TURKISH REAL PROPERTY LAW FOR FOREIGNERS

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, procedures for acquisition and termination of ownership rights and main principles of property law. In addition, the said section of property law deals with non-proprietory 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 competence 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 regulating the area of real property law draw attention as the legal sources of Real Property Law: the Land Register Law No. 2644, the law againist prevention of real estate possession No. 3091 of 1984, Expropriation Law No. 2492 and Common Hold Law of 1965, having griet 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 increase in population caused the cities to become overpopulated, the old restoration Law which was set forth according to the former mentality and taking the central administrative style into consideration in a great scale and falling back the needs of country have been replaced by new Restoration Law of 3 March 1985 No. 3194.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 in 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 on the same matter have been removed.

Besides, Multiple Residential Law, Slum Areas Law aiming the prevention of slum construction due to the fast overpopulation of cities, Environment Law and Shore Law are considered as other sources of Real Property Law.

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

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

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

2. Real Estate’s 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 residential purchases. 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 of USD 7,5 billion worth in total were sold within 9 months in Istanbul, where has the biggest share in residential scale. In January to September period, number of hypothecated residences have increased to 200 thousand. These data show the size of the real estate market in Turkey.

In this area, Turkish legislation has improved a lot. In recent years, some moderations were introduced, for the foreigners intending to make investments and purchase immovable properties in Turkey.

Objects, which cannot be moved from one place to another and are fixed in their location, such as fields, land, storeys are called as immovable property. Under Turkish Civil Code, land, independent and permanent rights in land registry and mines are considered as immovable property. Issues such as land register and independent portions register which are regarded as condominium are subject to special provisions.

According to Turkish Civil Code, publicly benefitted waters and uncultivatable land cannot be in any means subject to private ownership, unless it is provided that they do not meet such specifications. Forests’ ownership cannot be transferred and they are governed by the state. Ownership of forests cannot be obtained in time and an easement right may not be established in respect to them unless the existance of public benefit is proven.

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

- original acquisition and derivative acquisition,

- acquisition with registration and acquisition without registration.

An original acquisition is acquiring a property right on an immovable property free of property rights of third parties. Acquisition of ownership of unpossessed immovable properties, nationalization, sale through execution proceedings and lapse of time resulting in acquisition may be given as examples here.

A derivative acquisition is obtaining ownership right by 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 registration is in accordance with the general principle ruling that ownership right to immovable property can only be acquired by registration in the land registry. Along with this principle, Turkish Civil Code provides for ways of acquisition without registration, e.g. inheritance, occupation, nationalization, judicial enforcement and court order.

3. Classification of Real Estate Objects

Stating that subjects of real property are objects that are fixed in their locations, the Turkish Civil Code declares that land pieces, independent and permanent real rights in land registry and mines are regarded as real estate. In short, under Turkish law, the Turkish Civil Code makes a tripartite distinction for real property objects.

Under the Turkish Civil Code, fixed objects such as land and mines are regarded as real estate and their complimentary sections are also assumed to have the same quality and occassionally, they are held subject to the provisions regarding immovable property.

Also, the special property form, called condominium, is very important and widely seen in practice. 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, a garage is included in the concept of condominium in this sense, though it is not an 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 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 againist each other.

Condominium owners have common property right over building’s common places, which are not qualified as independent portions 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 stems from the Private Law. For this reason, it is subject to the Real Rights / Personal Rights distinction, which is the basis of right under Private Law.

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

Real right means absolute right on objects and they grant their holders powers peculiar to absolute rights on material assets. Ranging accordingly, the real rights are restrictively enumerated in law, can be asserted to anyone and grant their holders a direct control on the related 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 their nature. As per the relevant article of Turkish Civil Code, “subjects of immovable property are the objects fixed in their locations.”

Types of real rights, including real estate rights are as follows:

- Property right,

- Limited real right.

