The Turkish Constitutional Court's Decision on Property Purchase by Foreign Nationals in Turkey

Reciprocity Principle:

The all important reciprocity principle remains crucial in determining which nationalities may or may not acquire land in Turkey. The principle can be defined as "a foreign national who is buying a property in Turkey will be subject to the same conditions or restrictions as a Turkish national wishing to buy property located in his country of origin would be subject to." This principle is also relevant in situations where a foreign national acquires land by inheritance, i.e. under a Will or by way of legal succession.

The Circular mentions two separate lists, namely List A and list B which respectively specifies the nationalities that can and cannot purchase land in Turkey. Both the UK and Ireland are in List A.

Size Restrictions:

The size restrictions which apply to foreign nationals and foreign companies are still relevant. The total size of land an individual, company or otherwise, may own within the boundaries of Turkey cannot exceed 2,5 hectares (25,000sqm).
Paragraph 7 of Article 35 provides that it will be for the Turkish Board of Ministers to specify the areas which are not open to foreign ownership due to their strategical, natural, historical etc. nature. For any one "town", the total area that will be open to foreign ownership will not exceed ten percent of the size of land which has been subjected to development plan(s) (i.e. allocated for residential, commercial, social or industrial use). The previous ratio was 0.5 % of the total area of the town.
By way of illustration, if the total area of a town is 250 square miles and 100 square miles of land has been subject to development plan(s), the total area that will be open to foreign ownership will be 10 square miles.

Legal entities' rights of acquisition of land in Turkey

Turkish companies which have foreign shareholders, foreign companies and foreign unincorporated entities are all subject to different rules in relation to acquiring Turkish land. Unincorporated entities such as "groups", "clubs" or "societies" may not own land in Turkey.

Foreign companies duly incorporated under the laws of their respective countries, as the Act puts it, may acquire land only under certain Turkish pieces of legislation, namely Encouragement of Tourism Act, Industrial Zones Act and Petroleum Act. Thus, it is not possible to use an English company as a vehicle for property investment.

The new Article 36 has dramatically changed the area of law concerning the property acquisition of Turkish companies with foreign shareholders. Previously, such companies were regarded no different than Turkish companies which were owned by Turkish nationals. They could buy land in Turkey with no further conditions or restrictions to those which applied to Turkish owned companies. Now, however, such companies will be allowed to acquire land in so far as such acquisition is in line with its area of activity specified in their memorandum and articles of association. For example, a Turkish company with a foreign shareholder will not be allowed to buy agricultural land if its line of business is selling medical equipment.

The acquisition of such companies of any land which is in a prohibited zone or special security zone shall be subject to the approval of the military authority or the governorship of that area, respectively. That is to say, the new legislation has introduced a clearance system for such companies, which is very similar to that which has been applicable to foreign national individuals since early 2006.

Foreign companies and foreign national individuals will not be subject to any of the above conditions or restrictions when a charge is being registered on a land in Turkey in their favour.

Acquisition of land by way of inheritance

The new legislation, in this regard, draws a distinction between the nationals of List A and List B countries. Any property acquisition by a national in List B will be subject to mandatory disposition of that property. That is, the owner will be expected to dispose of the property. If he fails to do so within a certain period of time the property will be sold by the state.

The acquisition of land which a national of a List A country may inherit under the laws of succession, i.e. automatically, will not be subject to any restrictions or conditions. He may take the ownership of such assets even if they are located in an area allocated for agricultural use, or they are bigger than 2,5 hectares in size.

If he is not acquiring the same assets under the laws of legal succession but under the terms of a "testamentary disposition" such as a Will, his acquisition will be subject to the restrictions set out in the first paragraph of Article 35.

Conclusion

The Land Registries across Turkey have restarted processing applications concerning foreign nationals as of 18.07.2008 as instructed. Therefore, military clearance applications will be processed as usual and title transfers to foreign nationals will be completed in accordance with the new legislation.

As the Circular suggests, relevant ministries will by way of statutory instruments clarify the implementation of Article 36. We will update you as and when such secondary legislations are introduced.