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August 28, 2024

Interest And Excess Damage In Expropriation Lawsuits 

INTRODUCTION

    The right to property is a constitutional right granted to everyone living in society. However, this right can be restricted through expropriation of real estate properties. Expropriation is briefly defined as the State’s termination of the ownership of a natural or legal person without their consent by citing public interest and compensating them in return. In expropriation processes, the aim is to finalize the process as soon as possible by considering the mutual interests of the expropriating authority and the property owner. Within this scope, this article reviews how the individual or legal entity whose property is expropriated for public benefit is affected by the issues of interest and incidental damages.

    OVERVIEW OF THE EXPROPRIATION PROCESS

      The State and Public Administrations require real estate to carry out public services. Although administrations primarily prefer to meet this need with existing properties, the location or other characteristics of a privately-owned property may be more suitable for the public service to be performed. In such cases, where administrations need to acquire property from external sources, they hope that property owners will willingly transfer their properties. However, personal expectations often conflict with public interest due to evolving social and economic conditions. Article 35 of the Constitution clearly states that everyone has the right to property and inheritance, and these rights can only be limited by law for public benefit. Expropriation is regulated under Article 46 of the Constitution as follows;

      “The State and public corporations shall be entitled, where the public interest requires, to expropriate privately owned real estate wholly or in part and impose administrative servitude on it, in accordance with the principles and procedures prescribed by law, provided that the actual compensation is paid in advance.

      The compensation for expropriation and the amount regarding its increase rendered by a final judgment shall be paid in cash and in advance. However, the procedure to be applied for compensation for expropriated land for the purposes of carrying out agriculture reform, major energy and irrigation projects, and housing and resettlement schemes, afforestation, and protecting the coasts, and tourism shall be regulated by law. In the cases where the law may allow payment in installments, the payment period shall not exceed five years, whence payments shall be made in equal installments. 

      Compensation for the land expropriated from the small farmer who cultivates his/her own land shall be paid in advance in all cases. 

      An interest equivalent to the highest interest paid on public claims shall apply in the installments envisaged in the second paragraph and expropriation costs not paid for any reason.”

      Within the framework of this provision, expropriation can be defined as the administration’s taking of immovable properties in private ownership, without the owner’s consent, by paying their prices in cash and in advance in cases required by public interest. Despite the nuances in the doctrine concerning expropriation, it generally relies on specific fundamental principles: (i) expropriation can only be conducted for public interest, (ii) the expropriation decision must be made and approved by authorized bodies, (iii) only properties in private ownership can be expropriated, and (iv) except for exceptions, the expropriation price must be paid in cash and in advance.

      Articles 5 and 6 of the Expropriation Law No. 2942 (“Law”) regulate the authorities that can make public interest decisions and the approval bodies that are subject to reevaluation to prevent the violation of property rights. The authorities specified in the Law do not have unlimited powers, and it is not possible for them to conduct expropriation outside their duty and authority areas. Public legal entities can only resort to expropriation within the scope of their laws and areas of activity as specified in Article 3 of the Law. Otherwise, the expropriation process will be legally invalid in terms of authority.

      Upon securing adequate funding for the expropriation process and obtaining approval, the administration will identify the property to be expropriated and record administrative caveats. Article 7 of the Law stipulates that the resources and area of the property be determined before making an expropriation decision. After this decision is made, it is reported to the relevant land registry office for annotation. If the administration does not submit a court document indicating that it has requested the determination of the expropriation price and registration in its name according to Article 10 of the Law within 6 months from the annotation date, this caveat will be automatically deleted from the registry.

      Following the annotation in the land registry, the purchase phase begins to balance the rights and interests of the real or legal person whose property ownership has ended due to expropriation. After determining the expropriation price, the owner can transfer the property in the land registry to conclude the process, or if they do not, they can request the determination of the price through administrative litigation.

      An alternative to this expropriation method is the urgent expropriation procedure. The urgent expropriation procedure is an extraordinary method that allows the administration to seize the expropriated property without waiting for the expropriation process to be completed. In this procedure, the urgent expropriation process seeks an overriding public benefit. The urgent expropriation procedure does not override the procedural safeguards provided to the owner in ordinary expropriation. It only allows the administration to seize the property before these procedures are completed. Article 27 of the Law stipulates;

      In the implementation of Law No. 3634 on National Defense Obligation, in cases where the need or urgency for national defense is determined by the President or in extraordinary situations stipulated by special laws, the expropriation of necessary immovable properties can be conducted with the completion of valuation procedures at a later stage. Upon the request of the relevant administration, the court shall, within seven days, determine the value of the immovable property based on the principles set out in Article 10 and by experts selected pursuant to Article 15. This value shall be deposited by the administration in the bank specified in the invitation and announcement made according to Article 10 on behalf of the property owner, and the immovable property can be seized.

      The court’s decision to seize the immovable property is communicated to the land registry office. A caveat is annotated in the land registry, stating that the property cannot be transferred, alienated, or assigned to another party. Following the seizure decision, the immovable property is vacated in accordance with Article 20. 

      In expropriations conducted under the circumstances specified in the second paragraph of Article 3 of this Law, the amount to be deposited constitutes the first installment payment.”

      The Council of State, in its established precedents, has highlighted that urgent expropriation is an exceptional process and must include much greater public benefit than ordinary expropriation. The Council of State also emphasizes that the public benefit must be considered superior to private property rights, and urgent expropriation cannot be done solely due to the lengthy legal procedures or for economic benefit alone.

      During the expropriation process, the real or legal person whose property is expropriated may receive their compensation at the end of the process, but their right to interest or damages exceeding interest should also be evaluated separately.

