Turkey’s Capital Market Board (“Board”) has continued amendments for real estate matters (more), now focusing on real estate certificates. Changes apply to rights and obligations for both issuers and holders of such certificates. A two-year fee waiver is introduced for majority publicly owned capital share issuers. Notably, independent sections of buildings which are not subject to real estate certification can now be provided as collateral for financing real estate projects.
The Communiqué Amending the Real Estate Certificates Communiqué (“Amendment Communiqué”) was published in Official Gazette number 30000 on 7 March 2017, entering into force on the same date.
Notable amendments under the Amendment Communiqué include:
– A two-year waiver for Board fees is introduced for capital share issuers with at least 51% public ownership (directly or indirectly).
– Independent sections of buildings which are not subject to real estate certification can now be provided as collateral for financing real estate projects. However, independent sections which are subject to real estate certification now cannot be:
– Disposed of.
– Provided as collateral.
– Levied (including for collection of public debts).
– Listed for bankruptcy estate.
– Subject to provisional injunctions.
– If a building cannot be used before all independent sections are completed, all sections must now receive real estate certification. An exception applies to:
– Real estate certificates issued for immovables owned wholly or partially by:
– TOKİ (Housing Development Administration of Turkey), or its subsidiaries and affiliates.
– İller Bankası A.Ş. (state-owned development and investment bank), or its subsidiaries and affiliates.
– Real estate certificates issued by the entities above.
– If a certificate issuer fails to fulfill its obligations, real estate certificate holders can convene a meeting within the framework of general assembly meetings for joint stock companies under the Turkish Commercial Code. Meeting attendees can decide by majority to:
– Complete the project using third parties.
– Sell uncompleted sections subject to real estate certification and reimburse the sale price to the certificate holder (plus blocked funds accrued against the issuance of the real estate certificates) pro rata to the real estate certificates held.
– Exemptions for TOKİ, İller Bankası A.Ş. and their affiliates are now extended to subsidiaries as well.
– Capital share issuers with at least 51% public ownership (directly or indirectly) can now request an exemption from the Board’s conditions for issuing real estate shares.
– If an issuer cannot sell independent sections within the fixed period, investor payments will not be based on the valuation report. Rather, payable amounts will now be calculated as the average of the weighted average prices for real estate certificates in the stock market, for three months before their due date.
– Feasibility reports and construction progress reports will now be prepared by building inspection authorities, rather than valuation authorities.
– The scope of issuers authorized to issue real estate certificates within urban transformation projects is now extended to include:
– Legal entities determined by İller Bankası A.Ş. and TOKİ upon agreement
– Legal entities determined by municipalities and for which İller Bankası A.Ş. acts as guarantor
– Legal entities determined by the Ministry of Environment and Urbanization upon agreement, as per Article 6/5(ç) of the Law of Transformation of Areas under the Disaster Risks numbered 6306.
Please see this link for the full text of the Amendment Communiqué (only available in Turkish).
Turkey’s Court of Cassation recently ruled that a company’s creditor is entitled to send an attachment notice to a company shareholder since the shareholder is deemed to be a third party relative to the company. The court held that if a limited liability company’s shareholder owes any debts to the company and the shareholder owes any receivables to the company, the Execution and Bankruptcy Code allows creditors to attach these receivables.
In the case at hand, a creditor initiated an execution proceeding against a company (“Debtor Company”). After the attachment proceedings were finalized, the creditor sent an attachment notice to one of the Debtor Company’s shareholders (“Shareholder”), as per Article 89 of the Execution and Bankruptcy Code (“Code”). The notice sought to attach any company receivables held by the shareholder.
The Shareholder filed a complaint to an Enforcement Court, seeking to cancel the attachment notice. The Shareholder argued that he cannot be identified as a third party relative to the Debtor Company and therefore, he cannot be sent an attachment notice under Article 89.
The Enforcement Court rejected the Shareholder’s cancellation request. The Shareholder appealed the Enforcement Court’s decision and a higher court overturned the ruling. However, the lower court insisted that its initial decision should stand. Therefore, the matter was escalated to the General Assembly, the highest body within the Supreme Court.
The General Assembly rejected the Shareholder’s objections, ruling that the Enforcement Court’s original decision should stand.
In reaching its decision, the General Assembly commented:
– A debtor’s property, rights and receivables held by third parties can be attached (Article 89 of the Code).
– The precondition for sending an attachment notice is the existence of a valid execution proceeding.
– Capital companies are first degree liable for their debts to third parties with their assets.
