The laws governing the rights of foreigners concerning the acquisition of real estate property in Turkey are currently undergoing significant restructuring due to the annulments by the Constitutional Court of certain provisions in the relevant pieces of legislation. Within the first half of 2008, the Constitutional Court rendered two decisions that respectively annulled some rights attached to foreigners and to foreign investors. In its recent decisions, the Constitutional Court has made a broad assessment about whether the limits of these rights provide a balance between the risks and benefits of allowing foreigners to purchase real estate property in Turkey.

The Constitutional Court has a tendency to take a conservative approach towards the rights to be granted to foreigners in this regard. It is supported by the language and spirit of the Turkish Constitution. The Court has tended to annul any legislation or the related provisions as a whole or in part, which creates even a remote risk of vast acquisition of Turkish lands by foreigners, and/or provides extensive rights. Therefore the attempts of the Turkish parliament at various points to adopt legislation liberalising foreigners' rights to purchase real estate property within the boundaries of Turkey have failed.

In addition, the enforceability of such rights by foreigners is likewise currently suspended through a transition period set by the Constitutional Court and its recent decisions. Legislative activities are ongoing to prevent a legal gap from arising following the transition period.

Reciprocity

Turkish legislation determines the rights of foreigners in respect of acquiring a real estate property in Turkey along the distinctions between (i) foreign real persons; (ii) foreign legal entities, which are commercial companies incorporated under foreign states' legislation (foreign legal entities other than commercial companies do not have the right to acquire real estate property in Turkey); and (iii) foreign investors; "foreign investor" within the meaning of the Foreign Investments Law covers foreign nationals and Turkish nationals residing outside of Turkey, as well as the legal entities and international corporations established under relevant foreign laws, which realise direct investments in Turkey. The rights of the foreigners that have been granted the residence status in Turkey or Turkish citizenship or nationality will not be discussed here.

Based on this distinction, the main laws governing the rules on the acquisition of real estate property by foreigners as of June 18 2008 are Article 35 of the Title Deed Law 2644 dated December 12 1934 (Title Deed Law) as amended by Law 5444 issued on December 29 2005; and the Foreign Direct Investments Law 4875, dated June 5 2003 concerning the rights of foreign investors.

Foreigners are not allowed under any condition to acquire property falling within military forbidden zones and security zones. Further, where invoked by the relevant authorities or institutions, the Council of Ministers may restrict the acquisition of properties in certain areas, provided that such areas are in strategic locations or deserve special protection due to their significance for irrigation, energy, agricultural or mining purposes or for reasons of conservation, faith or culture, or flora and fauna.

It should be noted that any of the restrictions concerning the acquisition of real estate property under Turkish law are not applicable in the case of establishment of easement rights in favour of foreigners. Further, the restrictions stipulated by Article 35 of the Title Deed Law in respect of real persons are not applicable to the acquisition of real estate property through legal inheritance by nationals of a state that has reciprocal relations with the Republic of Turkey, whereas acquisitions through testamentary disposition – that is, by will – fall within the scope of the restrictions. Without prejudicing the common restrictions, the rules outlined below shall be applicable in respect of foreign real persons, foreigner legal entities and foreign investors.

Diminished powers

Foreign real persons have been granted the right to acquire real estate property in Turkey with Law 5444, which amended Article 35 of the Title Deed Law. Under the current Article 35.1 of the Title Deed Law, real persons of foreign nationality may acquire real estate property in Turkey designated as a residence or workplace under applicable development plans or local zoning plans. Under Article 35.1, the nationwide total area of real estate property that may be acquired by a foreigner shall not exceed 2.5 hectares. Where easement right has been established on real estate in favour of a foreign real person, the total area subject to the easement should be included in the calculation of the nationwide total area of real estate property.

