Category: Turkiye

1. Why is Corporate Governance Important for Family-Owned Businesses?

Corporate governance is defined as building the relationship between the company and its shareholders, employees, business or solution partners, within the frame of transparency, fairness, responsibility and accountability principles; also preserving and maintaining such a relationship. Therefore, corporate governance brings a framework to the company by helping it to operate independently. Such framework will reach the road of sustainability. The main problem of the family-owned businesses, both in Turkey and worldwide, are the incapability of maintaining sustainability and defining the boundaries of the family and business relationships between the shareholder family members. Therefore, with every step taken for the corporate governance, the critical issues of the family-owned businesses will be able to resolved in a successful manner.

Companies including family-owned businesses adopt and apply corporate governance principal on their business and management, such company will be able to transform independent from specific people. Therefore, the succession mechanism will dissolve and this automatically will lead to a boost at the profitability, efficiency, the employee performances and the customer satisfaction of the company. In this context, if summarised briefly, likewise other company types, also for family-owned business companies, corporate governance ensures companies to be competent and to reach their utmost potentials.

2. What Are the Main Steps to be Taken for the Family-Owned Businesses During Institutionalisation?

We believe that “Knowing Your Company” and “Mindfulness” are the seeds for corporate governance. In other words, the corporate governance will start to produce leaves and take root as Shareholders of family-owned businesses drop their egos and accept to be a part of a body of certain rules of a system.

When considered the definition of the institutionalisation means “the establishment of a framework for the operations and management of a company”, different steps should be taken regarding a company’s industrial specifications and its organisational structure. However, it carries a crucial importance for institutionalisation to define the system’s component duties and functions, determine and uniform the internal regulations in accordance with the mission of the company based on the principal of inditement, and define the authorisations and the responsibilities for each position in the company objectively and accurately.

When we evaluate the above-mentioned steps specific to the family-owned businesses, the main subjects to be considered may be indicated as follows: Drafting a family constitution, drafting a shareholders agreement, determining and applying the conditions and standards of the family member shareholders’ participation in the management and executive boards of the company, appointing a professional member independent from the family to the board of directors, determining the activity plans of the company for short, medium and long-terms, and ensuring an independent internal audit in the company.   While defining a roadmap regarding these steps, an unbiased and a professional manner which focuses on common commercial interest should be followed.

3. How Should an Optimal Board of Directors Structure and the Family Member’s Participation to the Management be?

The most important factor to improve the family-owned business’s competitive power is an excellent management. Therefore, well-designation of the board of directors’ structure has major importance for the family businesses. Pursuant to the new Turkish Commercial Code entered into force in 2012, the importance of board of directors has been emphasised, non-transferrable duties and obligations have been assigned to board of directors and additionally, board of directors has been conferred with the liability of duty of care. Accordingly, a board member, who acts as a foresighted executive within the scope of the aforementioned duty, shall be held responsible if s/he fails to follow all the economic developments, forecast the market fluctuations and analyse risks arisen from the uncertainties and take necessary actions.¹ It carries vital importance for the sustainability of the company that board of directors is not overwhelmed by the emotional bonds of family members. When analysed the family businesses in Turkey, we generally observe that all board members are also family members. However, it is crucial to state that, having an independent professional at the board, specialised in its profession and gathering a board of directors independent from the family for continuity and improvement of the company, will ease for the family-owned businesses to adopt innovative approaches and set a balance between the family members by giving an objective point of view on the strategical matters. Having a management approach does not mean leaving the company and transferring management of the company to the third parties for the family members, quite the reverse, it should be considered as building a shared soul between the family members and the employees to carry the company to a healthy future.

4. What is the Importance and the Role of a Shareholders’ Agreement Drafted in Light of the Family Constitution during the Institutionalisation Process?

The family constitution is a guide that regulates values, principles, assets, relationship and rules of the family. The family constitution is actually an incarnated version of “family mindfulness” notion as we mentioned in the preamble of our opinion. The family constitution reflects the family’s approach on company issues as it is drafted in the light of the mission, vision and philosophy of the family and it indirectly enlightens the interaction between the family and the operations of the company.

