The Decree No. 32 regarding the Protection of the Value of Turkish Currency was amended by the Decree No. 85 (the “Decree”) published in the Official Gazette dated 13 September 2018. The Decree is a follow up to Treasury and Finance Minister’s recent statement that the government planned to take steps to prevent FX denominated rental and sales agreements relating to property and specifically to stores located in shopping malls. However, the scope of the Decree goes far beyond the statement and covers reversion of the contract amount and the payment obligations under all sales and rental agreements on movable and immovable property (including vehicle rentals and financial leasing), employment contracts, service contracts and contracts for works, to the extent they are executed between Turkish residents and denominated in or indexed to FX.

In addition to providing a restriction for future contracts, the Decree also includes a requirement to amend existing FX denominated contracts within 30 days. The Decree provides that the Ministry of Treasury and Finance will determine the exceptions to the requirements on future and existing contracts; but such exceptions have not been issued yet. Also as per the general principles provided under the Law numbered 1567 Regarding the Protection of Value of Turkish Currency, failure to comply with the restrictions set under the Decree No. 32 may result in the imposition of certain administrative fines. There are still some areas that may require further clarification and may be addressed by further legislation be issued by the Central Bank or the Ministry of Treasury and Finance.

This latest Decree is part of the string of legislative changes on FX transactions that the government introduced in the last couple of months to prop up the Turkish lira. While the exceptions to be determined by the Ministry of Treasury and Finance remain to be seen, considering that the Decree has a very broad coverage and that such interference to existing contracts by a decree may be found to be in contradiction with certain constitutional principles, the enactment of the new Decree might deteriorate investor confidence to Turkey unless the exceptions to be issued by the Ministry clearly specify and limit the restrictions.

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