On converting rents set in foreign currency into Turkish lira
THE DECREE THAT ENTERED INTO FORCE ON SEPTEMBER 13, 2018 WILL BE A MAJOR STEP FORWARD IN ADDRESSING PROBLEMS IN COMMERCIAL LIFE TIED TO THE US DOLLAR EXCHANGE RATE.
The Presidential Decree on protecting the value of the Turkish lira has been published in the Official Gazette. According to a report by Anadolu Agency (AA), Turkish lira rather than foreign currency will be used in the purchase and sale of movable and immovable property. Contracts made in foreign currency will be converted into TL within one month. Presidential Decree No. 85, titled “Decision Amending Decision No. 32 on the Protection of the Value of Turkish Currency”, was published in the Official Gazette on September 13, 2018 with the signature of President Recep Tayyip Erdoğan.
The decision requiring prices set in foreign currency in contracts for the purchase, sale and lease of movable and immovable property to be converted into Turkish lira within 30 days has entered into force. Under the decision, except in cases determined by the relevant Ministry, persons resident in Türkiye may not agree among themselves on the contract price or other payment obligations arising from the contract in foreign currency or indexed to foreign currency. This applies to contracts for the purchase and sale of movable and immovable property, all kinds of leases of movable and immovable property including vehicle leases and financial leases, leasing, and contracts of employment, services and works. Within 30 days of the decision's entry into force, prices set in foreign currency in contracts previously concluded and still in effect will be redetermined by the parties in Turkish currency, except in cases determined by the Ministry.
So how will this determination be made?
How will the parties fix the exchange rate when setting the rent between themselves?
The recently published Presidential Decree provides that parties who have set rents and sale prices in foreign currency must reach an agreement in TL. This regulation, which imposes a mandatory requirement where the parties are citizens of the Republic of Türkiye, also states that agreement must be reached within 30 days.
The parties are under an obligation to reach this agreement within the 30-day period. By imposing a time limit on the parties to agree, the legislator has created a compelling rule. Administrative fines may be imposed as a sanction in this regard.
So how will agreement be reached? What awaits the parties if they fail to agree? Under this regulation, adopted amid uncertainty in exchange rates, how will the parties carry out the “adaptation” based on their costs and expenses? This is the most important point on which a balance must be struck between the parties.
What might the consequences be if a dispute arises?
- First, there is a risk of facing an administrative sanction such as an administrative fine. Problems in complying with the mandatory provisions of the Presidential Decree will carry a sanction.
- Since receivables set in foreign currency are no longer permitted under the Decree, there will be no specific receivable that can be made the subject of enforcement proceedings. This will create problems when it comes to collection.
Solutions
First, the parties should consider solutions that bring them to the negotiating table. Mediation should be the first and most attractive option, because it is quick and inexpensive and it gives legal protection to the rights of both parties.
Parties who have gone through mediation may subsequently apply to the court over the dispute and file an adaptation action.
Mediation
If the parties want to resolve their dispute more easily and quickly before an experienced third party trained in this field, applying to mediation will provide a good solution.
Mediation offers the parties the following advantages.
- All information and documents presented during mediation sessions remain confidential. The parties can never use them against each other in subsequent litigation. This firmly protects the parties' commercial reputation.
- Mediation saves costs. Because the mediation record has the effect of a final judgment, the parties will be bound by this settlement agreement. If the parties wanted to make their agreement legally binding before a notary public, they would have to pay a fee based on the contract amount. Thanks to mediation, they will not have to pay this fee on the agreement they reach.
- Mediation brings the parties to the negotiating table in a more professional way and makes it easier for them to find common ground. The effectiveness of mediation, which has become mandatory in employment law, has already been proven in that field.
We provide advisory services to parties facing legal disputes arising from this regulation, which has brought a significant change to commercial life.
Please contact our office for details …