The Shareholders’ Agreement of the family-owned businesses -if exists- regulates the relationship between the shareholders of the company within the framework of purposive details and principles by reflecting the family constitution’s soul. The Shareholders’ Agreement is a body of rules that regulates the management and organisation, partnership structure, professional relationships of the family members, management and transfers of the shares and assets of the company, and the business processes for the purpose of determining the main principles for the operation of the company. The provisions of the Shareholders’ Agreement are binding for the shareholders who are party to the Shareholders’ Agreement, and as a prerequisite it is required for the third-parties to sign the Shareholders’ Agreement – although the Shareholders’ Agreement will be amended regarding the new shareholding structure after the partnership transactions are completed-. The subjects such as the protection of the shares and the shareholding existence, entity of the shareholding structure, management rights, share transfer limitations and the rights of the other shareholders in the event of the transfer of shares, limits and liberties, options, competition provisions are regulated under the Shareholders’ Agreement.

Pursuant to a Shareholders’ Agreement drafted in light of the family constitution, the family relationships are being institutionalised before the company, and the main vision and objective of the company are being set. Hereby, the main vision and the objective of the company are protected and the principles for the protection and the regulation of the rights of every family member is set both during the institutionalisation process and before a possible partnership that might happen in the future. In other words, awareness of the shareholders and company before a potential partnership with the third parties may have a resemblance with a guest who feels secure by attending to a ball he/she is invited with a tailor-made gown or tuxedo.

5. What Kind of Approach Should be Set for the Minority Rights in the Family-Owned Business?

In the family businesses, a loud and clear approach should be set regarding the structure and needs of each family by avoiding the suspicions and satisfying the expectations of the family members. It is necessary to build a corporate governance structure eligible to protect the rights of the minority shareholders and the minority rights shall be explicitly protected on the articles of association, regulations and the management code of the family-owned business company. This situation also has a major importance for the establishment of the transparency in family businesses. Establishing transparency on the minority rights in family businesses plays a main role in the openness to the public opinion and may be considered as a confidence building factor for the family business in the market which the company operates.

Aforementioned minority rights shall not be considered as commercial or social concessions, contrariwise it should be considered as operational and strategical foreseeing plans within the scope of commercial future and the sustainability of the company. It is important to consider protection of the shareholders that have low ratio of shares as preventative regulations to keep the company from the administrative deadlock conditions, instead of considering it as the regulations to protect the minority shareholders. In short, a successful system should balance the ability of motion of the company with the shareholders expectations while solving smoothly any conflicts to be raised on the road to sustainability.

6. What Are the Benefits of the Partnership with the Third Parties for the Family Businesses?

It is possible to say that the third-party shareholders join the family businesses where a family member or members hold the majority of the shares – companies which have their %30 or more shares held by shareholders that are members of the same family are considered as family businesses in practice – particularly to accomplish expansion, professionalisation and branding for the company in the family-owned businesses. Even though the accession of the third-party shareholders to the company might give an impression of separation within the family, it should not be ignored that such developments provide an objective point of view to the company within the scope of its mission and vision, where necessary measures are taken.

Expansion of the scope of the work and establishment of the transparency by adopting innovative approaches shall be succeeded faster with the objective third-party shareholders dominating the market and have specialised in the fields of activity of the company. In such case, the significant point is to set the issues which have been prohibited or limited by the legislation in the articles of association of the relevant company in written form by assigning a shareholders agreement which regulates the basic relationship between shareholders of the company and their rights. Herewith, the frame of the relationship between the third-party shareholders and the family members will be formed and equilibrated.

7. Are the Institutionalisation or Merger/Acquisition Projects Necessary for the Family Businesses to Maintain their Existence and Development?

As we stated above, it is very important to establish company’s institutionalization on a well-designed corporate structure to ensure the sustainability of the company to be independent from individual people. Institutionalised companies can adapt easier to the market changes than the other companies both in the transition between generations and high competition circumstances.

On the way to sustainability, the companies’ partnership needs may arise from various reasons in the course of time. Some of the reasons may be stated as follows:

• Expansion and access to the new markets,
• The intent for the transition to the corporate governance as a result of the internal awareness stated hereinabove or direct necessity arisen from the inefficiency of the mentioned awareness,
• Branding,
• The resignation of the founder and succession,
• Financial needs.
• Technology.

The partnerships with the strategical and/or financial partners who are the third parties specialised in the industries and have a solid structure and resources to improve the activity on the market and the position of the family businesses besides the institutionalisation is one of the common methods for the development for the companies by profitability. Some of the situations that the family businesses face frequently are having overprotective approaches and avoiding from taking risks.² Therefore, the positive outcomes of the well-managed partnership processes cannot be negated. When observed the successful family businesses in a sustainable manner, we see that the most of them have institutionalised and incorporated new business lines and sectors into their structures by partnership projects to improve themselves continuously and adapt to the market.

