments instead of purchasing an apartment or a residential house, and is not obliged to pay money for it. Whereas contractor makes profit by performing the whole building in return of the land shares he/she acquired from the land owner in return of the building contractor performed. Contract for building apartment in return of land share has characteristics of a mixed contract as the elements of contract for sale of immovable property and work contract are gathered therein. Here, land owner's obligation as a party to the contract is to transfer the ownership of immovable property, which is an element of the contract for sale of immovable property and such obligation is in an interchange relation with the reverse party's obligation of implement a building and transferring the built independent portion, which is an element of work contract.

There are various forms of Contract for building apartment in return of land share; a Contract for building apartment in return of land share can be agreed as performance of Contract for building apartment in return of land share by transferring certain land shares to the contractor, performance of Contract for building apartment in return of land share by transferring the whole land to contractor, performance of the contract by transferring the land share accordingly with the completion level of the building, contract, wherein land owner promises sale of the land shares and the contractor promises to implement the construction.

As for the validity requirements of Contract for building apartment in return of land share; formality of this contract is important, because scope of this agreement is transfer of and a promise for transfer of the ownership of an immovable property. Since the scope of the contract between the land owner and contractor related to the land, and therefore the immovable property, it is required, under laws, to make the contract, containing a promise to transfer the shares, in the statutory form.
Here, the authority to adapt the contract into official form will be land registry of, in principle. However under Act on Notaries, it is also provided for that contracts of promise to sale of an immovable propery can be drafted by notaries. Accordingly, notaries are authorized to draft a pre-contract regarding Contract for building apartment in return of land share.

If a contract for building apartment in return of land share does not comply with the official formality, then it will be invalid as per the settled precedents. But, in cases where asserting invalidity constitutes abuse of a right, asserting objection of inconsistency with formality cannot effect succesfully.

10.3. Functions of General Contractor

Contractors have some responsibilities in the agreements of construction to be fulfilled. The contractors are under the responsibility of informing the situations that might endanger the agreements to be fulfilled property or on its duration. If the contractor neglects this obligation, he has to pay the damages being occurred even if the building has been constructed. Contractors are obliged to make the building agreed in the related contract either by himself or under his supervision but this situation has many exceptions. Because under the prevailing economical and technical conditions it might be obligatory either cooperation or to apply sub-contractors.

However, in this case the contractor itself will be responsible of the damages occurred that kind of undertaking by various contractors is realized either by consortium or joint-venture.

In Turkish Law, the concept of jointventure is defined as partnerships between companies, cooperation, governments, economical institutions, societies or foundation’s own assets with either among themselves or private companies or just persons, to undertake a certain job to be carried out cooperatively and share the income. However, since this definition isnot sufficient, it doesnot create an obstacle for the jointventure to be established among private persons and members of the companies subject to private laws. The relations in the agreements being acted between the contractors and owners of the job as a result of establishing consortiums are subject to the ordinary partnership regulations in Turkish Law Obligations. However, Turkish law recognizes the concept of subcontractor is a person that arranges a construction contract with the general contractor for the building to be constructed in full or in part.

In such contracts, the contractor should provide the materials and donations by himself. However,the reverse is possible. But even in this situation it is under the obligation to use them with due care and to give an account about its state and give back the rest of it if there is any.

Contractors are also under the obligation tocommence the work on time, to keep on and to accomplish it during the agreed period. As for the situations being deserved in construction agreements, there are various regulations in Turkish Law.

First, the price should be fixed in such agreements, theoretically. There may not be any price included in the agreement. But it doesnot mean that there will not be any price. The parties of agreement may decide the price either in advance or approximately. In these agreements, the price of the accomplished work is to be paid when the delivery is realized. Besides, it is also possible partial payment for partial deliveries.

As to the contracts to be enacted for building flats as an allocation of the share of land, there areseveral differences.

As an example, contractors are obligated to perform their obligations according to the agreement and have no right to increase their credits even if they incurred additional expenses more than they originally estimated.

10.4. Construction Permit

It is a requirement in Turkey to obtain a certificate of occupancy that is regulated by the building occupation section of municipality’s planning authority depicting the information of certificate of occupancy, the date of the completing of building, its title deed, its address, of kind the independent sections and their numbers, the share of building plots, their square meters and their owners. These reports are regulated by administrative districts instead of city municipalities.

