Category: Turkiye

“The Communiqué on the Procedures and Principles for the Issuance of Building Registration Certificates” (the “Communiqué”), which closely concern citizens, has been published in the Official Gazette dated 6 June 2018 and numbered 30443 and came into force starting from the publishing date in order to eliminate the contradictions to the zoning legislation in our country where real estate is regarded as the number one safety investment instrument.

The Communiqué consists of matters related to the applications for obtaining the Building Registration Certificate, the calculation and payment of the Building Registration Certificate Fee, the sale of immovable properties of the Treasury granted the Building Registration Certificate, the buildings that are not subject to be given the Building Registration Certificate and the sanctions to be performed for those who are making false statements during drafting documents period.

1. Application for obtaining the Building Registration Certificate

The Building Registration Certificate is a certificate that has the intent (i) to record the buildings that do not have the construction license or that are against the license and its annexes and (ii) to provide the zoning peace within the terms of preparation for the disaster risks; that granted to the buildings built before 31 December 2017 provided that the application has been made until 31 October 2018 to the Ministry of Environment and Urbanization (the “Ministry”) and the institutions authorized by the Ministry and; the registration fee has been paid by 31 December 2018 . It has been envisaged that this period can be extended up to 1 year by the Council of Ministers.

The application can be made by applying to the institutions and organizations as well as via e-Government by any of the building owners or their attorneys.

2. Building Registration Certificate Fee and its Payment

The Building Registration Certificate Fees are calculated by taking into consideration the estate tax value of the building area and the total construction surface of the building. The Building Registration Certificate Fees shall be calculated by multiplying rate of the area which does not comply with the zoning legislation to the total amount of the approximate building cost, with the rates of 5% if the building is in commercial use and 3% if the building is in residential use. The field shares have to be taken into consideration separately depending on the commercial, residential or combined use of the areas. The details of unit costs to be applied when determining the approximate cost of building are expressly indicated in the Communiqué.

The Building Registration Certificate will not be granted to the buildings that do not comply with the zoning legislation and do not have a construction license or an occupancy permit without paying the full amount of the Building Registration Certificate Fee.

Regarding the buildings which do not comply with the zoning legislation and do not have a construction license or an occupancy permit, building owners are required to participate in the payment of the Building Registration Certificate Fee equally for the entire building in accordance with the usage of their independent section. However, it should be noted that the building owner who pays the full amount of the Building Registration Certificate Fee may claim the amount falling on its own shares from other building owners.

In case the buildings that have an occupancy permit but which do not comply with the zoning legislation, the Building Registration Certificate shall be granted by stating the independent section(s) that are contrary to law, if the owner of related independent section(s) pays the Building Registration Certificate Fee. Although their independent section does not comply with the zoning legislation, those who do not pay the Building Registration Certificate Fee cannot benefit from the Building Registration Certificate for another independent section in the same building.

Building Registration Certificate Fee shall be paid to the central accountancy unit of the Ministry.

3. Usage Area of Building Registration Certificate

The owners of the buildings which are granted the Building Registration Certificate shall give a copy of this document to municipality and the relevant municipality within the adjacent area borders or to the special provincial administration outside these borders.

Pursuant to the Communiqué, the water, electricity and natural gas services can be temporarily connected to the buildings that are granted the Building Registration Certificate by considering the subscriber group defined in the relevant legislation upon request. Moreover, it is stated that demolition orders and uncollected administrative fines for buildings given the Building Registration Certificate shall be revoked.

In the presence of the buildings which are granted the building license but not the occupancy permit after granting the Building Registration Certificate, establishment of rights or changes at the deed title and land use conversation can be made. However, it is required to apply to the relevant title deed office together with the Building Registration Certificate and the other documents listed in the Communiqué and; to pay the amount paid for the Building Registration Certificate to the central accounting unit of the Ministry.

According to the Communiqué, the Building Registration Certificate can be granted and incomplete construction works for parts granted the Building Registration Certificate may be completed, on condition that no additional construction area is not created for the finished parts as 31 December 2017.

Simple repairs and modifications, which can be made without obtaining a license, can be made in buildings that have been given the Building Registration Certificate.

Workplace opening and operation permit shall be given without seeking for occupancy permit in buildings that have been given the Building Registration Certificate.

The buildings which shall not be granted the Building Registration Certificate  are stated expressly in the Communiqué. It is stated that the Building Registration Certificate which has been granted to relevant buildings shall be cancelled and the rights provided in that certificate shall be revoked. Moreover, it is regulated that the amount deposited under the name of the Building Registration Certificate Fee shall not be refunded and a criminal complaint shall be filed for those who make false statements during drafting documents period.

