CMS Expert Guide for taking security in Turkiye

1. Can a guarantee be granted by one entity/person to secure obligations of another entity/person?  

Yes.  

2. Is guarantee treated under the law as: 

2.1 a type of security?

No.

2.2 a financial service?

No.

3. Can a corporate guarantee be granted:

3.1 Upstream?

Yes, a subsidiary can provide a guarantee for its parent company's obligations if such transaction adheres to certain legal limitations: 

1. Share buyback limitations and prohibition of financial aid: Turkish law allows the purchase or the pledging of a company’s own shares provided that the shares acquired or pledged do not exceed (or will not exceed following the purchase or pledge) 10% of the total share capital of such company and that such shares are later disposed within 3 years. That being said, Turkish law prohibits financial aid in order to prevent bypassing the relevant provisions governing buyback. Accordingly, a company may not enter transactions related to providing a prepayment, loan or security to a third party in order for such third parties to acquire shares in the company, which, if this occurs, will be null and void. In this context, if a subsidiary company provides a corporate guarantee to its parent company in the sale of such subsidiary’s shares, such transaction would also trigger the financial aid prohibition under Turkish law. 
2. Prohibition of abuse of parent company position: Under Turkish law, a parent company cannot use its dominance in such a way as to cause loss to its subsidiary company. This is also supported by the fact that under Turkish law, directors of a company must act in good faith, exercise due care and diligence, and consider the best interests of the company and its shareholders. In this context, in principle, it is not prohibited for a subsidiary to provide a guarantee in favour of its parent company; however, such action must not constitute a breach of the duty of care of the directors and that such guarantee is not provided due to parent company exploiting its dominance over the subsidiary. The determining factor is that whether providing a guarantee causes a loss to the subsidiary (is not at arm’s length) and such loss is not compensated by the parent company. 

Arm’s length: The guarantee transaction should be conducted at arm's length as if the parties were not related.

3.2 Downstream?

Yes. However, the relevant transaction should be in compliance with the arm’s length principle.

3.3 Lateral?

Yes. However, the relevant transaction should be in compliance with the arm’s length principle.

4. Are there any special aspects to be taken into account in relation to granting a guarantee (e.g. financial assistance, transfer pricing, corporate benefit, any other limitations)?

There are few aspects that should be taken into consideration when granting a guarantee: 

Arm’s length principle: Corporate guarantees are a widely used commercial practice in Türkiye which is generally conducted between companies that are member of same group (specifically, parent company guarantees). Accordingly, compliance with the arm’s length principle when granting such guarantees between related parties is material due to transfer pricing regulations. Accordingly, related parties must set the terms and conditions for the transactions between each other as if they would have been agreed between unrelated parties. 

Consent of spouse: Under Turkish law, in the case of a personal guarantee provided by an individual, the general rule is that spousal consent of such individual is a condition of validity, and therefore, the guarantee agreement is invalid in cases where spousal consent is not obtained. Article 584 of the Turkish Code of Obligations (“TCO”) provides an exception to this rule whereby spousal consent is not required for guarantees given in favour of a company in the capacity of a shareholder or manager of a company. Furthermore, due to the wording of the law, it is controversial whether this exception applies to guarantees given personally. The precedent in Turkey is generally in line with the wording of the TCO and does not require the consent of the spouse if a shareholder of the company provides his/her personal guarantee for the obligations of a company. However, the general market practice is to obtain spousal consent for an individual shareholder who provides his/her personal guarantee, despite the aforementioned article of the TCO. 

5. Are there any formal requirements or practical recommendations for the execution, validity and/or enforceability of a guarantee?

Although there is no special requirement regarding guarantee agreements under Turkish law, Article 603 of the Turkish Code of Obligations (“TCO”) extends the scope of the formal validity requirements of surety agreements so that such requirements apply to the guarantee agreements as well. Accordingly, for a guarantee agreement to be valid, it must: 

• be concluded in writing;
• include in the maximum liability amount;
• include the date of commencement (the date on which the guarantee obligations of the guarantor commences);
• in cases where there is more than one guarantor, include statement whether such guarantors are liable jointly and separately (müteselsil) or individually (münferiden);
• if an individual is granting the guarantee and he/she is married, include the spouse’s explicit consent; and
• the matters listed above must be included in handwriting of the guarantor (and the spouse, if any). 

Yes. In principle, according to Article 582 of TCO, a guarantee/surety agreement may be concluded for existing and valid obligations. However, a surety/guarantee agreement may also be concluded for an obligation that will occur in future or as a conditional obligation provided that guarantee will be effective only when such future debt arises or, for a conditional obligation, the relevant condition is fulfilled.

For surety agreements, yes, the validity of a suretyship is dependent on the validity of a principal obligation. 

For guarantee agreements, however, no, the validity of the guarantee is not dependant on the validity of the principal obligation as under Turkish law, a guarantee is accepted as an independent and separate undertaking of the guarantor.

As per Article 598 of TCO, any suretyship granted by an individual expires in ten years after the date of the surety agreement and can only be renewed for a maximum of additional ten years. Such limitation does not apply to suretyship given by corporate entities, which suretyship may have a term exceeding ten years.

Yes.

Yes, although from a purely legal standpoint it is controversial under Turkish law whether a guarantee/security created through any of such structures are enforceable and there are no specific court precedents on the matter, it is widely used in practice especially by banks and credit transactions with multinational aspects.

No specific formality is required by law. Unless otherwise stated in the relevant guarantee/security agreement, a creditor may assign its claim to a third party without obtaining prior approval of the debtor or the guarantor, the liabilities of the debtor and the guarantor may continue towards the assigned creditor. 

As per Article 198 of TCO, in case the secured/guaranteed liabilities of a creditor are transferred to a new principal debtor, the liability of the guarantor/surety would continue only if they provide their prior written consent to such transfer. 

In principle, there is no restriction on parties deciding on the governing law under a guarantee/security agreement. However, Turkish courts have exclusive jurisdiction over right in rem regarding immovable property in Türkiye. Therefore, if any mortgages over a property located in Türkiye will be established under a guarantee/security agreement that is governed by a foreign law, the establishment of such mortgage will still be subject to Turkish law. For the avoidance of doubt, the guarantee/security agreement would still be subject to the law chosen by the parties but only the establishment of the mortgage will be subject to Turkish law.   

Apart from the above, guarantee/security agreements may be governed by foreign law provided that such agreement does not include any provision that would disrupt public order and/or any subject over which Turkish courts have exclusive jurisdiction.

Unless the relevant guarantee/security agreement contains provisions which disrupt public order in Türkiye and/or trigger a subject over which Turkish courts have exclusive jurisdiction (i.e. any transaction related to an immovable property located in Türkiye), there is no restriction on a dispute being resolved before foreign courts or arbitration.

Yes. In recent years, in order to ensure the stability of the Turkish lira, significant restrictions on the use of foreign exchange have been introduced through the Law on the Protection of the Value of the Turkish Currency, Decree Numbered 32 on the Protection of the Value of Turkish Currency and its secondary regulations. 

As per these regulations, as a general rule persons located in Türkiye who do not have foreign currency income cannot obtain foreign currency loans from Türkiye and/or abroad. It should be noted that this principle is subject various exceptions set out under the regulations, some of which are listed below;

• foreign currency credits to be utilised by persons located in Türkiye with a credit balance of USD 15 million or more on the date of utilisation;
• foreign currency credit to be utilised by Turkish residents who are foreseen to receive credit within the scope of an investment incentive certificate; and
• foreign currency loans to be used by public institutions and organisations, banks, financial leasing companies, factoring companies and financing companies resident in Turkey.

There is no such concept under Turkish law. 

It is possible for one security document to create security over multiple assets provided that the assets to be provided as security are of same type (i.e. all of them being immovable or movable). However, floating security is not possible under Turkish law.  

Yes. Please refer to the answers in question 3 and 4.

Yes, depending on the type of security. In principle, under Turkish law movable pledge agreements are subject to notarisation (unless issued electronically and signed with a secure electronic signature). 

Yes. In principle, movable pledge agreements are required to be registered with movable pledge registry whereas a mortgage agreement is executed before a land registry officer and registered with the relevant land registry. 

Yes. Although it is not explicitly regulated, enforcement offices and courts and governmental institutions (e.g. land registries) require a Turkish version of the relevant security/security agreement to proceed with the enforcement. Further, if the security agreement is executed by and between two Turkish parties, as per Turkish law, any agreement to be executed between Turkish parties must be executed in Turkish. 

N/A.

Yes. Under Turkish law, even if a record in the registry does not reflect the actual situation, the person who gains a right in rem from the person that seems to be an owner according to registry records, is protected in absolute terms (sicile güven ilkesi).

A system of fixed ranks is adopted under Turkish law for both movable pledges and mortgages for ranking of secured creditors among themselves. In this system, the pledge/mortgage provides collateral according to the rank in which it is located. In principle, the owner of the property determines the rank of a security interest over the property and the amount of creditor’s claim (specific amount or a maximum cap) secured within that rank. Once the rank and secured amount are determined and registered, the secured amount cannot be increased to the detriment of the registered secured creditors having a lower rank without their consent. In case of foreclosure on the property, the creditor with the highest rank is paid prior to those ranked lower regardless of whether the security interest was granted at a later date. If, however, more than one security interest with the same rank is established over a property , the priority of creditors within the same rank is determined according to the date and time of  establishment and registration of the security interest. It is possible for a property owner to keep a higher rank reserved and grant a security interest at a lower rank. Following discharge of a higher mortgage, its rank becomes vacant, but a lower rank mortgage does not move upwards automatically. It can be done, however, based on an agreement between  the property owner and a creditor, which must be annotated to the relevant registry (land registry for immovable properties and movable pledge registry for movable properties) to be enforceable against third parties.

Establishment of security and level of security regulation is generally:

Securities are easily established, and encumbrances are easily checked. Both movable pledge registry and land registries contain publicly available records and enable individuals to access to such records easily (whether physically or through online systems of such registries). 

Under Turkish law, surety and guarantee agreements (other than bank guarantee letters and surety bonds issued by insurance companies resident in Türkiye) cannot be executed with an e-signature.

Yes.

Both lenders and security providers may request the registration of a security with the relevant registry provided that there is a validly executed security agreement.

For mortgages: A mortgage is established through the execution of a mortgage agreement and registration of such agreement with the relevant land registry. Documents to be submitted for registration of mortgage are, mainly, as follows:

• Validly executed mortgage agreement
• Title deed (mortgage is annotated to the title deed)
• Photo IDs of the creditor and the debtor
• Two passport size photographs of the creditor and the debtor
• If the transaction is carried out through a Power of Attorney, the Power of Attorney, the representative’s identity card and one passport size photograph
• If one of the parties is a legal entity, a certificate of authorisation from the trade registry office to establish a mortgage, signature circular, photocopy of tax plate, stamp and identity cards of authorised persons
• Document showing the real estate declaration value of the immovable, and
• If the property to be mortgaged is not land but an apartment building, the Land Registry Offices also request the DASK policy (compulsory earthquake insurance policy) 

For movable pledges: A pledge agreement can be executed before a notary public or through the online system of movable pledge registry by way of a secure electronic signature. Documents required to apply for the registration of a movable pledge are, mainly, as follows:

A copy of validly executed pledge agreement

• Information and documents identifying the movable assets to be subject to security
• The original documents showing the identification number of the parties to the agreement, and
• Original or notarised copies of the documents showing the authority of the representatives

Quick, a matter of hours.

Low.

Quick, a matter of days, even hours in certain cases.

Apart from relatively low fixed registration fees for both movable pledge registry and land registry (approximately EUR 50 for each encumbrance for 2025), regarding mortgages, there are also additional costs that are calculated over the value of the mortgaged property. Accordingly, a land registry fee of 4.55 per thousand and a stamp duty of 9.48 per thousand is levied on the value of the mortgaged property.

Quick, a matter of hours.

Notarial fees vary on the length of the agreement.

N/A

Yes.

Yes, if explicitly agreed between the parties under the relevant security agreement. 

Yes, if explicitly agreed between the parties under the relevant security agreement.

It is impossible for the creditor to sue the debtor or pursue the debtor through enforcement if the debtor becomes insolvent. In such case, creditors may register their claims in the insolvency estate (iflas masası).

N/A.

The Enforcement and Bankruptcy Law (“EBL”) does not explicitly mandate a specific default cure period. However, Under Articles 600 and 601 of the TCO, the surety (kefil) could request the creditor to apply to the debtor and exercise its legal rights to collect the debt (i) for ordinary suretyship at any time, and (ii) for joint and several suretyship, in cases stipulated by law, within one month. 

Out-of-court security enforcement for letter of guarantees is possible. In this respect, the bank that provides the guarantee and the enforcement action in question can be carried out without initiating any legal proceeding. Enforcement authorities and courts are involved in the enforcement of other security instruments.

No.

Enforcement proceedings should be initiated before enforcement offices (icra daireleri) to take over the title  over the assigned collateral. The valuation of the collateral will be made by the enforcement offices. 

No.

The creditor or debtor may request the sale of the collateral either through an auction (açık artırma) or direct sale (rızaen satış) only via the enforcement office. The valuation of the collateral will be made by the enforcement offices.  If the sale of the collateral is not requested within the statutory period, the seizure on that property is revoked.

No.

Yes.

Under Turkish law, debtors have legal means to challenge the enforcement process, therefore creditors need to be prepared to deal with objections and legal proceedings, such as negative declaratory lawsuit (menfi tespit davası) or restitution claim (istirdat davası). 

Negative declaratory lawsuits and restitution claims essentially serve for the same purpose. Both actions aim to prove that the debtor is in fact not in debt. The main difference between them is that the negative declaratory actions can be filed until the debtor pays the debt, and after the debt is paid, it is only possible to make restitution claims before the court. 

In negative declaratory actions, the claim is re-examined according to substantive law. By providing a security to the court an interim measure could be obtained and the enforcement proceeding could be suspended accordingly.

Depending on the type of security interest and the specific circumstances of the case, enforcement in Türkiye is usually fairly easy.

Security enforcement in Türkiye is balanced. 

Enforcement proceedings may take a long time, especially if there are objections to enforcement, legal proceedings are initiated, or the collateral is not easily liquidated.

No, no changes in this regard are expected in the near future.