8. How Could the Continuity of Company’s Control Be Maintained During the Expansion Process by Partnership?

If the shareholder family members still have shares of the company following the completion of the expansion process by the partnership, the joint control will come to the force on a family-owned business. In family-owned businesses which have a traditional structure, managing the company with the joint control without detracting the third party joined to the company as a shareholder from the main vision and mission of the company becomes more of an issue. Under such circumstances the Shareholders’ Agreement has a critical importance in protection and arrangement of the balance between the family and new shareholder.

The provisions on the transfer of shares, management rights and limits drafted by regarding the balance of partnership and rights, and clear and solid instruments avoiding rise to uncertainties on strategical matters to be set forth on the Shareholders’ Agreements shall enable the company to move forward free from the shareholding relationships and potential difficulties.

9. What Are the Potential Risks in the event of Early Partnership Prior to Structuring Corporate Governance? 

Entering into a partnership process before the institutionalisation awareness and its effects within the company reach to a certain point, accommodates some unborn risks for both the family member shareholders and the potential partners.

The newcomer investor may face risks such as a long-lasting due diligence process before family business, a lower level of investment as the process overruns, financial or legal complications arisen from the weakness of transparency, intensive pressure and complexity of managing the partnership issues and negotiations between the family members and third party shareholder groups, disagreements of the family member shareholders in compliance with the exit strategies of the financial partners, especially in the financial investments.

On the other hand, weaknesses of institutionalisation and systematisation also contain some risks for the company subject to the acquisition and so does for the family who is shareholder of the relevant company. 

As it is known, due diligence periods are the ones during which the financial and legal situation of the relevant companies are examined in a detailed manner.  During due diligence periods, there are some risks for the companies who have not been totally institutionalized yet and who are negotiating with a potential shareholder who is very professional.  Possible risks are; (i) efforts to be made on collecting and classifying the company documents which will noticeably be higher compared to institutionalized  companies, (ii) employees who may move away from some roles carrying vital importance for the companies such as client relations some operational responsibilities due to the lack of certainty on the job definitions, (iii) the management of the public disclosure regarding the partnership negotiations, (iv) complying interim period restrictions, and (v) completing conditions precedent Aforementioned risks have extreme importance and they can affect the share value and sale price which are the most important elements of the partnership negatively.

10. New Partnership Investment Models: 

Investment models may vary depending on company’s needs and parties’ agreement. You will find some alternative models excluding IPO’s which is out of the scope of this articles. 

Share Purchase & Transfer: It is realised by a potential partner who takes over all or some of the shares of the company for the financial or strategical purposes on the conditions set forth between the parties.

Pending Capital Increase Contribution: This model of partnership is mainly applied for responding the financial needs as well as the expansion of the company rather than share transfers and income expectation of shareholders as frequently seen on the financial partnerships experiences. It is realised by a potential partner contributing to the capital increase by means of the restriction of the current shareholders’ preference rights and thus transferring of financial sources to the company.

Convertible Loans: This partnership model is mostly preferred by the international financial institutions. In this type of partnership, relations are built by the transformation of the right to claim which is arisen from the credit and financial instruments provided by the financial institutions to the companies, into shares instead of repayment.

11. Structuring Management and Financial Rights

Managerial and financial rights of the family members may be protected by drafting share purchase and shareholders’ agreements to be signed by and between the parties and adding some certain provisions to these agreements regarding the structure of the relevant company, during the partnership transactions. Different share groups are built between the family members and the investors within the framework of the shareholders’ agreements. Privileged shares may be assigned to the family members by granting priorities and privileges on the management issues, such as important board matters share transfer and sales transactions regarding the structure of the expectant partnership.

12. What Are the Common Traits of the Family Businesses Continued to Their Existence Successfully Following the Partnership Transactions?

It is obvious that the main priority of the family businesses having major importance at Turkish economy must be achieving the sustainable success. The common traits of the sustainable family businesses which take risks and form a partnership may be indicated as keeping up with the corporate governance to expand and stand against the market competition; unifying the new shareholders within  the framework of the vision and the mission of the company to carry  it one step further, and keeping up with the necessities of time and professionalism with  specialised executives..