4. Buildings on Immovable Properties of the Treasury and the Municipality

In case that buildings which are granted the Building Registration Certificate were built on the immovable properties of the Treasury, the immovable properties shall be assigned to the Ministry except those which are within the scope of special laws and required to be evaluated. After the allocation process, these immovable properties will be sold directly by the Ministry at the market value upon the request of the certificate holder of the Building Registration Certificate and their legal or current successors. The market value will be determined by the Ministry or will be determined by third party entities by the force of the Ministry. 

It is stated that the Building Registration Certificate may also be granted to the buildings built on the immovable properties on which municipalities have private ownership. In such a case, the immovable property shall be sold directly by the municipalities at the market value, upon the request of the owner of the Building Registration Certificate and their legal or current successors on the condition that the price is paid to the relevant municipality.

5. Validity Period of the Building Registration Certificate 

It is envisaged that the Building Registration certificate will be valid until the reconstruction of the building or urban transformation application. In case of building renewals which are granted the Building Registration Certificate, the provisions of the zoning legislation will be applied.

In addition, it is stated that contradiction to earthquake resistance of the buildings and; science and craft norms and standards will be under responsibility of the building owner.

6. Inspection

The works and transactions related to the granting of the Building Registration Certificate shall be inspected by the Ministry.

It was envisaged that during the Building Registration Certificate drafting period, a criminal complaint shall be filed in accordance with the “Providing False Information in the Course of Issuing an Official Document Article” against those who make false statement in the application to the e-Government system or institutions and organizations.

In case there is a false statement found during Building Registration Certificate drafting period and if this matter has caused undercalculation of Building Registration Certificate fee, the missing amount will be charged to the relevant breaching person. If the missing amount is not paid in due time, it is stated that the Building Registration Certificate that granted shall be cancelled and the prepaid amount shall not be refunded.

By Duygu Bozkurt, Attorney at law, Moral & Partners

A legal entity is defined as “groups of persons organized as entity on its own and independent property groups constructed for special object” under Article 47 of the Turkish Civil Code No. 4721 (“TCC”). Under Turkish laws, legal entity owns its assets; such assets are dedicated to the purposes of the legal entity and legal entity is liable only with such assets. Legal entity is entitled to be part to the legal transactions as an independent person, separately from its founders and is liable for such transactions against third parties.

Likely, shareholders of joint-stock companies (“Company”) are not responsible for any transaction of the Company but the Company itself is responsible for such transactions. Liability of the shareholders of the Company is limited and no additional liability can be set forth against the shareholders. This constitutes “the principle of separation” between the shareholders and the Company and “a veil” between the shareholders and third parties. In some cases, the shareholders of the Companies may benefit from this separation, damage the Company and third parties by hiding behind the independent structure of the Company. The theory of piercing the corporate veil which has been first introduced and developed by the American Laws has been then accepted and applied by Turkish courts in order to prevent misuse of the principle of separation. 

This theory aims to prevent inequitable result derived by the persons hiding behind the Company by lifting the corporate veil.

1. Non-liability of the Shareholders of the Companies

In principle, the only liability of the shareholders of the non-public Companies is to pay capital subscription as per Article 480 of the Turkish Commercial Code No. 6102 (“TCC”) which is referred to as the “principle of single debt” in the doctrine. As this article is amongst the mandatory provisions of the TCC, any provision of the articles of association of the Company or the general assembly resolution contrary to such principle shall be invalid. Said that, there are exceptions to such principle under the TCC as follows: (i) the shareholders would be obliged to pay agio (premium) in addition to the share price if it is set forth to issue shares having a price higher than their nominal value under the articles of association of the Company or general assembly resolution; (ii) the articles of association of the Company may impose on shareholders to fulfill certain obligations of recurring and non-monetary character in addition to the obligations arising from capital subscription in the Company which the share transfer is subject to Company’s approval; (iii) obligation of loyalty of the shareholders; and (iv) several notification requirements under the TCC (e.g. Article 198 of the TCC).

Accordingly, any debt of the Company could only be demanded from the Company but not from the shareholders or affiliated companies of the Company. Although this is an essential principle of corporate law and debt enforcement and bankruptcy law, Turkish courts may rule that the real person or/and legal entity shareholders misuse this principle and are liable for the debts and legal transactions of the Company. Like so, third parties may apply the shareholders due to the debt of the Company.