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

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

A distinction between movable and immovable objects is important for arrangement of property rights. Turkish Civil Code contains seperate 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 in 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 are registered to ship registry” and considered as 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 the 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 ususfruct 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 provide their security in their transfers, other than possession.

As it is already stated, this institution is a requisite for the official registration of real estates by state and is called the Land Register that will enable the determination of boundaries and 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 the 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 conditions of real estate and to record the updates. The above mentioned Land Register Directorate is the place where we can obtain information about the legal conditions of the concerned real estates pertaining to the matters “whose and how” and their technical conditions from the Land Survey Directorate.

Those who want transaction in the Land Register Directorate apply by themselves or proxies or by their guardians, custondians and legal representatives, 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 does not need 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:

1. Covenant agreement, selling, donating, life long protection agreement, partition, barter, mortgage, succession, common hold and flat easements, etc.

2. Transactions of registrations; changing the kind, parceling, confusion, building registration of real estates.

3. Transactions of information; samples of land registry, correspondence etc., requested mainly by courts and executive bureaus and other public institutions or establishments.

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

1. Land;

2. Independent and permanent rights on real estates,

3. Mines.

The main elements of Land Register are of four kinds of registration and documents according to the regulations about Land Register. They are land register, common hold 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 they become valid with the registration. What we call as day-book where the transactions concerning rights in rem are recorded in Land Register. The main function of Land Register is to validate the rights just when they are registered. There is another instrument in Turkish Law as the Code of Common Hold. The real estates converted to common hold are to be recorded to Common Hold Register based on the land registry system.

As for the main principles of land register in Turkey, they may be listed as follows: First of all, in order to acquire rights in rem, they should be recorded in the Land Register. However; there are very few exceptions to the main principle such as succession, occupation and expropriation where the rights in rem can be acquired without registration. According to another principle, the validity of registration in Land Register depends on the legal reasons of the related transaction.

If the cause is invalid, then the registration will be invalid as well. Besides, acccording to Turkish Law, anybody whose interest with the recorded real estate is proven may examine the records of Register.

Additionally, there is another principle that good will purchasers are protected if they obtain rights in rem depending on their trusts in Land Register, as these records are under State’s guarantee. Under Turkish Civil Law’s Article 1023, the records protect the third parties who obtain propriety or another kind of right in rem, depending on the records in Land Register. Even if the record is invalid, it will yield the same results from the point of the third parties, if they have good will. There is another principle connected with that one, the state will be responsible from the losses due to the incorrect records in the Land Register. In this way, not only the persons having good will are protected but the real owners of right are also protected againist false and illegal records by means of State’s guarantee.

Some examples may be given to such situations: incorrect recording of boundaries and square measure of the real estate, deeming authorization of those who are not entitled by special authorization, transfers depending on a counterfeit power of attorney or certificate of interest, double recordings, etc.

Due to the cases related with incorrect recordings being tried in civil courts, there is a 10 years of prescription here, but the starting date of this period is not the date of incorrect recording but the time when the damage actually occurs.

Registration of deeds and land survey works in Turkey have not been completed yet, though they are proceeding. It is not impossible to claim that even half of the land survey of Turkey have not been realized so far in Turkey.

6. Holders of Right to Real Estate

Property right, is an absolute right granting its holder the largest of 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 againist public benefit and can be restricted in order to provide public benefit as well.

Under Turkish Civil Law, owner is granted two types of rights:

1. To use the real estate within the legal limits, the way owner wishes;

2. To protect the real estate againist the infringements thereto.

First type of right is classified into three:

- Right to use;

- Right to benefit;

- Right to dispose.

First of them is right to use. The owner can use his/her real estate the way he/she wishes 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 illustrates this 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 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.

Turkish Civil Code states that, property holder’s title to dispose the real estate is not restricted. Such title can be only 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” set forth in Turkish Civil Code. Just like any other right, the real estate right should be exercised by its holder in compliance with the rule of honesty. For instance, a transaction must be made at land registry office for purchasing a house. If the transaction is not made there, 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 and 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 legal remedies and by action of replevin or civil nuisance.