_{1. Corporate Management in Turkey Association Publication (“Türkiye’de Kurumsal Yönetim Derneği Yayınları”),   Ekonomi Gazeteciliği İçin Kurumsal Yönetim El Kitabı, page. 51, İstanbul-Eylül 2011.}

_{2. Didem Eryar Ünlü, Basis of success at Family Companies: Sustainability (“Aile Şirketlerinde Başarının Temeli Süreklilik”), Dünya Gazetesi, publication dated 23 November 2010.}

_{3.  The Keys to Sustainable Success at the Family Companies (“Aile Şirketlerinde Sürdürülebilir Başarının Anahtarları”), Akbank-Deloitte-Sabancı Üniversitesi-EDU-TAİDER, 2016} 

By Resat Moral, Managing Partner, Duygu Bozkurt, Associate and Asu Motur, Trainee Lawyer, Moral & Partners

Communique Regarding the Amendments (“Amendment Communique”) (II-26.1.b) to the Communiqué on Takeover Bids (II-26.1) (“Communique) announced by the Capital Markets Board (“CMB”) has been published in the Official Gazette dated 05.06.2018 numbered 30442 and entered into force at the date of its publication.

Within the scope of the Communique No. II-26.1, in the event of share transfers that will result change of management control in a publicly held joint stock company (“Corporation”), the shareholder gaining the management control is under the obligation to submit a mandatory takeover bid for purchasing the shares of other shareholders.

With the Amendment Communique, additional exemptions to make mandatory takeover bid have been introduced for cases when acquisition of the management control of the target company is due to a legal requirement.

As per the Amendment Communique, the CMB may, upon application, grant an exemption to make mandatory takeover bid if the takeover of the shares with management control rights of the Corporation takes place due to:

A default in loan repayment which has been secured by the shares granted to the bank, transfer of the shares to a special purpose vehicle founded by the bank, and purchase of shares by third parties following such transfer share ownership to a bank or special purpose entity.

A share transfer to fulfill a regulatory requirement that determines shareholding qualification.

By Filiz Piyal Cayıpare ,Senior Associate, Moral & Partners

The Turkish Competition Board (the “Board”) has recently published its reasoned decision  with respect to its ex officio preliminary investigation on (i) the validity of the non-compete obligation in the articles of association (“AoA”) of a joint venture company, namely WKS Istanbul Tekstil Kalite Kontrol Hiz. Ltd. Şti. (“WKS Istanbul”), which is active in quality control of textiles and (ii) the parties’ request for negative clearance of the relevant non-compete obligation.

The preliminary investigation concerned the joint venture as well as the parent companies, namely Enco İstanbul Seyahat ve Taş. Tic. Ltd. Şti. (“Enco”) which provides international road, rail and sea transportation, warehousing, local complete/partial distribution and customs clearance services; Meyer&Meyer Vermaltungs Und Beteiligungsgesellschaft Mbh (“Meyer&Meyer”) which provides services regarding quality control, fix and process, warehousing and transport of fabrics; and WKS Textilveredlungs Gmbh (“WKS GmbH”) which is active in processing and trading services of textiles. 

The Board’s Evaluation on the Case at Hand

Article 12 of WKS Istanbul’s AoA titled “prohibition of competition” contains two distinct non-compete obligations:

Firstly, it prohibits the parent companies (i.e. Enco, Meyer&Meyer and WKS GmbH) from operating in the business areas where WKS İstanbul is active directly or indirectly, professionally or occasionally, in its name or on behalf of other companies. Acquiring or supporting -by any means- any other company active in the same business area as the joint venture is also prohibited. 

Secondly, it prevents WKS GmbH and Meyer&Meyer from operating directly or indirectly in certain markets where Enco is active without Enco’s unilateral written consent. These markets are logistics, contra logistics, international and national transport, warehousing services, transport services, supply and distribution logistics, customs clearance, value added services, changes of goods, handling and packaging service. 

These non-compete provisions are only applicable in Turkey and for two years after the withdrawal from the joint venture.

In its decision, the Board assessed the relevant contractual provisions within the scope of article 4 of Law No. 4054 on the Protection of Competition (“Law No. 4054”) (akin to Article 101(1) of the TFEU), by also referring to the on-going litigation regarding the validity of the same non-compete clause under the Turkish Commercial Code No. 6102 (“Turkish Commercial Code”). 