2. Piercing the veil of incorporation

As mentioned above, “piercing the veil of incorporation” is not the general rule but an exception that only the courts may resolve on and under certain circumstances. In case the shareholders commit fraud or breach a liability arising from an agreement or damage third parties unlawfully by hiding behind the Company, this would constitute breach of Article 2 of the TCC, among other regulations e.g. Article 50/3 of the TCC, which states that in exercising rights and in performing duties, every person must act in accordance with good faith and that the law does not protect explicit abuse of a right. This article brings the prohibition of the abuse of rights as a general limitation as the lawmaker is aware of the impossibility of the regulation of each and every kind of relation between persons. 

As there is no specific legislation regulating the issue of “piercing the corporate veil” under Turkish laws, the circumstances which require piercing the corporate veil have been set forth and developed by the jurisprudence of the Turkish courts based on the foregoing Article 2 of the TCC, the principle that the law does not protect explicit abuse of a right. The circumstances where piercing the corporate veil applies can be listed as follows: 

2.1 Assets or Areas of Shareholders and the Company Blending into Each Other

The “principle of single debt” is based on the separation of the assets of shareholders and the Company. In some cases, such separation would not be possible due to the accounting fraud or other reasons as it may not be clear whether some individual assets belong to the Company or shareholders. Allocation of the corporate vehicle to the use of a shareholder or transfer of an asset of an affiliate company to another by the mother company can be given as examples to such case. In that case, real person or legal entity shareholder would not be able to allege the separation of the assets and would be responsible for the debts of the Company with its own assets.

2.2 Deficiency of Equity Capital

Deficiency of equity capital occurs when shareholders do not fulfill their liabilities about payment of the capital subscription or when the Company does not have a share capital adequate to cover its activities. In case the Company carries out its activities with an insufficient equity, the shareholders would not benefit from the principle of single debt. That said, insufficient equity would not be enough for piercing the corporate veil on its own and the courts would seek existence of other conditions reflecting the misuse of the Company before piercing the corporate veil.

2.3 Dominance of a Particular Group on the Company

In case of abuse of the Company by its shareholders for their other commercial benefits, dominance of a particular group on the Company would be questioned. If dominance causes loss of third parties, the principles of separation of assets and independence would not be applicable and the areas of responsibilities and assets of the Company and its dominant shareholders would be considered as a whole.

Accordingly, 19th Civil Chamber of Court of Appeals (2005/8774 E., 2006/5232 K., 15.05.2006) considers that “…although different legal entities…seem to exist, their shareholders…are the same at the time of the agreement…The concept of different legal entities cannot be taken into account…The conflict between the parties has to be assessed within the framework of good faith and equity…These companies should be jointly liable for the debt…”.

A recent decision of the 9th Civil Chamber of Court of Appeals (2015/2147 E., 2016/11690 K., 10.05.2016) reveals that “the organic link between the such companies are determined by the addresses of the companies, scope of their activities, their shareholders and representative being the same and the legal relation between them. The claim is that the company uses other companies as shell companies and the representatives, addresses and scope of activities of these companies are the same and therefore there is an organic link between the defendant companies…”.

3. Conclusion

Under Turkish laws, the Company and its shareholders have separate assets and are deemed as separate persons and in principle none of them is liable for the other’s liability. Although this is the rule, in case the corporate veil is used for a fraud or a breach of the contract or in order to damage third parties by hiding behind the corporate veil, Turkish courts would assume this as the misuse of the principle of separation of the Company and shareholders and in order to secure the justice they would hold the shareholders behind the corporate veil liable. In any case, the implementation of Article 2 of the TCC should be in an exceptional and limited manner as the principle of separation is essential.

(First published by Mondaq on September 7, 2018)

By Gonenc Gurkaynak, Partner, Nazlı Nil Yukaruc, Partner, Gulsen Pazarbaşi, Associate, ELIG Gürkaynak Attorneys-at-Law

Crowded cities and unplanned urbanization have always plagued Turkey. According to the Ministry of Environment and Urbanization (the “Ministry”), more than ten million structures in the country violate zoning laws and regulations. These structures, including factories, shopping malls, and office buildings, are built without a construction permit, used without an occupancy permit, or violate other laws.

On May 18, 2018, the Turkish government took an important step by introducing a new law, titled “Zoning Peace,” which determines and records structures violating the zoning laws.

The Zoning Peace also introduces the “Building Registration Certificate.” According to the Zoning Peace, Building Registration Certificates must be obtained for structures erected before December 31, 2017 (i) without a license, (ii) in violation of construction/occupancy permits, or (iii) in violation of the zoning laws. 