Pursuant to Article 35.1 of the Title Deed Law, the Council of Ministers was authorised to increase the amount of nationwide total area up to 30 hectares. However, such authorisation has been annulled by a decision of the Constitutional Court (Decision 2006/35 E; 2007/48 K) rendered on April 11 2007 and published in the Official Gazette on January 16 2008, stating that the authority of the Council of Ministers is too extensive. The Court transferred the legislative power to the government, as an executive organ.

Subject to the same judgment, the Council of Ministers is no longer authorised to determine the amount of land in each city and district that may be acquired by real persons of foreign nationality. In its the decision the Constitutional Court stated that the cancellation of the Council of Ministers' authorisation shall enter into force within three months of the publication of the decision in the Official Gazette – that is, April 16 2008.

Rights in practice

The acquisition right of foreign real persons is limited to the legal restrictions listed above. In addition, there should be reciprocity between the Republic of Turkey and the state of nationality of the foreign real person. The reciprocity is not a precondition within the scope of Article 35 in the following cases:

• Stateless persons are exempted from the applicability of reciprocity principle. A stateless person is someone with no citizenship or nationality. This may be because the state that gave them their previous nationality has ceased to exist and there is no successor state, or their nationality may have been repudiated by their own state, effectively making them refugees. People may also be stateless if they are members of a group that is denied citizen status in the country on whose territory they are born, if they are born in disputed territories, if they are born in an area ruled by an entity whose independence is not internationally recognised, or if they are born on a territory over which no modern state claims sovereignty. Individuals may under certain conditions become stateless voluntarily, by formally renouncing their citizenship while on foreign soil. However, not all states recognise such renunciations on the part of their citizens.
• Pursuant to Article 7.2 of the Convention on Legal Situation of Refugees dated July 28 1951 and ratified by Turkey with Law 359 dated August 26 1961, refugees are exempted from the reciprocity principle provided that they reside in a state for three years; this ruling also applies to refugees in Turkey.
• Pursuant to Article 8E of the Tourism Encouragement Law 2634, the acquisition of an immovable property in cultural and tourism preservation and development regions and tourism centres may be exempted, by a decision of the Council of Ministers, from the restrictions on foreign nationals imposed by the Villages Law 442 and the Title Deed Law 2644. Accordingly, foreign real and legal persons who are willing to make an investment for tourism purposes in Turkey may acquire real estate in tourist areas and centres, which are exempt from the reciprocity principle and restrictions formulated for foreigners by the decision of the Council of Ministers.

Article 35 of the Title Deed Law requires reciprocity in law and in practice. However, it does not seek the exact same implementation of the reciprocity principle by the foreigner's state as the Republic of Turkey applies to foreigners. The reciprocity condition may be deemed satisfied when Turkish persons (that is, Turkish real persons and legal entities) may exercise the rights, including the right to acquire real estate, granted to the nationals of the concerned state. Any such right may be deemed properly exercised when the right is recognised by the laws of that state and is applicable in practice. As of June 12 2008, the Republic of Turkey has reciprocity with Argentina, Australia, Barbados, Belgium, Brazil, Canada, Central African Republic, Chile Dominican Republic, Egypt, El Salvador, the UK, France, Gabon, Germany, Greece, Guatemala, Holland, Ireland, Israel, Italy, Kenya, Norway, Panama, Peru, Spain, Somalia, Tanzania, Turkish Republic of Northern Cyprus, the US and Venezuela.

Foreign legal entities – that is, commercial companies that have been established under the laws of foreign states – may acquire real estate property in Turkey pursuant to Article 35.2 of the Title Deed Law, only under certain special laws: the Tourism Encouragement Law 2634, the Law on Industrial Zones 4737 and the Petroleum Law 6326. Accordingly, a foreign legal entity is not entitled to acquire real estate property in Turkey unless it is granted a right to acquire a property falling within a tourism area, industrial area or an area allocated for the purpose of petroleum affairs under one of the foregoing laws.

