Motor vehicle changes to Franchise Code effective now
Regulations introducing a new automotive section into the Franchising Code of Conduct (Franchising Code) take effect from 1 June 2020.
The Ministry of Treasury and Finance (the "Ministry") issued a set of exemptions relating to the restrictions on foreign currency-denominated or indexed agreements.
As explained in our previous publication, on September 13, 2018, the Turkish Presidential Decree No. 85 (the "Amendment") amending the Decree No. 32 on the Protection of the Value of the Turkish Currency (the “Decree No. 32”) was published in the Official Gazette. The Amendment required that the agreement price and other payment obligations arising from certain agreements between Turkish residents1 cannot be denominated in, or indexed to, foreign currency. The Ministry was authorized to provide exemptions to these restrictions, which were announced and published under a communiqué dated October 6, 2018 (the "Communiqué").
While the Communiqué provides further guidance on the categories of agreements to which the restrictions will apply, it also introduces some sector and entity-specific rules.
While reading this legal update, please consider the following
Sale or lease of real property. Payment and other monetary obligations arising from the sale or lease of immovable property located in Turkey (including its free zones) and between Turkish residents cannot be denominated in, or indexed to, foreign currency.
Sale or lease of movable property. The Amendment had listed the agreements for the sale or lease of movable property and leasing agreements executed between Turkish residents as part of the restricted transactions (subject to exemptions).
Under the Communiqué, agreements for the sale or lease of movable property can be denominated in, or indexed to, foreign currency other than those executed for the sale or lease of vehicles including construction vehicles.
Employment agreements. Payment and other monetary obligations arising from employment agreements between Turkish residents cannot be denominated in, or indexed to, foreign currency, except for those agreements
Service agreements. Payment and other monetary obligations arising from service agreements (including consultancy, agency and transportation services) between Turkish residents cannot be denominated in, or indexed to, foreign currency, except for those agreements
Contracts of work, including construction agreements. Contracts of work (eser sözleşmesi) executed between Turkish residents cannot be denominated in, or indexed to, foreign currency except for those relating to construction, repair and maintenance of ships.
Public institutions. The restrictions have been eased for certain public institutions as follows
Public financing. Those agreements to which banks are a party and which are executed in relation to the transactions to be carried out under the Law on Public Financing and Regulation of Debt Management numbered 4749 can be denominated in, or indexed to, foreign currency.
If an FX denominated or indexed agreement does not fall within the scope of the above exceptions, such agreement must be amended to be denominated in Turkish lira prior to the end of the 30-day period as was previously explained in our client alert (i.e. by October 13, 2018).
If the parties fail to agree as to how to convert, then the indicative selling rates of the Central Bank on January 2, 2018 will be used to convert the FX amounts into Turkish Lira. The converted amount will then be adjusted using the monthly Consumer Price Index ("CPI") rates determined for each month by the Turkish Statistical Institute for the period from January 2, 2018 to the conversion date.
The Communiqué provides for a different conversion rule for real property lease agreements. For those agreements executed before September 13, 2018, the amounts will be converted to Turkish Lira for a period of two years from the conversion date in accordance with the above paragraph. It also provides for an adjustment mechanism using the CPI rates for the following lease periods; however the language of the Communiqué is not very clear and prone to different interpretations. We expect some further guidance on real property leases.
Turkish resident refers to individuals or legal entities domiciled in Turkey, or the employed, self-employed or independent business owners outside of Turkey, who have Turkish citizenship. In addition, branches, representation offices, liaison offices or funds owned/operated by Turkish residents outside of Turkey, or foreign companies where Turkish residents hold at least 50 per cent of the share capital or Turkish residents' wholly owned subsidiaries (direct or indirect) are also deemed Turkish residents for the purposes of the Communiqué.
Following the introduction of the National Cabinet’s Mandatory Code of Conduct for SME Commercial Leasing Principles during the COVID-19 crisis (the Code) in early April, there has been much anticipation and speculation as to how each of the States and Territories would legislate to give effect to the principles of the Code.