Building Registration Certificate Issuance

To obtain a Building Registration Certificate, owners must apply to the Ministry and to the institutions authorized by the Ministry before October 31, 2018. Owners must pay a registration fee to obtain the certificate. That fee is 3% of the sum of the land’s property tax value and approximate construction costs for residential properties and 5% for commercial properties. 

According to the Zoning Peace, the Ministry shall determine the approximate construction cost; although it is still unclear what principles the Ministry should use for this determination. The Ministry will likely determine the procedure for the issuance of the Building Registration Certificate before the Turkish general election.

Advantages of Obtaining a Building Registration Certificate

The most remarkable action prescribed by the Zoning Peace is the revocation of demolishment decisions and outstanding administrative fines for unlicensed structures or structures built contrary to the terms of their licenses. For the time being, unlicensed structures no longer run the risk of demolishment.

In principle, independent units in an unlicensed structure cannot be converted into a “condominium structure.” Therefore those unlicensed structures are still regarded as “land” in the Land Registry, and each owner’s land share is proportional to the area of his or her independent unit.. 

With the Zoning Peace, if all unit owners in an unlicensed structure unanimously decide to apply for a Building Registration Certificate and the Building Registration Certificate is granted, the independent units will be converted into a condominium. The registration fee doubles for land use conversion and/or the establishment of condominium.

Validity Term of Building Registration Certificate 

The Building Registration Certificate remains valid as long as the relevant building remains standing. In other words, unless the building is demolished, either voluntarily or due to urban transformation, the Building Registration Certificate remains in effect. Because the Building Registration Certificate expires after a building’s demolishment, any new structure on the property must comply with the applicable zoning laws and regulations. The Building Registration Certificate does not grant a vested right to the owner. 

A separate expiry date for the Building Registration Certificate under the Zoning Peace relates to buildings defined as “being subject to urban transformation.” If a structure with a Building Registration Certificate becomes subject to urban transformation, that building will not be protected by the Building Registration Certificate and will accordingly be demolished.

Exceptions 

Certain parts of the Bosphorus coast line and preview area defined under Bosphorus Law No. 2960 and certain parts of the Istanbul Historical Peninsula and the area defined under Article 2(e) of the Law on Establishment of Directorate of Canakkale Wars Gelibolu Historical Area No. 6546 are exempt from the Zoning Peace.

Conclusion

The Building Registration Certificate allows unlicensed structures to avoid the risk of demolishment, thereby increasing the credibility of the real property, as the unlicensed buildings can be shown as assets for the loans.

In addition, if condominium structures are established and each owner holds the title of the independent unit, it will be easier for the owners to sell their real properties or establish liens on the real property.

From a legal transactions perspective, unlicensed structures are among the most contentious issues during real estate and M&A transactions. The buyers usually introduce “bringing the structure into conformity with zoning laws and regulations” as a condition precedent to the transaction. However, sell-side of the M&A and real estate transactions with unlicensed structures cannot meet this condition due to technical reasons. The introduction of the Zoning Peace will allow the sell-side to obtain a Building Registration Certificate and thereby bring the structure into conformity with the law.

By Birturk Aydin, Partner, and Kerem Kuscu, Senior Associate, Esin Attorney Partnership

This Article was originally published in Issue 5.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The European Commission (“Commission”) has released a report on April 17, 2018, which contained important findings of fact and assessments regarding Turkey’s political situation, economic development, regional issues and international obligations. This document summarizes and evaluates the conclusions put forth by the Commission in its report (“Report”) with respect to intellectual property law in Turkey and its suggestions for the coming years.

I. Current Status of Intellectual Property Law in Turkey

Chapter 7 of the Report examines the state of intellectual property law in Turkey and declares that “Turkey has a good level of preparation in the area.” The Commission has chosen to use the word “good” in order to emphasize that while the current level of preparation is adequate, there is still room for improvement. The Report also underlines the fact that good progress has been made on legal alignment with the European Union acquis. 

In order to evaluate the progress that has been made by Turkey in this particular area, it would be useful to compare this Report with the previous report of the Commission. The previous report, which was released in 2016, stated that “there was some progress in improving administrative capacity and coordination but enforcement remained problematic.” The previous report also proposed that Turkey should adopt pending industrial property and copyright legislation in line with the EU acquis. On the other hand, the Report of 2018 states that the adoption and entry into force of the new Industrial Property Law is a significant part of the “good progress” that the Report has identified. This is one of the most valuable and noteworthy developments regarding intellectual property law in Turkey, as the Commission has also underlined in its Report. 