Foreign capital companies

Foreign investors within the scope of the Foreign Direct Investments Law were not affected by the limitations presented here regarding acquisition of real estate property in Turkey. Until recently, foreign investors had the same rights as Turkish nationals under Article 3d of the Foreign Direct Investments Law (which suppressed the requirement of having a certain amount of capital share and receiving prior approval for acquiring property as a foreign investor). Despite the principle of reciprocity, companies incorporated by foreign investors and companies in which foreign investors participate could acquire real estate in any place where Turkish nationals had the right to acquire property.

However, Article 3d of the Foreign Direct Investments Law was annulled with a decision of the Constitutional Court (Decision 2003/71E; 2008/79K) rendered on March 11 2008 and published in the Official Gazette on April 16 2008, on the grounds that granting vast rights to foreigners to acquire real estate property does not benefit the public. The Constitutional Court stressed in its decision that the rights granted to foreigners in respect of acquisition of real estate property may not be deemed as a contribution to Turkey's welfare and benefit unless the acquisition is allowed irrespective of its objective to facilitate the employment conditions or investment in Turkey. The decision on the annulment of Article 3d shall enter into force within six months of the publication of the decision – that is, on October 16 2008.

On the agenda

To ensure avoidance of wrongful practices by the land registries, the decision of the Constitutional Court on the annulment of certain provisions of Article 35 entered into force on April 16 2008; the decision of the Constitutional Court on the annulment of Article 3d will enter into force on October 16 2008. The Foreigner Affairs Department of the Ministry of Public Works and Settlement General Directorate of Land Registries and Cadastre issued the Circular 1657 on April 14 2008. This Circular announced that the requests of foreign real persons and legal entities to acquire real estate property in Turkey shall be suspended until otherwise instructed. The Circular does not regulate whether the requests of foreign investors to acquire or transfer real estate property shall be rejected.

In view of the above, foreign real persons and legal entities will not be able to purchase any real estate property in Turkey until the relevant authorities or Parliament provides further instruction. Such foreigners may transfer their properties to Turkish nationals if they are willing to do so. On the other hand, foreign investors within the scope of the Foreign Direct Investment Law may continue to enjoy the same rights as exercised by Turkish entities until October 16 2008.

Finally, it should be noted that the Parliament of Turkey, the Turkish Grand National Assembly, has put the issue of amending Article 35 of the Title Deed Law on its agenda. The draft proposed to the Parliament stipulates: (i) the Council of Ministers should have the power to determine the total national area to be allocated to nationals under more limited authority; and (ii) the current Article 3d should be applied as it is during the transition periods.

The proposed draft has been discussed at the sessions held on June 12 and June 13 2008. However, the Parliament has not yet adopted any legislation in that respect. It is anticipated that the new legislation regarding Article 35 of the Title Deed Law will be released in summer 2008. As for Article 3d of the Foreigner Direct Investments Law, Parliament will most likely adopt legislation accordingly in October 2008.

Author biographies

Gökhan Gökçe YükselKarkin Küçük Law Firm Gökhan Gökçe is a partner in YükselKarkin Küçük Law Firm. Gökçe's practice focuses on intellectual property, information technology, international customs and trade, pharmaceuticals, real estate, shipping and litigation. Gökçe graduated from Istanbul University School of Law in 1998 and the Land Forces Military School in 1992, where he studied management. He is also a trademark and patent attorney. He is a member of the Istanbul Bar Association and Bornova Anatolian High School Alumni Association. Gökçe speaks fluent English. Seda Eren YükselKarkin Küçük Law Firm Seda Eren is an associate in YükselKarkinKüçük Law Firm. Eren works on arbitration, mergers and acquisitions, commercial and corporate law and shipping. She participated in the Philip C Jessup International Law Moot Court Competition in 2003 as the National Champion of Preliminary Rounds. She is a member of the Istanbul Bar Association, Kadiköy Anatolian High School Alumni Association (KALID), ELSA and ILSA. She speaks fluent English.