Advice on buying property in Turkey

New Turkish Law may affect foreign property buyers

On 14 March 2005 the Turkish Supreme Court overturned part of the Turkish law that permits foreigners to buy property in Turkey.

In 2003 Turkish law was changed to facilitate foreigners buying property in Turkey. In particular, Article 19 of the new Land Registry (tapu) Act permitted foreigners to buy in village areas of Turkey rather than simply in the tourist developments on the coast. It also permitted foreign companies to own property in Turkey and foreigners to own more than 30 hectares of land in Turkey. The same law eased the restrictions on foreigners inheriting in Turkey and on the various secondary rights like granting and taking mortgages.

The Supreme Court has overturned that Article, so bringing back the arrangements that existed before it came into force. The Court has directed that this decision will come into effect in three months time.

The spokesman of the court, Hasim Kilic, added that this does not mean foreigners cannot buy a property in Turkey. He explained that the current legal protections and restrictions are not sufficient. He indicated that the Turkish parliament should pass a new law within this timeframe to remedy the defects in the existing law and clarify the position.

Essential information for those buying property in Turkey

One of the consequences of the passive role of the land register official is that there may be a discrepancy between the ownership relationships as they are described in the land register and the actual legal relationships. Someone who obtains ownership of real estate through hereditary succession, expropriation, execution of debts or judicial decision actually becomes the legal owner before the ownership title is transferred in the land register. The fact that in the Turkish land register the ownership is in the name of a particular person does not therefore say everything about where the title to ownership really is.

In practice it therefore happens that people buy real estate from a person who is not entitled to sell it. The seller may have, for instance, an obsolete proof of ownership, which caused the buyer (and sometimes the seller also) to assume that he was entitled to sell. Therefore it is of crucial importance to check the entry in the land register in great detail before the purchase takes place.
Legal constructions: the build-rent construction

Often legal constructions are used to obtain ownership. We have named one of these constructions the 'build-rent construction'. This construction involves three parties: the foreign person wishing to buy, a estate developer who is going to buy and the owner of the land on which building is going to take place. The buyer wishes to buy a house offered by the estate developer. The estate developer is able to show that there is an agreement between the owner of the land and his company, from which it appears that the owner of the land grants permission to build houses on his land. Since the house has not been built yet, no entry in the land register of this purchase can take place as yet. Therefore the transfer of the houses will take place at a later moment.

In this way the ownership of the real estate is only obtained on the moment that the building of the houses has been completed. However, the estate developer must have the certainty that the buyer will pay the purchase amount. Therefore a rental agreement is concluded for a specific period, in which it is determined that the buyer will pay at specified intervals and depending on the progress of the construction, a percentage of the purchase amount during the construction of the houses. Once the construction is finished, the full purchase amount has been paid. The idea is that at that moment the entry in the land register takes place and that ownership is obtained.

The danger of this construction lies in the possibility that the project developer or the owner of the land is declared bankrupt, passes away or cannot complete the construction for other reasons.
The buyer ends up empty-handed because at that moment he only has a rental agreement for a non-finished building. However, this rental agreement does not lead to the acquisition of the house. Therefore it is strongly advised against to use this construction without having additional security.

A second construction is called the 'link construction'. Through the membership of a Turkish co-operative association which has as its objective 'having houses built and exploiting them for the benefit of its members', the buyer acquires the house. Another possibility is purchasing shares of a Turkish legal entity (private or public limited company) with a similar objective. As a result of this membership or the block of shares a foreign person can obtain rights to real estate which would have been much harder to acquire as an individual person. Nevertheless, in practice these methods have also frequently resulted in disappointments.

A second defect with respect to the required formalities concerning a foreigner's acquisition of real estate in Turkey is linked to its delivery. The Turkish legislation has some stipulations which are specifically related to the acquisition of ownership by non-Turkish citizens. Article 35 of the Turkish Land Registry Act lists two conditions.

First the 'reciprocity principle' must apply between the country of the person wishing to obtain acquisition of ownership. In other words, if a Turkish citizen can become the owner of real estate in the UK, then the same right applies to a UK citizen in Turkey.

The second condition is that there are no legal restrictions regarding the acquisition of ownership. Here especially the Village Act and the Act regarding the Military Prohibited Areas and Security Areas play an important role. Article 87 of the Village Act denies the right to foreign legal and natural persons to ownership of estate that is outside the centre of a village. One of our clients was confronted with this problem when he wanted to purchase a hotel in an idyllic place on the Mediterranean coast. The hotel appeared to be situated in a place that did not yet belong to a village centre. The client had to wait until the cadastral division of this area had been arranged.

A related problem is that the intended use as stipulated in the zoning schemes does not correspond with the intended use that the purchaser has in mind. Problems may arise if a hotel or holiday home is built on land that is intended to be used for agriculture.

A third impediment follows from the Act regarding Military Prohibited Areas and the Security Areas. This Act includes restrictions for the acquisition of real estate by foreigners if the estate is located within a particular distance of military sites or strategically important areas. This qualification specifically applies to many places along the coast. It is therefore essential to check with a competent military authority if a particular real estate is subjected to this restriction.

The legal restrictions listed above may in turn be restricted or even be cancelled by more recent legislation which is closely related to the promotion of the economic position of the Turkish Republic.
The 1982 Act to promote Tourism offers the possibility, including to foreigners, to acquire all kinds of rights in the "tourist areas" as designated by the Council of Ministers. These rights include the right to ownership of real estate. This also applies to the Oil Extraction Act and the Act to promote Foreign Capital. Therefore, with a view to attracting foreign companies, these acts leave more room in the field of places of establishment for foreign companies.
Information courtesy of Tapu

A useful book:

The Europelaw guide to Buying a Home in Turkey
Summary: A brief guide to buying a home overseas
Pages: 120
Date to be Published: September 2004
Author: John Howell
Available from: John Howell & Co (www.europelaw.com)
Cost: £12.99

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