The Report offers further details on this issue and indicates that this new law enables and provides enhanced legal alignment between Turkish IP law and the EU intellectual property rights acquis in relation to trademarks and designs. Furthermore, it updates the Turkish intellectual property rights system in line with international agreements and practices. Unlike the previous report, the Report of 2018 also notes that simplified registration procedures have been introduced by the new law. However, the Report also highlights the (disappointing) fact that the new law lacks specific provisions for biotechnological inventions.

The Report also mentions that an Intellectual Property Rights Academy was set up in July 2017, which will be responsible for all intellectual property rights training for civil servants in Turkey. Thus, the Regulation on the Code of Conduct and Disciplinary Measures for Trademark and Patent Agents, which entered into force in May 2017, addresses a legal gap with regard to the liability of trademark and patent agents registered with the Turkish Patent and Trademark Office. Finally, the Report observes that the Turkish Patent and Trademark Office has strengthened its consultation on trademark registration services with owners of intellectual property rights and their representatives. 

II. Recommended Steps to Be Taken

The Report suggests that three (3) steps should be taken by Turkish lawmakers and public authorities in the upcoming years with respect to the protection of intellectual property rights. The Commission recommends that Turkey should take the following concrete steps:

(i) Adopt pending copyright legislation in line with the acquis:

The previous report of 2016 also recommended that Turkey should take three (3) steps in the coming years for the legal protection of intellectual property rights. The first one was the adoption of the pending industrial property and copyright legislations in line with the European Union acquis. 

The first half of this step was fulfilled with the passage of the new Industrial Property Law. However, the Report of 2018 now states that Turkey should adopt, in particular, pending copyright legislation in line with the acquis, which is the Draft Law Amending the Law No. 5846 on Intellectual and Artistic Works (“Draft Law”). 

The Draft Law proposes numerous amendments to the current text of the Law No. 5846 on Intellectual and Artistic Works, which include revisions to the provisions concerning online piracy, collecting societies, databases and exceptional uses, such as temporary reproductions, reproduction through photocopying and other similar means, freedoms for purposes of use by disabled persons, and temporary reproductions by radio or television enterprises. 

The Report specifically highlights this issue by stating that, “Collective rights management remains an outstanding issue that the new copyright law should address, particularly in relation to foreign producers, public performance rights and reproduction rights.” The Draft Law actually focuses on the issue of reproduction rights; however, it does not specifically address treatment of foreign producers and public performance rights. For this reason, in order to be brought in line with the recommendations of the Commission, the Draft Law (or other regulations) should include and incorporate these rights as well. 

Another recommended step in the previous (2016) report was to improve enforcement measures in fighting against piracy and counterfeiting. When the Draft Law enters into legal force, the Intellectual Property laws in Turkey will finally address the issue of piracy. 

(ii) Improve enforcement measures to combat infringements of industrial and intellectual property rights:

While the new Industrial Property Law aims to deliver a higher level of legal alignment with the EU Enforcement Directive, that is still not deemed adequate by the Report. Since the number of intellectual property right infringements and the level of counterfeiting and piracy activities are still quite high in Turkey, the Report suggests that the implementation of the accelerated destruction procedure and the efficient functioning of the criminal justice system in dealing with intellectual property rights need to be improved.

(iii) Sustain a constructive dialogue with intellectual property right (IPR) owners, increase awareness regarding counterfeiting and piracy and focus on the benefits of a strong IPR protection system for economic growth:

The Report explicitly states that, “Turkey should in particular, sustain a constructive dialogue with intellectual property right (IPR) owners, increase awareness regarding counterfeiting and piracy and focus on the benefits of a strong IPR protection system for economic growth.” This suggestion, once again, highlights the need for specific legal provisions regarding IPR owners, as well as addressing issues of counterfeiting and piracy, and it also raises an important point regarding the application of the laws. In fact, this is the reason why Turkey may not be able to follow and abide by this recommendation in the coming years, since both the application and the enforcement of the relevant laws might take some time and are likely to happen only gradually. 

III. Conclusion

The Report clearly indicates that the state of Intellectual Property Law in Turkey has been improved since the release of the previous report, which was accomplished primarily through the adoption of the new Industrial Property Law. However, there are still a number of issues and challenges that need to be addressed with respect to IP law in Turkey, which are highlighted in the Report, especially in practice. In other words, while significant positive steps have been taken with respect to IP legislation in Turkey, the application and enforcement of the IP rights enshrined in such legislation still leaves much room for improvement.

(First published by Mondaq on August 8, 2018)

By Gonenc Gurkaynak, Partner, Ilay Yılmaz, Partner, Burak Yesilaltay, Associate ELIG Gürkaynak Attorneys-at-Law