1. The Validity of the Non-Compete Clause under the Turkish Commercial Code

Given that the non-compete clause is incorporated in WKS Istanbul’s AoA and WKS Istanbul is a limited liability company, the Board first cited the provisions of the Turkish Commercial Code regulating non-compete clauses applied to limited liability companies. The Board noted that articles 579(1) and 613 of the Turkish Commercial Code require non-compete agreements to be related to the relevant company’s fields of business, which illustrates the law maker’s intention to limit the scope of non-compete agreements concluded among shareholders of a company.

The Board then mentioned the litigation before the Turkish commercial court by which Meyer&Meyer and WKS GmbH applied for a declaratory judgment on the invalidity of the non-compete provision which requires Enco’s unilateral consent for these companies to operate in the fields where Enco is currently active. To that end, the commercial court  concluded that the relevant provision contained in WKS Istanbul’s AoA is invalid as it infringes the principle of equity and articles 579(1) and 613 of the Turkish Commercial Code providing that the interest which should be protected through the non-compete clause shall be related to the joint venture, and not to the parent companies. 

The relevant judgment of the commercial court has been appealed and the appeal process was still on-going on the date of the Board’s decision. Given that there was not yet a final decision of the commercial court, the Board concluded that it had jurisdiction to examine the case within the scope of competition law.

2. The Board’s Evaluation of the Non-Compete Obligation under Law No. 4054

The Board held that non-compete clauses which have the purpose of protecting competitors’ interest may violate the regulations which aim to protect the free competition in the market. Such clauses may restrict new entries to the market and thus competition can be hindered or impeded. Upon the parties’ request, the Board also analysed whether the non-compete clause at hand could benefit from negative clearance under Article 8 of Law No. 4054 or be exempted from the prohibition of Article 4 on the basis of Article 5 of Law No. 4054 (akin to Article 101(3) of the TFEU). 

In this analysis, the Board first found that Enco and WKS Istanbul are operating in different markets. Thus, the non-compete provision in Article 12 of WKS Istanbul’s AoA restricts the other parent companies’ activities in the business areas where Enco –and not WKS Istanbul– is active. Based on this finding, the Board concluded that the relevant non-compete obligation is within the scope of article 4 of Law No. 4054 and thus a negative clearance cannot be granted to the AoA. 

The Board then proceeded to an individual exemption examination for the relevant non-compete obligation pursuant to Article 5 of Law No. 4054. The Board held that as a general rule, a preventive or restrictive agreement between undertakings may fall under the protective cloak of the individual exemption if the relevant agreement (i) generates efficiencies, (ii) creates consumer benefit, (iii) does not eliminate competition in a significant part of the relevant market and (iv) does not limit competition more than necessary to achieve the efficiencies expected from the agreement. All these conditions must be met cumulatively.

Moreover, although the Board did not expressly refer to its Guidelines on Undertakings Concerned, Turnover and Ancillary Restraints in Mergers and Acquisitions (“Guidelines”) – as the Guidelines only apply to concentrations requiring the Board’s approval, it can be seen that the provisions of the Guidelines applying to “ancillary restrictions” (paragraphs 48 to 58) appear to have shed light on the Board’s assessment under Article 5 of Law No. 4054. Indeed, paragraph 48 of the Guidelines provides that ancillary restraints are those that are directly related to the concentration and that are necessary to the implementation of the transaction and to fully achieving the efficiencies expected from the concentration. The Guidelines further provide that for being deemed as “directly related” to the concentration, the relevant restrictions should be closely related economically to the main transaction and should have been envisaged for a smooth transition to the new structure to be formed following the concentration (paragraph 50). As for the “necessity” of the restrictions, the Guidelines provide that the nature, duration and the scope of the restriction should be taken into account in this assessment (paragraph 51). 

The Guidelines also provide that a non-compete obligation that is imposed on the seller could be deemed as an ancillary restriction provided that the scope of the relevant obligation –in terms of duration, subject and geographic area– does not exceed beyond what is reasonably necessary to implement the agreement (paragraph 53). Non-compete obligations that do not exceed three years are generally accepted as reasonable (paragraph 54). In case there is a high level of know-how and customer loyalty for the transferred business, a period longer than three years may also be considered ancillary to the transaction . On the other hand, in joint ventures, long-term or indefinite non-compete obligations preventing parents from competing with the joint venture may be accepted as ancillary restraints.  Moreover, non-compete clauses must be limited to the goods and services comprising the area of operation of the economic unit to be acquired before the transaction. Lastly, non-compete obligations must be limited geographically to the area of operation of the undertaking to which the relevant clause is imposed. Although these provisions of the Guidelines apply to concentrations that require a mandatory merger control review of the Board, it could be asserted that they would also shed light to the examination under Article 5 of Law No. 4054 of a non-compete obligation contained in a joint venture agreement which does not qualify as a concentration. 

