Purchase of Real Estate by Foreign Investment Companies in Turkey
By İlayda Balkan
ADMD Law Office, Istanbul TURKEY
Legislation regarding purchasing of real estate in Turkey by foreign investments have changed many times over the past years. Supreme Court decisions, international or political developments and economic necessities are some of the pushing factors of such amendments.
Primarily it should be clarified that, “Foreign Company” does not correspond “Company with Foreign Investment”. In practice, the company incorporated in Turkey by foreign shareholders and/or with foreign capital, is considered as a Turkish Company since such company is formed in accordance with Turkish Commercial Law and is registered to Chamber of Commerce Trade Registry. However, the term of “foreign company” corresponds to companies established in foreign country in accordance with its local law. The objective of this review is to mention briefly about the rules of procedure and recent changes on acquisition of real estate by “Companies with Foreign Investment” incorporated in Turkey.
The legal framework on the acquisition of real estate by a company with foreign investment in Turkey is regulated by Property Act No. 2644, Article 36. Accordingly, companies incorporated in Turkey by foreign investors may acquire property rights and/or exercise limited real rights on a real estate, only for the purposes of conducting the activities referred to in their Articles of Associations. This principal is also applicable both for the transfer of property to another company with foreign investment and for the transfer of a company holding such real estate rights with national capital to a company with foreign capital participation through share transfer.
Procedures and principles about the implementation of the Property Act, Article 36 are noted by the Regulation Regarding Acquisition of Immovable Properties by Companies with Foreign Investment which was again recently modified at October 6, 2010. Pursuant to current Regulation, acquisition process is implemented by Governorates who act as clearance providers in case of such an inquiry by a company with foreign investment. Accordingly the companies willing to acquire a property in Turkey shall apply to the Governorate Provincial Planning and Coordination Directorate at the location of property by presenting the required information and documents:
a. Petition for application,
b. Abstract of title and land volume certificate with coordinates in relation to the property,
c. An affirmative covenant submitting that the property will be used in the purpose of company’s ‘Field of Activity’ defined in its ‘Articles of Association’ and a signed commitment by the authorized signatures of company executives with power to represent and bind the company,
d. A company resolution authorizing the signature powers for the purposes of such acquisition,
e. In case company’s shares are not listed in the stock exchange; a transcript received in last one month from affiliated Trade Register Office that proves and identifies the current foreign shareholders,
f. In case company’s shares are listed; a document received from Central Register Institution including: names or titles, allegiances and percentage of shares of foreign shareholders holding 10% or more of company’s capital with the stocks listed in stock exchange and a certificate showing the foreign shareholders holding the stocks that are not listed in stock exchange.
The proceedings under the Regulation Regarding Acquisition of Immovable Properties by Companies with Foreign Investment are put in operation thereby with submitting the documents in whole and complete to the Governorate. Applications may also be made by post and there is no requirement for physical attendance for delivery of documents. In repetition of inquiries by same company within the same year of the first application documents noted above in subsection (c) and (d) are not required to be resubmitted.
The processing of the application and clearance can be summarized briefly as:
a. The companies willing to acquire an immovable property apply to the Governorate Provincial Planning and Coordination Directorate at the location of immovable property due to submit the information and documents stated above.
b. Governorate sends the abstract of title and land volume certificate with coordinates to the General Staff (Army) and makes a request to be informed if the property is located in military forbidden zones or not. Related military unit shall respond within 15 days even it is approvable or not. In case the request is not responded within 15 days it will be deemed that the property is not in military forbidden zones.
c. Governorate concurrently makes a request to Provincial Security Directorate and Provincial Gendarmerie Command in accordance to be informed about if the property located in any special security zones or not and similarly if the application is not responded within 15 days, the property is deemed to be out of any special security zones.
d. For the immovable properties located in military forbidden zones or military security zones, Governorate makes a request to General Staff again if the acquisition is approvable within the considerations of State security or not. Again similarly if there is no response within 15 days the acquisition is regarded to be approvable as for the State security reasons.
By means of these bureaucratic arrangements a resolution is pushed to be issued within 15 days of application in order to avoid any delay.
Following the end of such inquiries the Governorate informs the company and the Land Registry Office in writing of its clearance for the transaction valid for three months meaning that the transaction needs to be finalized before such deadline or the procedure for clearance shall be repeated.
In cases of local capital companies with real estate assets transferring shares to foreign investors, this information is to be submitted to Treasury Undersecretary by the company, under the provisions of Foreign Direct Investment Law Application Regulation. Treasury conveys the information about the company transferred to foreign capital (investment) to General Directorate of Land Registry and Cadastre and the same procedure above summarized is applied to the company’ s real estate assets whose shares are to be transferred.
At the end of an evaluation if such a real estate kept by foreign investment company is not in compliance with State security or the relevant commitments provided at the acquisition stage for use of property and company’s field of activity defined in its Articles of Association, then the company will be informed in writing and has 30 days to respond back to relevant Governorate and otherwise it will be assumed that it accepts the incompatibility. Separately the Commission may allow 45 days to company for making relevant adjustments if possible and this time allowance may be extended for another 6 months. If such adjustments are not made, the Ministry of Finance may take action to liquidate the real estate within 6 months.