This content is from: Local Insights

Public tenders of real estate

The recent history of public tenders governed by the State Tender Law has seen controversial developments in Turkey. These resulted in the enactment of a new system in 2002 that initiated a highly restrictive and cumbersome set of rules under the Public Tender Law and related regulations. Unfortunately, the new mandate merely covered the area of public tenders for purchase of goods and services by public institutions from real estate contractors and service providers. Consequently, the old regime established under the State Tender Law remained in force with respect to the sale, barter and leasing of the real property owned by the treasury or under state control, and for the establishment of easement rights on public properties (collectively the Tenders).

In 2007, the Ministry of Finance enacted the more comprehensive Regulation on Operation of Real Property Owned by the Treasury (New Regulation) to set forth the rules and procedures applicable to Tenders. The New Regulation details the procedure to be followed for the Tenders and provides three methods: (i) by closed bid, as the principal method, where the bidders serve their offers in sealed envelopes; (ii) by open bid, which enables bidders to make verbal offers; and (iii) through negotiation, which is the most flexible method whereby bidders are allowed to bid in writing or verbally, depending on the preference of the public authorities.

The establishment of easement rights and barter transactions will be accomplished through negotiation, while the sale and leasing of real property must be effectuated under closed or open bid procedures depending on the estimated value of the properties. The duration of leases may not exceed 10 years, and authorisation by the Ministry of Finance is required for leases that exceed three years. The successful bidders and their sub-lessees will also pay a yearly amount over the income and the rental. Alternatively, bidders may benefit from an easement right for up to 49 years under the New Regulation. Despite this relatively long term, beneficiaries of easement rights may not establish mortgages on public properties.

The New Regulation also sets forth new rules for the granting of easement rights on onshore facilities such as naval docks, harbours, seaports and wharfs for a period up to 49 years, provided that they comply with the Coastal Law and related regulations and that all requisite permissions are obtained.

Following the delivery of an amount equal to 6% of the tender price, the successful bidder enters into a contract with the administration. The provisions of this contract must comply with the particular sample contract annexed to the Regulation, corresponding to each estate granted. The duty of care is two-fold at the stage of contracting with the administration: any harm to public interest would create a risk of cancellation of the contract by the administrative courts, and future non-compliance with the provisions of the agreement would result in the revocation of contractual rights by the administration.

The New Regulation enables installment sales for the leasing of large, valuable tracts of agricultural lands by negotiation, as well as other positive and progressive legal features. It also provides a clear procedure regarding eviction and resolution of the unlawful occupation of public lands.

The innovative approach of the New Regulation seems to have achieved its goals in terms of expediting and simplifying Tenders. However, the struggle between centralisation and liberalisation of public tenders appears not to have been put to rest, and the effect of this new legislative repast has yet to be digested by the public.

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