In the case at hand, the Board examined the conditions of the individual exemption by taking into consideration the content, duration, and objective of the relevant non-compete obligation. As for the content, the Board noted that the non-compete obligation covers a wide area of activity. For instance, it limits the logistics and transport activities on a broad manner without even specifying which kind of products are targeted. As for its duration, the relevant provision is not limited for a certain period of time as it is open-ended. Finally, as for its objective, the Board noted that the provision aims at protecting the commercial interests of one of the parent companies, Enco, by prohibiting Meyer&Meyer and WKS GmbH from competing in the business areas where Enco is active.

In light of the above, the Board rejected granting individual exemption to the relevant non-compete obligation as it does not meet the criterion “not limiting competition more than what is necessary”. 

All in all, the Board concluded that it is not necessary to launch an investigation against the investigated undertakings on the ground that (i) the Board has found no evidence showing that the relevant non-compete obligation affected the parties’ decision-making process and strategies, (ii) Enco does not have any important market power in its areas of activities that are regulated by the non-compete obligation, and (iii) the relevant contractual provision has already been deemed as invalid by the commercial court of first instance (although the appeal process was still on-going). 

That said, pursuant to article 9(3) of Law No. 4054, the Board ordered the parties to remove the relevant non-compete obligation from WKS Istanbul’s AoA and register a modified version of the AoA at the Trade Registry within one year after the official service of the reasoned decision.  

The Board’s Notifiability Assessment on the Creation of WKS Istanbul

Lastly, the Board examined the question as to whether the establishment of WKS Istanbul in 2010 should be deemed as a concentration requiring the Board’s approval. 

In this respect, the Board recalled that the formation of a full-function joint venture would constitute an acquisition which would require a mandatory merger control review of the Board provided that it triggers the applicable jurisdictional thresholds. 

The Board noted that WKS Istanbul has been a full-function joint venture since its establishment. That said, as the applicable jurisdictional thresholds were not triggered, the creation of WKS Istanbul was not notifiable in Turkey.

Conclusion

The Board sets a prominent precedent in this decision regarding its competence in assessing non-compete obligations imposed upon the parties to a joint venture agreement which may also fall under the commercial law. Further, although the decision does not refer to the concept of “ancillary restraints” in concentrations –given that the creation of WKS Istanbul has not been deemed as a notifiable transaction– the provisions of the Guidelines applying to ancillary restraints appear to have shed light on the Board’s assessment in this case. 

Finally, the decision is also important as the Board opted for an effect-based assessment instead of an object-based analysis for deciding not to initiate an investigation against the relevant undertakings. 

By ELIG Gurkaynak are Gonenc Gurkaynak, Partner and Esra Uctu, Associate, ELIG Gürkaynak Attorneys-at-Law

Turkey carries its position of attraction from the foreign direct investments despite the temporary volatility from time to time. In line with the trends different sectors shine out and consequently different instruments attract investors. Real Estate sustainably carries its prominent investment instrument position due to functions and consistent yields.

Real estate ownership rights are differentiated depending on the nationality of the real and/or legal persons under the Turkish Law. 

Foreign real persons who are citizens of countries which are determined by the Council of Ministers may acquire real estate with certain limitations due to the bilateral relations and national interests required by the Turkish Government.  

Companies which are established in foreign countries according to the laws and regulations of the foreign jurisdiction cannot directly acquire real estate in Turkey without establishing a legal entity in Turkey. These companies may only acquire real estate within the framework of special laws namely, Tourism Incentive Law, Petroleum Law and Industrial Zones Law.

Legislative Framework

The process to acquire real estate by companies with foreign capital has been subject to various amendments from past to present and the latest change has been made under Article 36 of the Title Deed Law No. 2644 (the “Law””) amended by Law No. 6302 dated May 18th, 2012.

