Adaptation of Foreign Currency Contracts
Reason: Turkish Lira has started to rapidly depreciate against foreign currencies, especially since the beginning of April / 2018. In the last 15 years, the pre-predictable depreciation has been out of this situation in the last 6 months and the exchange rate fluctuation has affected the commercial life negatively.
A number of measures have been taken to reduce the impact of the high volatility in the exchange rate on the future, and it is reported by the authorities that it will continue to be taken.
Reference: One of the measures taken is the 4/g and provisional article 8, signed by President Recep Tayyip Erdoğan on 12.09.2018, published in the Official Gazette dated 13.09.2018 and added to the Resolution on the Preservation of the Value of the Turkish Currency No. 32, 1989.
The newly added 4/g article: When it comes to any kinds of contracts signed by residents in Turkey such as moveables and real estate leasing, work and service contracts, buying and selling moveables and real estate among themselves and including vehicle and financial leasing, except for some cases determined by the Ministry, contract value and other payment obligations arising from these contracts cannot be determined in foreign currency or indexed to foreign currency.
Provisional Added Article 8.: Within thirty days from the date of entry of the clause (g) of Article 4 of this Decision, the prices determined in terms of foreign currency in the contracts in force previously entered into force in that paragraph, it is is determined by the parties as Turkish currency except for the cases determined by the Ministry.
Interpretation: When we examine the regulation, in order to be able to interpret it, we find it useful to know the persons it covers;
The regulation involves residents in Turkey. So, who are residents in Turkey?
According to the verdict, Turkish citizens who are work abroad, self-employed and independent business owners, including natural and legal persons who place legal settlements in Turkey, are accepted as residents in Turkey.
In this case, even if the guest worker Turkish Citizens and all capital and companies, as well as associations and foundations, established in accordance with Turkish Laws, even though their partners are foreigners, are persons included in the regulation.
What is the main purpose of the regulation?
a) So that In the upcoming period of time, until a new decision is met or until the removal of this decision, contracts are no longer determined in foreign currency or foreign currency indexed (there is no obligation for them to be in TL, so it cannot be foreign currency, but it may be TL, as well as may be equivalent precious metals such as gold. For example, a payment method indexed to precious metals can be determined).
b) Converting existing contracts to TL (For existing contracts, a different alternative cannot be determined as we have just explained above, it must be determined in TL).
In order to clarify the issue, first of all, it is necessary to determine which contracts this decision will affect. In the arrangement made, some contract types are limited in this regard. The Ministry of Treasury and Finance has been authorized to set exemption contracts.
The statement to be made by the Ministry is of course very important for the clarification of the contracts. However, until the announcement, we find it useful to elaborate the contracts in the current decision.
Types of Contracts that Cannot Be In Foreign Currency or Foreign Currency Indexed (Contract Types that will be Indexed to Foreign Exchange or Foreign Exchange and will be determined as TL before 13.09.2018)
- All Movable Property and Real Estate Purchase-Sale-Lease Agreements (Residential or Business Rentals, Fleet or Individual Vehicle Rentals, Machinery Sales etc.)
- Financial Leasing Contracts
(All Leasing Contracts)
- Business Contracts
(Contracts in which Worker's Wage is determined as Foreign Exchange)
- Service Agreements
(Outsourced Services Such as Cleaning, Consulting)
- Work Contracts
(Civil Works, Sales of Specially Made Products etc.)
Contracts Excluded from the Scope of the Decision: (Additions can be made by the Ministry. The list will be updated…)
Property Exchange Contracts
About Possible Legal Problems
In the decision taken, some differences between the intended and the way they were written are noticeable, as well as some things that are expected to be written in the decision (maybe left to the Ministry) seem to have brought some hesitations.
We can group the legal effects of the decision under two main headings:
1. Effect on Contracts Concluded Before Effective Date
2. Effect on Contracts to be Concluded After Effective Date
- Effect on Contracts Concluded Before Effective Date
The decision entered into force by being published in the Official Gazette dated 13.09.2018. According to the provisional Article 8, the prices included in the contracts concluded before this date are renewed as Turkish Currency within 30 days, that is, until 13.10.2018 (however, since the last day coincides with the public holiday, the period is considered to be extended until the end of working hours on Monday, 15.10.2018). needs to be determined.
If the parties fail to do so, an administrative fine from 10,000-TL to 50,000-TL can be imposed.
Administrative fines, of course, also do not prevent one of the parties to request that the contract price be updated in TL. As a matter of fact, the actual legal dispute can also arise at this stage.
One side of the contract, which will be the debtor of the possible payment, will demand the other side to be redefined in TL. In the regulation, there is no obligation on demand. However, in order for a legal dispute to be resolved amicably, it will be appropriate to make this request to the other party in the sense of Art.2 of the Civil Code.
Another important problem here is also the date, whose exchange rate will be used to convert the value of the contract in foreign currency into TL. Although there is no clarity in the decision, it may be possible to update the decision on the date of publication, that is, on the date of 13.09.2018, within the general legal logic. On the other hand, since the parties are given a 30-day period for the contracts concluded before the effective date of the decision, the parties are free to choose a rate they wish among themselves within these 30 days.
**This study is prepared by Kula Law Office. Please contact by e-mail ([email protected]) or call at +902324350604 for publication of the article in other channels, detailed information and questions about the subject.