– If a limited liability company’s shareholder owes a capital debt to the company and the company has receivables from the shareholder (such as assets, right or receivables), Article 89 allows creditors to attach these receivables.
– The principle that a company is liable for its debts is unrelated to a shareholder’s third party status against a company.
– The Debtor Company’s creditors are entitled to send attachment notices to shareholders which are deemed to be third parties.
– In these circumstances, the Shareholder is a third party against the Debtor Company.
The General Assembly’s decision dated 11 May 2016 is numbered 2016/600 and has file number 2014/12-1078 (only available in Turkish).
Turkey has made significant changes to rules for Free Trade Zones. From 24 February 2017, land and facilities located in these areas will be subject to urgent expropriation. Changes also apply to a salary tax exemption for employees at entities which export 85% or more of the FOB price of products manufactured in Free Trade Zones. State-owned buildings and facilities in Free Trade Zones can now also be leased.
The Amendment Law on Free Trade Zones Law and Certain Laws and Decree Laws (“Amendment Law”) was published in the Official Gazette number 29989 on 24 February 2017, entering into effect on the same date. The Amendment Law makes changes to the Free Trade Zones Law No. 3218 (“Law”).
Notable changes under the Amendment Law include:
– The Council of Ministers can now decide to urgently expropriate land and facilities located in Free Trade Zones. The Council of Ministers can also decide on the expropriation fees and costs which the operator requesting expropriation must pay.
– State-owned buildings and facilities in Free Trade Zones can now be rented.
– Non-tax incentives offered during investment and production are now limited to users and operators whose income is exempt from income or corporate tax under the Law. Parties whose income is not exempt from income or corporate tax under the Law can continue to access incentives which are made available under relevant legislations.
– Current operation agreements between the Undersecretariat of Foreign Trade and operators of Free Trade Zones can be extended, provided the operator:
– Has fulfilled its undertakings in the agreement, and
– Accepts the Ministry of Economy’s future investment demands.
– The Council of Ministers can now determine foreign countries where the General Directorate of Free Trade Zones, Foreign Investment and Services can establish:
– Free Trade Zones.
– Special Zones.
– Foreign trade centres.
– Logistics centres.
The Council of Ministers is now entitled to permit a Turkish resident company to establish and operate foreign zones.
– Incomes received by taxpayers in Free Trade Zones for the following activities are now exempt from income and corporate tax, provided the services are given to non-Turkish residents and the goods are transferred to a foreign country, without entering the Turkish market:
– Employee salaries working for entities which export at least 85% of FOB price of products manufactured in Free Trade Zones had been exempted from income tax. From 24 February 2017, income tax will be calculated over the employee salaries after the minimum living allowance is applied, and will be then be decreased via deductions from the employer’s accrued tax return.
Please see this link for full text of the Amendment Law (only available in Turkish).
Turkey’s Court of Cassation recently held that the Consumer Court is the appropriate forum for a lawsuit filed by a consumer against a bank, seeking compensation for damages arising from the bank’s competition law violation. The dispute arose from a consumer credit agreement. Accordingly, the highest body within the Court of Cassation held that the Consumer Court should have jurisdiction to hear the case, rather than the Commercial Court.
In 2013, the Competition Board (“Board”) ruled that a group of banks formed a cartel for consumer deposit, credit cards and credits services, violating Article 4 of the Law on Protection of Competition No. 4054 (“Competition Law”). The Board ruled that the banks must compensate all damages arising from the violations (Article 57, Competition Law).
The Competition Law allows courts to award compensation for breaches amounting to up to three times the damages incurred, or profits derived by the breaching party (Article 58).
In the case at hand, the plaintiff initiated a case at the Ankara 9th Consumer Court, seeking 3,300 Turkish Lira from a bank which had been included in the Board’s cartel ruling. The claimed amount represented three times the amount for credits, credit cards and services provided by the bank, which would not have been paid if the bank was not involved in competition law violations between 2007 and 2011(i.e. the difference between the actual amount paid by the plaintiff to the bank and the amount required to be paid if the bank was not involved in competition law violations).
The Consumer Court ruled that it did not have jurisdiction for the dispute and the matter should be referred to the commercial court of first instances. The plaintiff appealed the Consumer Court’s non-jurisdiction decision.