A set of secondary legislation has been issued in line with the latest amendment. The Ministry of Economy has determined the process of acquisition of real estate by issuing a Regulation.¹  Consequently, the Ministry of Environment and Urbanization and Ministry of Customs and Trade have issued Circulars regulating the same subject.²  

Provisions For the Acquisition of  Real Estate by Legal Entities Incorporated in Turkey with Foreign Capital

In principle, a company established in Turkey with foreign capital and falls outside the scope of the Article 36 of the Law is deemed to be a Turkish entity and is granted with the same rights and obligations that a company incorporated with a 100% Turkish shareholding is subject to.

According to the Law, the (i) foreign national real persons³, (ii) legal entities established under the laws of foreign countries, (iii) international organizations, which have 50% or more shares or have the authority to appoint or dismiss the majority of the persons with the management authority of a legal entity established in Turkey, may acquire real estate ownership in Turkey to carry out the activities specified in the articles of association.

The Regulation sets forth a separate legal procedure for the above mentioned persons and entities in cases when they own:

• the ultimate ownership rate of the foreign investor is exceeding 50% or more, or
• the majority of the voting rights to appoint or dismiss the majority of the persons having the management authority of the legal entity with the foreign capital. 

or acquire the same rights and ownership mentioned above in an existing company incorporated with a 100 % Turkish shareholding owning a real estate in Turkey.

Real Esate Acquisition Approval Process

The companies falling under any of the abovementioned conditions must apply to the governorship where relevant real estate is located together with the required documentation required under the Regulation and Circulars to obtain a governorship approval before acquiring the title before the land registry. The respective governorship notifies the Turkish General staff and the City Police Department to check if the real estate is located within the scope of military security, prohibited zone or special security zone. Upon making the relevant evaluation, if the real estate is determined to be located out of the abovementioned zones or it is not inconvenient for the national security, the Turkish General staff and the City Police Department provide clearance consequently the governorship provides an approval (valid for six months) and informs the relevant Land Registry Office. 

If the application result is negative, the governorship notifies the company and provides the reason, proper judicial remedy and the relevant reclamation period. If the company fails to apply to the Land Registry Office for registration of the title of the real estate within this 6 (six) months of application period, such application shall be renewed.

^{1. the “Regulation on Real Property Acquisitions and Limited Real Rights Acquisitions by Legal Entities and Their Affiliates in accordance with Article 36 of the Title Deed Law numbered 2644”, published in the Official Gazette dated August 16th, 2012 and numbered 28386.}

^{2. The Circular No. 2012/13 dated September 17th, 2012 (the “Circular”) on the acquisition of immovable property and limited real rights by the Legal Entities with Foreign Capital issued by the Ministry of Environment and Urbanization for the attention of General Directorate of Land Registry and Cadastre. Circular dated September 3rd, 2012 with regard to the rearrangement of the principles related to the license certificates issued by the Trade Registry Offices (“Circular for the License Certificates”) issued by the Ministry of Customs and Trade to the attention of the General Directorate of Domestic Trade.}

^{3. (Except for the Turkish citizens and people within the scope of the Article 28 of the Turkish Citizenship Law No. 5901 who lost Turkish citizenship by obtaining the permission to leave).}

By Vefa Resat Moral, Managing Partner, Filiz Piyal Cayırpare, Senior Assıociate, Duzgu Bozkurt, Associate, ELIG Gürkaynak Attorneys-at-Law

Paksoy has advised Yapisan Elektrik Uretim A.S., a subsidiary of Bilgin Enerji, on the acquisition of OMV Samsun Elektrik Uretim Sanayi ve Ticaret A.S. from OMV, the international integrated oil and gas company based in Vienna. Schoenherr advised OMV on the sale.

The transaction, which remains subject to clearance from the regulatory authorities in Turkey, among other contractual requirements, is expected to close by the third quarter of 2018.

OMV Samsun Elektrik Uretim Sanayi ve Ticaret is a natural gas combined cycle plant located in the Samsun province in Turkey’s Black Sea region. The plant began operating in 2013 and its current capacity meets approximately three percent of Turkey’s total power demand.

The Paksoy team consisted of Partner Zeynel Tunc and Counsel Selin Barlin Aral.

The Schoenherr team consisted of Vienna-based Partner Markus Piuk and attorneys at law Clemens Rainer and Manuel Ritt-Huemer, as well as Istanbul-based Partner Levent Celepci and attorneys at law Murat Kutlug and Busra Ozden.