An action of replevin is filed by the owner, based on his/her property right againist 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. Civil nuisance action can be filed by the owner for preventing any unjustified infringement or to end the already started infringement.

7. Financement of Real Estate

The current methods for financing real estate include (a) residence credit and (b) leasing. The mortgage system has not been fully implemented yet. When the legislation process is completed, then the mortagage 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.

1. 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 of an identity card, income declaration (for people whose income is from obtaining wages or salaries), a photocopy of the title-deed or its equivalent. Currently, the percentage of residence credits is from 25% up to 35% considering compound interests.

2. Leasing is regulated by the Financial Lease Code No. 332G as “it is a contract 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 benefitted in any way 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 has not got any branch in Turkey, then the contract should be confirmed by the ministry that the Under Secretariat 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 Secretariat of Treasury and Foreign Trade.

When a leasing contract 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 contracts are bound to a very strict formality. They absolutely should be confirmed by a Notary Public situated at the lessee’s location.

As for the leasing contracts 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 againist new owners. Besides, in case of the banruptcy of leasing company, the equipments that are subject matters of the leasing contract cannot be legally converted into cash.

8. Mortgage

In Turkey, there is no regulation that enables people, who do not own a residence, to become a house-owner easily. As it is widely known, housing loan is a system which charges the purchaser with a heavy burden in short term. Since, there is no such practice as long term housing loans, Turkish Parliament considered to actualize the practice named “mortgage.” On the other hand, the demand will direct to healthy and habitable residences instead of unhealthy residences, because mortgages require some conditions in residences, such as 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, considering the future developments.

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. Turkish 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 set on a fixed basis, and one or more payments are made before maturity date, lending organization will claim early payment charge from the consumer, on condition that it is stated in the contract. If consumer does not repay the loan in full but pays partially, then he/she will make one more payment over the remaining amount. This payment can be reflected to the remaining amount by 2%, at most. If the rates are agreed to be on a variable basis, it will not be possible to claim early payment charges 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’s date. According to the Draft Act, leasing companies cannot engage in residential financing within two years from effectivenes date of the act. The draft adds Residence Financil Organization term to the definitions included at the 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 within 5 (five) business days from the default date, to the debtor’s declared mail address. If the financial establishment kept its right to claim the whole loan in case of a failure to make repayments reserved, then such right can only be exercised in case of two consecutive defaults, at least. Financing organization’s ability to exercise this right requires service of a maturity warning within one 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 Act prohibits firarcial 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 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 Estate Tax, the real estate tax is paid for land, lot and building. Those who own these real estate pieces are committed to pay real estate tax. The first installment of tax is paid on March-April-May and second installment is paid on November. Payment before due date is up to the taxpayer’s will.

Real estate tax for lots, lands and job sites is calculated according to the minimum actual value. The tax rates for lots 3% of their value and for land pieces, 1% of their value. If a taxpayer does not pay the tax on time, he has to pay a penalty for delay pursuant to the Code number 6183; accordingly, a certain rate of penalty for every delayed installation should be paid.

The real estate tax also bears importance in buying and selling real estates. Especially, anybody who is willing to buy an already inhabited real estates should examine whether there are any former debts or unpaid taxes. Prior to the last paragraph of Real Estate Tax Law’s Article 330, bot hthe seller and buyer of the real estate are jointly liable for unpaid debts for the year when real estate was sold and for debts from previous years. In such a case, the person who acquired the real estate and had to pay the tax debts may recourse to the previous owner of the bygone years, also for the occurred interest.

Besides, while the transaction 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 estate is quite important for these points: in case a real estate is sold within 4 years after the 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 only declare the buying price lower than the normal based on its cost. Otherwise, that will mean that an over 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 an excess profit. As for the duties based on the value of real estates, they are increased after the beginning of 2001 and it is possible to record the real value to title deed during the concerned transactions. This situation specially interests public servants pertaining to their “declaration of assets” and within the coming years for normal taxpayers, pertaining to a probable inquisition of “How did you acquire all these assets?”