At the end of appeal process, the 13th Civil Chamber of the Court of Cassation ruled that the contractual relationship between the plaintiff and the bank falls within the scope of Law on Protection of Consumer No. 6502 (“Consumer Law”) because the dispute arises from consumer credit agreements between the parties. Accordingly, it overturned the Consumer Court’s non-jurisdiction decision and sent the dispute back to the Consumer Court for re-consideration.
In reaching its decision, the higher court emphasized:
– “Consumer” is defined as being a real or legal person, acting without commercial or professional purpose (Article 3, Consumer Law)
– “Consumer transaction” is defined as all types of agreements and legal transactions between real or legal persons acting with commercial or professional purposes in the goods and service market (Article 3, Consumer Law)
– Consumer courts have jurisdiction to adjudicate all disputes arising out of execution of the Consumer Law (Article 73, Consumer Law)
– Even if a legal transaction is stipulated in the Consumer Law, related disputes are not always required be heard by consumer courts
– For a legal transaction to fall within the scope of the Consumer Law, one of the parties must fit the definition of “consumer”.
Case Reference: 13th Civil Chamber of Turkish Court of Cassation decision number 2016/12718 E. and 2016/18811 K., dated 19 October 2016.
Turkey has updated the regulatory regime for waste management. A temporary storage permit is now required if more than 1,000 kilograms of hazardous waste is produced per month. Other changes apply to license application procedures, introduce new definitions, as well as introduce time limits for storing waste.
The Regulation Amending the Waste Management Regulation (“Amendment Regulation”) was published in Official Gazette number 30016 on 23 March 2017. The Amendment Regulation makes changes to the Waste Management Regulation (“Regulation”) published in Official Gazette number 29314 on 2 April 2015 by the Ministry of Environment and Urbanization (“Ministry”).
Notable amendments to Turkey’s waste management regime and obligations include:
– Waste generators which produce more than 1,000 kilograms of hazardous waste per month must now obtain a temporary storage permit from the Ministry’s Provincial Directorate for temporary storage of hazardous waste. Temporary storage permission is granted indefinitely. Generators which produce less than 1,000 kilograms are exempt from obtaining a permit.
– Facilities which are exempt from obtaining an environmental license must still:
– Provide information about waste quantity and type in the waste management plan
– Make declarations through the Environmental Information System
– Comply with legislative waste management provisions.
– Uncontaminated excavated soil has been removed from the Regulation’s scope. However, the excavated land must be managed in such a way as to avoid harming the environment and human health, in accordance with the Excavation Soil, Construction and Demolition Waste Control Regulation published in Official Gazette number 25406 on 18 March 2004.
– New definitions for:
– Waste Transportation Vehicles: Vehicles used to transport waste, whose technical criteria are specified by the Ministry.
– Prior Notification Form: Application for the transboundary movement of wastes, made using information, declarations and forms mentioned in Annex-5 of the Regulation.
– Competent Authority: The competent authority of the country which carries out waste imports or exports under the Basel Convention.
– Environmental Information System: An online system established by the Ministry to collect and evaluate environmental management declarations and notifications.
– The definition of “Temporary Storage” has been amended and temporary storage requirements are abolished for places where waste is produced.
– A deadline is introduced for temporary waste storage. Accordingly, waste can now be stored for up to (except medical waste):
– Six months for hazardous wastes
– One year for non-hazardous wastes.
– Facilities must still apply to the Ministry for an exemption from obtaining an environmental license.
– If necessary, Metropolitan Municipalities must now establish and/or operate a transfer station for municipal waste.
– Waste producers must now submit a waste management plan to the Ministry’s Provincial Directorate, which outlines the producer’s plans to avoid and reduce wastes and obtain approval.
– During export of hazardous wastes, a prior notice form and an international movement document form must now be used.
Please see this link for the full text of the Amendment Regulation (only available in Turkish).
The Turkish Court of Cassation recently upheld a 1948 decision to the effect that parties cannot amend their pleadings after the first-degree court’s decision is reversed by a higher court. The General Assembly on the Unification of Judgements of the Court of Cassation (“General Assembly“), the highest body within the Court of Cassation, made the decision in the context of a lawyer’s application to resolve conflicting judgments by different Chambers of the court.
The General Assembly discussed the legal grounds to change a 1948 decision (Decision on Unification of Decisions number 10/3, dated 4 February 1948; “1948 Precedent”).
The 1948 Precedent was rendered under the (now abrogated) Civil Procedure Code numbered 1086, which prohibited pleading amendments after a reversal decision. However, the legislation allowed pleading amendments until the end of court’s inquiry. The 1948 Precedent stated that once a court’s decision is reversed by a higher court, the parties could no longer amend their pleadings.