In order to obtain a certificate of occupancy, the owner of a building, its contractor or an authorized person should apply to the administrative district by submitting a petition. Upon receipt of such petition, the technical personnel of certificate of occupancy unit will check the building as to being built in compliance with its permission and annexes place.If the building does not have any deficiency it is asked from the owner of its contractor of the following document to be delivered to the Certificate of Occupancy Authority, as follows:

a)Technical reports from the institutions attending to water, electricity and telephone matters,from Civil Defence Directorate, Fire Brigade Authority as pertaining to the installations of the water, electricity, telephone, shelter and lifts elevator and an undertaking confirmed by Notary Public from the technical responsible person of the building and annexes under his supervision. After the technical report and undertaking was given then the General Certificate of Occupancy is regulated.Although, these formalities need to be carried about before mentioned theoretically, yet the said matter presents problems, there are many authorized building in many places of the cities even in their Centrum. They even serve as residences, centers of shopping, industrial centers or sometimes official buildings.

Particularly after the great earthquake in 1999,there have been pressures over the buildings that do not have Certificate of Proficiencies or have deficiencies, these attempts havenot been properly successful.Especially as the obligatory earthquake insurance(DASK) isnot deemed as an obligation for certificate of occupancy.It has been hindrance against the attempts for getting certificate of occupancies.

Besides, there are many buildings Turkey that havenot obtained permission of occupancy and built according to their plans yet not having got certificate of occupancy.

According to the data of DIE (State Statistical Institute), in Istanbul there are 3,393,377, in Ankara 1,128,625, in İzmir 1,140,371, totally 5,662,433 independent building sections. And again DIE’s date 67% of (sixty seven percent) of these sections haveno certificate of occupancy consequently are under the statue of illegal buildings.That is there are 3,793,830unlicensed buildings in the above mentioned cities.By means of building amnesties it is destined to diminish the number of unlicensed building and at the same time to get more income.

b) Construction Permit is a permission to be given by Municipalities or in the cities by governship inhabiting enabling to begin construction of a building within the inhabited areas for the building subject to permission.

It is compulsory to get this permission for all the building, with some exceptions regulated by the Restoration Law No. 3194. Even the excavation being the first stage may not commence without a permission.

Before this permission, it is necessary to apply to Land Register and Land Survey Offices and concerning municipalities, to obtain a document depicting what point and altitudes of channels can be made.

Besides, it is necessary to get a geologic or geotechnical research report being abuse for the plan of restoration by related Administrative Section.

As for the documents to be given either to municipalities or governorships as follows. A petition, a written undertaking, titledeed,authorizations and agreement, architectural project, statistical project, electrical and mechanical projects, environment and landscape projects, road and infrastructure participation share and other documents for technical supervision.

If a definition is to be given, a petition is a written application of no obligatory form, showing that the place is within the boundaries of the related concerning municipality, and a permission to be asked for the construction of the building being depicted on the officially registered lot having the qualities of its project. Additionally, a geological report has to be annexed.

c) A written undertaking is a document that the general technically responsible person is to undertake all of the requisites of the construction mentioned in it.

d) Samples of title deedsare the documents place of title deeds or their equivalent acquired from the related Land Register Office that the lot itself belongs to the person/persons or establishment.

e) Authorizations Agreements.In case the lot on which the construction will take place belong more than one person that is a shared one then a document showing the authorized person to carry out the construction and also showing that other owners of the lot give their consent for the said matter, confirmed by Notary Public.

f) Architectural Projects are the projects showing the sections and dimensions of the building and including situation plans, consisting at least two cross-sections and drawn by the architect.

g) Statistical Projects are technical documents consisting of 1/10, 1/20, 1/100 scale plans with the calculations of steel construction in steel-carcass buildings and 1/10, 1/20, 1/100 scale plans with the calculations of informed concrete in related buildings. As for the buildins having entresols they are technical documents consisting plans of necessary scales.

When applying for the construction permission reports prepared by the construction engineer according to the regulation about the buildings to be constructed in disasterous regions according to the type of building, should also be presented to the municipality.

h) Projects of Installations are technical documents showing the technical characteristics at electricity, heating, ventilation, air conditioning, natural gas and hygienic installations of the related building and their position of the said elements and necessary junctional points.

i) Payment Documents of Road and Infrastructure Participating Shares are the documents showing that the duties being paid for road and infrastructure participating and sewage system etc, shares deposited to the concerning technical directorate of related municipality, in order to obtain building constructions.

j) Documents for Technical Supervision, they are the ones application minutes, list of independent sections, the pictures or official sketches of adjacent building and attic plans etc. in case they are anticipated by the related municipality.

10.5. Set into Operation

In Turkey a building, which construction is completed, may be entered into commercial or residential use legally after obtaning construction, zoning and habitation permission. But the practice is unfortunately much different, and many buildings are still used without the required permissions.

Av.Kemal Çelik,LL.M.
Attorney at Law
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