As for the rate of duties, both the seller and the buyer have to pay 1,5%, based on the title duties and title deed price respectively.

Moreover, if any amount of income over 3,5 billion New Turkish Liras is obtained, an income tax varying 20-45% is calculated. 10% of the income tax is assessed as “fund share.”

10. Real Estate Transactions

1. Acquisition of Real Estate

There is not any direct law and regulation about the real estate profession in Turkish Law. According to Turkish Commercial Code (Article 12) and the Law of Commercial Register (Article 14) the institutions established to deal with brokery, commissionaire and intermediary profession should be registered as business firms and its managers as merchants. As to the Turkish Code of Obligations, real estate commissionaries are not valid unless they are acted in written form. For this reason, as a result of the provisions of Turkish Commercial Law and Code of Obligations, there is a relation between brokers and real estate commissionary, his wee and his way of managing the job has been partially regulated. But there is no institution regulated by law, that collects real estate commissionaries under a structure. Though the mentioned sector is quite widespread in Turkey, it does not have strict supervisions. Nowadays, there is a draft law which states that persons dealing with real estate commissionary should be university graduates and the necessity of having a certificate or licence will definitely increase the quality of services. If the contract of commissionary is not acted with the legal aid of a lawyer, clients will probably face losses because of contradicting articles of the contract and this will give way to many conflicts, which are all expensive to settle. However, nowadays some international experienced and highly respected real estate agencies have established branches in Turkey.

Nevertheless, as all these agencies cannot be duly registered and they act on basis of contracts providing them exempt from conflicts and problematic matters, the investors may be put into difficult positions.

In order to prevent such situations, those who are after investing in the field of real estates should absolutely take legal advice as there is any sworn real estates 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 againist the restoration plan especially already existing or planned expropriations on the real estate should be checked.

In Turkey, real estate investment companies requlated 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 this manner. As it is already known, the aim of real estate investment companies, is to invest in the real estates or projects based on high income yielding real estates, to get rent in their portfolio and by renting, buying and selling to obtain high returns from real estates. An investor buying the shares of a real estate company gets profit from the high income yielding real estates, being a shareholder himself indirectly.

Real estate investment companies can only act on the field of portfolio management based on real estates, due to their respective quality. Besides, they cannot perform any projects, but they can finance the projects to be realized by other companies. A company may convert into real estate investment company on conditions that leaving all of its present activities.

There are three kinds of real estate investment companies in Turkey and they are listed as follows:

1. Having a deadline in order to a certain project to be realized;

2. Having a deadline or not, in order to invest in the fields of tourism, health, etc;

3. Having a deadline or not, in order to invest in a filed of certain projects or investments.

In Turkey, structures of real estate investment companies are formed as follows:

1. First of all, in these companies there must be an undertaker, in other words, a leader, who has 25% of the share capital. The undertaker may be either an individual or a legal entity or any member of the company.

2. A constructor who undertakes the matters concerning the buildings to be realized which take place in the portfolio of the real estate projects.

3. A counselling enterprising company, managing the hotels, hospitals, shopping centers, job sites, commercial parks, commercial stores, residence sites, supermarket or similar real estates either owned or leased by the company, aiming commercial benefits.

4. Highly respected expertise companies, serving to determine the market values of the real estates, projects and rights in rem, based on the real estate.

The above mentioned individual and legal entity are included in the structure of real estate investment companies. As for the prohibited jobs of the real estate investemnt companies defined in the law, they are as follows:

1. Such companies cannot collect deposits or offer any kind of job or service that result in deposit collection;

2. They may not engage in any kind of commercial, industrial or agricultural jobs;

3. They may not engage in any activity related to capital market job except on behalf of their own portfolio management activities, unless being related to permitted field of investment;

4. They may not undertake building matters of the real estate on their behalf and cannot employ personnel and equipments for this reason;

5. They may not manage hotels, hospitals, shopping centers, job sites, commercial parks, commercial stores, residence sites, supermarkets or similar real estates for the commercial aims and may not employ personnel for these reasons;

6. 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 any means;

7. They may not invest in gold and other precious metals/minerals;

8. They may not invest in capital market instruments, which do not act in the stock market or in organized markets other than the stock market. It is obligatory for the stock market instrument conducting sale and purchase transactions via stock market means;

9. They may not invest in forward buying agreements;

10. They may not afford commission fees or similar payments that exceed 3% (three percent) on account of the portfolio sale and purchase transactions except for taxes, duties or similar charges that require to be paid;

11. They may not buy or sell real estates over short maturity dates, in a permanent way.

On the other hand, the field where the real estate investment companies are specificly allowed to act are as follows:

1. They can buy and sell real estates such as offices, residences, job sites, shopping centers, hotels, commercial stores, commercial parks or similar real estates in order to obtain profit or rental income;

2. They can buy lots and land pieces to obtain profit or establish storey easement rights aiming to develop real estate projects;

3. They can establish and use ususfruct rights on real estates;

4. They can establish time share ususfruct rights on real estates;

5. They can be charge construction undertakers on the lots they own to get commercial profit;

6. They can sell real estates built abroad;

7. They can invest to the compnaies established abroad on the condition that their field of activity is merely on real estates and they may invest in the capital market instruments or condition that they are based on real estates;

8. They may rent real estates or re-rent them to others to obtain rental profit on condition that clauses of private agreements are appropriate.

There are some restrictions related to the investment companies. As for the real estate investment companies, investors should be certain that they are secure. Besides, by means of distribution of the risks, it is an important and attracting factor for the investors to invest in real estate investment companies especially in Turkey, where there are sudden fluctuations in foreign exchange market.

According to Turkish Commercial Code, an investor who invests in a real estate ivnestment company will have various rights. To obtain a share of the company’s profit is the most important of them. Besides, in case of the liquidation of company, he will be entitled to have liquidation shares. He will freely obtain the shares issued by the compan, as a result of capital investment from company’s own resources. Moreover, he’ll be entitled to participate into discussions, present proposals and suffrage at company’s general assemblies.

Additionally, they have the right to obtain information and to investigate about the financial condition of company and supervise the activites of the partnership he has invested in.

The persons who are willing to invest in any of the real estate investment companies must obtain information about the profitability of the company, its activites and investments in the field.

2. Real Estate Lease

A major part of real estate leases in Turkey are concluded through real estate agencies in recent years. The fee to be paid to the real estate agent for the lease agreement to be acted with the help of the real estate agent is 12% of the net annual rent, regardless whether the object of the agreement is a commercial office or a residence.

3. Transaction Costs

Professional real estate operations in Turkey do not have a long history. Professional services in this area might be considered as newer than their counterparts in America or Europe; however, there are several professional organizations expertised in real estate issues. In lage scale real estate operations, other than those explained in “Lease” and “Purchase” sections, a service change is determined according to the negotiations between parties.

11. Real Estate Construction

1. Licencing of Construction Activities

Unfortunately, there is no obligation to obtain a particular licence for contractors. As for auditing of the buildings, contractors are granted the construction permit by municipalities for the areas within the municipality’s borders and by special provincial administration under province governor’s office for the areas outside the neighbouring area of municipality. Municipalities are responsible for auditing the building by their own teams and their audit organizations until the construction is complete. By Act No. 4708 on Building Audit, which was enacted after the last tremendous earthquake in Turkey, constructions are audited stritly through audit organizations in 19 provinces. Data about the building, owner of the building, the builder, architect, project and auditors are provided to related unites of Ministry of Public Works, during the construction’s permit stage.