In the case at hand, the General Assembly ultimately decided by majority that the 1948 Precedent should not be changed and parties cannot amend their pleadings after a reversal decision. It noted that the European Court of Human Rights does not deem prohibitions on amending pleadings after a reversal decision as violating rights.
It also noted that unification decisions (such as the 1948 Precedent) have the force of law and the 2011 Civil Procedure Code did not explicitly abrogate the 1948 Precedent. Therefore, there is no reason for the 1948 decision to not to be in force.
Dissenting members of the General Assembly argued the 1948 Precedent should be changed on the basis that:
– A series of subsequent legislative changes, including notably:
– 1961 Constitution.
– 1982 Constitution.
– Civil Procedure Code numbered 6100 (“2011 Civil Procedure Code”).
– Preventing pleading amendments causes major inequalities, particularly for reversals based on procedural grounds. Procedural reversals which do not consider a case’s merits (i.e. lack of court’s authority), mean the parties lose their right to amend their pleas, even though the first instance court has not begun the inquiry phase.
– The 2011 Civil Procedure Code states that pleadings can be amended until legal inquiries are concluded.
The General Assembly’s decision (Number 2015/1 E., 2016/1 K.) from 6 March 2016 was published in Official Gazette number 30016 on 23 March 2017 and can be accessed at this link (only available in Turkish).
Turkey’s Constitutional Court recently ruled that a property owner’s constitutional rights were violated by a failure to ensure a balance between public interests and the individual’s property ownership rights. The applicant owned an office on a street which the Ankara Transportation Coordination Centre (“Transport Centre”) closed in 2001 to pedestrian and vehicle traffic, in order to ensure the Israeli Embassy’s safety.
Street residents objected to the closure and the Transport Centre sought the Ankara Governorship’s opinion on the topic. The Governorship decided that removing the street barrier may cause a serious security gap. Accordingly, the Transport Centre ruled in 2006 that the street would remain closed.
One resident filed a lawsuit before the Administrative Court, seeking to cancel the Transport Centre’s street closure decision. The Administrative Court accepted the residents’ case, but this decision was later reversed by the Council of State.
The resident subsequently filed an individual application to the Constitutional Court, claiming the Transport Centre violated its constitutional ownership right (Article 35) due to reduction in rental rates which resulted from the street closure.
The Constitutional Court upheld the resident’s claim, sending the matter back to the Administrative Court for reconsideration. The court noted:
– Revenue loss occurred in this case due to the decreased rental rates, causing a financial burden on the applicant. The Constitution requires compensation, as per the principal of proportionality.
– Constitutional ownership rights must be protected during legal interventions by providing certain opportunities to balance ownership benefits. Such protection comes as compensation to the owner, depending on case’s circumstances.
– Linking compensation to fault would undermine the principle of proportionality.
– The impact of the administration’s obligation to act lawfully and to the public’s benefit must not be carried by only one person, or a small group. Rather, an individual’s damages should be compensated, even if the administration was not negligent.
– To ensure proportionality of an intervention to ownership rights, a reasonable balance must be struck between:
– Public interests.
– The applicant’s ownership right.
The full text of the Constitutional Court’s reasoned decision (numbered 2014/1546 and dated 2 February 2017) can be found at this link (only available in Turkish).
Turkey’s Public Oversight Accounting and Auditing Standards Authority has revised certain rules for independent auditors. Changes involve new responsibilities to address and evaluate key issues in audit reports, as well as revised obligations for auditors when agreeing audit terms and communicating with an audited company.
Notable aspects of the recent changes include:
– A new Audit Standard has been introduced regarding auditors’ responsibility to address and evaluate key audit issues in the audit report. The new standard applies to audits of accounting periods starting on or after:
– 1 January 2017 for publicly traded companies.
– 1 January 2018 for companies subject to independent audit under the Turkish Commercial Code No. 6102.
– The Audit Standard regarding auditing agreement terms has been updated. The revised provision addresses the obligation to agree on auditing terms with the audited company’s management, or responsible persons from high management. The Audit Standard particularly addresses matters within the auditor’s control when agreeing the terms on an audit agreement. The amended standard applies to audits of accounting periods starting on or after 1 January 2017.
– The Audit Standard regarding communication with the audited company’s responsible persons has been updated. The amended standard applies to audits of accounting periods starting on or after 1 January 2017.
The changes were announced in Communiqués published in Official Gazette number 30002 on 9 March 2017: