In today’s globalized world, traditional national boundaries have largely dissolved across almost all sectors due to advancements in technology. This transformation is most prominently reflected in the field of law.
As international relations become more prevalent, the presence of foreign elements in contracts and legal structures has significantly increased. Consequently, while local currencies have diminished in prominence within such agreements, internationally recognized currencies and financial instruments (e.g., USD, EUR, GBP, gold) have gained traction as means of performance.
This article examines the circumstances under which rental payments — as the primary obligation of tenants in residential and roofed workplace leases — may be denominated in foreign currency under Turkish law, and outlines the legal consequences of unlawful foreign currency-based agreements.
1. The Prohibition on Foreign Currency in Residential and Roofed Workplace Leases and Its Exceptions
The Law on the Protection of the Value of Turkish Currency (Law No. 1567), published in the Official Gazette on 25.02.1930, grants the President authority to issue relevant regulations. Based on Presidential Decree No. 32 and the subsequent Communiqué No. 2008-32/34, amended on 16.11.2018, the rules governing foreign currency contracts in Turkey have been defined.
According to Article 8 of the amended communiqué:
“Turkish residents may not agree upon foreign currency or foreign currency-indexed terms in real estate lease agreements (including residential and roofed workplace leases) for properties located within Turkey.”
However, the communiqué specifies several exceptions, which are strictly limited in scope and cannot be interpreted broadly. Only agreements falling under the defined exemptions are considered lawful when denominated or indexed in foreign currency. These exemptions include:
- Leases where the tenant is a Turkish resident but not a Turkish citizen, or a company with over 50% foreign ownership or control, or an entity operating in free trade zones;
- Leases related to hospitality facilities (e.g., hotels, motels, hostels) licensed by the Ministry of Culture and Tourism;
- Leases concerning duty-free shops;
- Leases involving immovable properties located outside of Turkey.
2. Legal Consequences of Non-Compliant Agreements
Under the temporary Article 8 of the Decree, agreements that do not fall within the exemptions must be converted to Turkish Lira within 30 days of the regulation’s effective date. Non-compliance is subject to administrative fines ranging from TRY 3,000 to TRY 25,000, as per Article 3 of Law No. 1567.
3. The Legal Fate of Non-Compliant Lease Agreements
Although clauses that violate the prohibition are null and void, the invalidity of a single term does not render the entire contract void unless it is evident that the contract would not have been concluded without that term. Therefore, foreign-currency-denominated rents may be converted into Turkish Lira using prevailing market rates or by applying the principle of good faith.
Invalid rent terms do not invalidate the contract as a whole, and parties may request conversion through mutual agreement or seek judicial determination. The competent court for such matters is the Civil Court of Peace under the Turkish Code of Civil Procedure. Jurisdiction lies with the court where the defendant resides or where the obligation was to be performed.
4. Judicial Practice
In civil proceedings, courts are generally bound by the adversarial system, meaning that claims not raised by the parties are not examined ex officio. However, in early judicial practice, courts have regarded the prohibition on foreign-currency rent clauses as a matter of public order — thereby warranting ex officio scrutiny.
Court of Cassation Ruling - 12th Civil Chamber, E.2023/3250, K.2023/3755, D.29.5.2023:
“The legislative amendments aimed to protect the value of the Turkish Lira and uphold economic public order. Therefore, courts must examine violations of the prohibition ex officio.”
Court of Cassation Ruling – 12th Civil Chamber, E.2024/3543, K.2024/8975, D.23.10.2024:
“Even if a foreign-currency lease agreement was converted into Turkish Lira by mutual agreement, enforcement procedures initiated based on non-converted foreign currency amounts may be contested, and objections shall be evaluated by enforcement courts.”
Conclusion
With the exception of specific cases outlined in the Communiqué, foreign currency or foreign currency-indexed rental payments in residential and commercial lease agreements are prohibited under Turkish law.
Contract clauses violating this rule will be deemed invalid, the rent shall be converted into Turkish Lira, and the parties may be subject to administrative fines. Furthermore, courts may examine the matter ex officio due to its connection with public policy.