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 rage including creating the work on a construction area, making a new building, making modifications on an existing building, repairing or demolishing an existing building. 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 obligations. Therefore, cretion 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 the undertaker (contractor) and job provider (client). Job provider is the party that orders the building and can be an individual or a legal entity. The undertaker is the party that undertakes implementation of the ordered building. Undertaker can be an individual or legal entity, especially a partnership such as a 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 designer, subcontractor, material equipment supplier, 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 No. 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 anything attributable to the client, then the client is entitled to withdraw from the contract in course of production of work or thereafter. In this instance the client, who withdraws from the contract, is obliged to pay damages to the contractor. Also, the agreement will be invalid if performance of the subject of the contract becomes impossible due to an unexpected cause. Under Article 368 of Obligations Code, if the work that was not delivered dissolves in part or full due to an unexpected cause, then the undertaker may not claim the wage for work nor the expenses therefore. If the work dissolves after the delivery, then the risk will have been transferred to the client from the moment of delivery 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.

Other than 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 trnasferring the contractor certain shares of land instead of money, whereby land owner parlays his/her land beter by acquiring apartments instead of purchasing an apartment or residential house, and is not obliged to pay for it. Whereas contractor makes profit by performing the whole building in return of the land shares he/she acquires from the land owner. Contact for building apartment in return of a land share has characteristics of a mixed contract, as the elements of a contract for sale of an immovable property and an independent contractor agreement are gathered therein. Here, the land owner’s obligations as a party of the contract is to transfer the ownership of some land shares, which is an element of the contact for sale of an immovable property and such obligation is interchangeable with the other party’s obligation of implementing a building and transferring the built apartments, which is an element of the independent contractor agreement.

As for the validity requirements for such contracts, their formality is important, because scope of this agreement is a transfer and promise of a transfer of the ownership of immovable properties. Since, the context of the contract between the land owner and the contractor is related to an immovable property, it is required to make the contract in the statutory form. Here, the authority to adapt the contrct into official form will be the land registry, in principle. However, under the Act on Notaries, it is also stated that, the contracts about sale promise of an immovable property can be drafted by notaries. Therefore, the notaries are authorized to darf a pre-contract regarding such issues.

3. Functions of a 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’ implementation. If the contractor neglects this obligation, he has to pay the damages occurred even if the building has been completed. Conractors are obliged to make the building determined in the related contract either by himself or under his supervision, but this condition has some exceptions. Under the prevailing economical and technical conditions, it might be obligatory either to have a cooperation or to charge subcontractors.

However, in this case, the contractor himself will be responsible from the damages occurred due, regardless of the project being realized either by a consortium or a joint-venture.

In Turkish law, the concept of joint venture is defined as a partnership between companies, cooperations, governments, financial institutions, societies or foundations, either among themselves or between legal entities and individuals, to undertake a certain job to be carried out cooperatively and to share the income. However, since this definition is not sufficient, it does not create an obstacle for the joint ventures to be established among individuals and members of the companies subject to specific 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 Obligations Code. However, Turkish law recognizes the concept of a subcontractor as a person that arranges a construction contract with the general contractor for the building to be fully or partially constructed.

In such contracts, the contractor should provide the materials and donations by himself. However, the reverse is also possible. But even in this situation, it is under the obligatigon of using them with due care and to give an account about their conditions and to return the remainders, if there is any, after the completion of the work.

First, the price should be fixed in such agreements, theoretically. There may not be any price included in the agreement. But it does not mean that there will not be any price. The parties of agreement may determine the price either in advance or in approximation. In these agreements, the price of an accomplished work is to be paid when the delivery is made. Besides, partial paymens for partial deliveries are possible.

As to the contracts to be enacted for buildings in return of a land share, there are several differences. For example, the contractors are obliged 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.

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 about the certificate of occupancy, the date of completion of building, its title deed, its address, independent seçtions and their numbers, their share of building plots, square meters and owners. These reports are prepared by the district administrations, instead of city municipalities.

In order to obtain a certificate of occupancy, the owner of building, its constructor or an authorized person should apply to the related district’s administration by submitting a petition. Upon receipt of such a petition, the technical staff of occupancy certificate unit will check the building in order to determine that it is built in compliance with its permission and valid legislation. If the building does not have any deficiencies, the owner or its contractor should deliver the following documents to the Certificate of Occupancy Department:

1. Technical reports from the utility institutions, Civil Defence Directorate, Fire Brigade as pertaining to the installations of utility services, shelter, lifts and an undertaking certificated by Notary Public for the technical supervisor of the building. After the technical report and undertaking is given, then the General Certificate of Occupancy is arranged. These formalities need to be carried out theorically, yet there are many unpermitted buildings in cities, even in the middle of their centrums. They serve as crowded residences, shopping centers, industrial centers, sometimes even as official buildings.

After the tremendous earthquake of 1999, efforts to provide effective controlling of occupancy certificates were made, unfortunately they haven’t been successful. Even the obligatory earthquake insurance for buildings (DASK) is not deemed to be a must for certficate of occupancy, although it has acted like a hindrance againist the attempts for obtaining occupancy certificates. Besides, there are many buildings in Turkey that have never attempted to obtain a certificate of occupancy and still completed and used.

According to DIE (State Statistical Institute) data, there are 3,393,377 apartment flats in Istanbul, 1,128,625 of them are present in Izmir and 1,140,371 in Ankara (5,662,433 in total). 67% (sixty seven percent) of these flats do not have certificates of occupancy. That means, there are 3,793,830 unlicensed and unpermitted flats in three biggest cities of Turkey, named above.

2. Construction permit is given by municipalities or district administrations and it enables the start up for the construction of a certain building.

It is compulsory to obtain this permit, with some exceptions set forth in the Restoration Law no. 3194. Even the excavation process cannot commence without a construction permit.

Before this permit, it should be applied to the Land Register, Land Survey offices and related municipalities, to obtain a document depicting the construction limitations set forth for a certain area. Besides, it is necessary to get a geological or geotechnological research report.

A petition, a written undertaking, title deed, related authorizations and contracts, architectural project, statistical project, eletcrical and mechanical projects, environmental and panoramic projects, road and infrastructure participation shares and other documents for technical supervision should be presented either to the municipalities or district administrations for the permit.

3. A written undertaking is a document which shows the technical supervisor of a certain building’s being ready to undertake and fulfill all of the requisites of the construction.

4. Samples of title deeds are the documents should be obtained from the related Land Register Office.

5. Authorization Agreements. In this case, the lot where the construction will take place belongs to more than one individuals or legal entities and then, a document showing the authorized person’s competence to carry out the construction and the consent of the owners of the lot. Such agreements should be confirmed by the notary.

6. Architectural projects show the sections and dimensions of the building and they include situation plans, at least two cross-sections, all drawn by an architect.

7. Statistical Projects are the 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 calculations of concrete in concrete buildings. As for the buildings having entresols, there must be technical documents consisting the plans of necessary scales.

When applying for the construction permit, the reports prepared by the hydraulic engineer compatible with the construction legislation should be presented to the municipality, for the regions that are officially considered to be endangered by natural disasters, such as earthquakes.

8. Installation projects are the technical documents showing the utility service, heating, ventilation, air conditioning, hygienic characteristics of a certain building, their positions and junctional points.

9. Duty payment receipts for roand and infrastructure participation shares are the documents showing that the related duties are already deposited to the technical directorate of the related municipality.

10. Documents for technical supervision are the documents that show the application report, list of independent sections, pictures or formal sketches of adjacent buildings, attic plans, etc., in case they are anticipated by the related municipality.

5. Setting into Operation

In Turkey, any building whose construction is completed may be entered into commercial or residential use, after obtaining construction, zoning and habitation permits. However, the practice is much different than the doctrine and unfortunately, many buildings are still used without compulsory permits.