      INTEREST IN EXPROPRIATION PROCESSES

        Legally, interest is generally considered as compensation or a return determined by law or legal transaction for the creditor’s deprivation of cash for a period and allowing the debtor to use the cash. Interest accrues gradually and in connection with time as long as the principal debt exists.

        Interest related to the expropriation process is mentioned in Articles 3, 10, 23, and Temporary Article 6 of the Law. This issue should be examined under three headings: (i) interest in case the expropriation price is not paid or paid in installments, (ii) interest on the amount deposited by the administration in expropriation lawsuits, and (iii) interest accruing if the expropriation price determination lawsuits are not concluded within 4 months.

        1) Interest in case the expropriation price is not paid or paid in installments;

          According to Article 3 of the Law;

          In expropriations for the implementation of large energy and irrigation projects, settlement projects, the cultivation of new forests, the protection of coastlines, and tourism purposes, the amount to be paid in cash and in advance to a natural or private legal person cannot be less than one-sixth of the expropriation price specified in the General Budget Law of that year. The expropriation price exceeding this amount shall be paid in equal installments, not less than the advance payment amount, and within a maximum of five years with interest. The highest interest rate specified for state debts shall be applied to installments starting from the day following the advance payment day.”

          The installment payment method and the highest interest rate specified for state debts shall be applied to these installments or in cases of non-payment. The Supreme Court of Appeals General Assembly, in its decision No. 2005/12-462 C. 2005/454 D., has ruled;

          The highest interest rate specified for public receivables, as stipulated in Article 3 of the Expropriation Law and the last paragraph of Article 46 of the Constitution, is applicable to the expropriation price subject to installment and the undisputed expropriation price and the enhancement price definitively determined.

          2) Interest on the amount deposited by the administration in expropriation lawsuits;

            According to the amendment made in 2001 on Law, in the absence of depositing the expropriation price determined by the court for the expropriated property in favor of the owner, no registration and cancellation decision can be made in favor of the administration. Article 10 of the Law gives the court 15 days to order the administration to deposit the price determined by the experts. Exceptionally, this period can be extended once by the court’s discretion. There is no provision in the Law or established jurisprudence regarding the interest on the deposited amount by the administration. Considering the current economic inconsistencies, this issue may pose a problem.

            3) Interest accruing if expropriation price determination lawsuits are not concluded within four months;

              Regarding this issue, the Constitutional Court annulled the paragraph added to Article 10 of the Law in 2013 with its decision No. 2022/83 C. 2023/69 D. published in the Official Gazette on 01.08.2023. Before this decision and the 2013 amendment, the provision was that if the lawsuit for the determination of the expropriation price was not concluded within four months, legal interest would accrue on the determined price from the end of this period. In the Constitutional Court’s decision stated;

              The legal interest applied in cases of late payment of the expropriation price is one of the tools that ensures the economic value of the price is maintained. However, for this tool to comply with the requirements of Article 46 of the Constitution, it must compensate for the value lost due to inflation.

              The provision in question stipulates that only legal interest shall be paid on late payments of the expropriation price. There is no regulation for damages exceeding legal interest due to inflation. Especially in high inflation periods, the value lost due to inflation between the amount the state owes and the amount the owner eventually receives cannot be compensated. Thus, the owner cannot receive the expropriation price in line with the true value criterion. 

              Furthermore, in the lawsuit initiated by the administration for the determination and registration of the expropriation price, the expropriation price is determined as of the date of the lawsuit. However, the provision stipulates that the interest accrual date is the end of the fourth month of the trial. This results in an economic loss beyond the reasonable amount due to inflation during the period between the date the price is determined and the date the interest begins to accrue.”

              Within this scope, it was decided to annul the relevant paragraph on the grounds that it violates the law due to economic conditions and is contrary to the Constitution.

              EXCESS DAMAGE IN EXPROPRIATION PROCESSES

                Excess damage refers to damage that arises because the debtor’s fault leads to default in the performance of the monetary debt, resulting in damage to the creditor that exceeds the default interest. This type of damage covers the period between the debtor’s default and the date the debt is paid. Excess damage is considered a type of damage that exceeds default interest and adheres to the principles of fault liability. Article 122 of the Turkish Code of Obligations No. 6098 regulates excess damage as follows;

                “If the creditor has suffered damage exceeding the default interest, the debtor is obliged to compensate this damage unless they prove that they were not at fault.

                If the amount of damage exceeding the default interest can be determined in the ongoing lawsuit, the court shall rule on this amount at the creditor’s request while making the decision on the merits.”

                Certain conditions must be present for the existence of and the right to claim excess damage: (i) the existence of a monetary debt, (ii) the debtor’s default in paying this debt, (iii) the existence of material damage, (iv) the debtor’s fault leading to the default, (v) the existence of a causal link, and (vi) the creditor’s claim of the existing damage. The creditor claiming excess damage generally bears the burden of proof. 

                In expropriation lawsuits, excess damage is claimed when there is a significant difference between the purchasing power at the time of the court ruling and the current situation due to the long period before the expropriation price is collected. 

                Prior to the Constitutional Court’s decision on 01.08.2023, extraordinary imbalances between purchasing power and costs caused by inflation and prolonged litigation processes, despite simplified trial procedures, led to claims for excess damage and interest. The annulment of the legal interest rate paragraph with this decision is considered an important step in compensating for the damage of those whose property rights are violated and ensuring they receive their dues more promptly.

                CONCLUSION

                  Administrations can meet their needs from real estate properties of individuals or legal entities based on public interest. Due to the existing unbalanced economic environment, the interests of the parties often conflict. Although it is inevitable for the real or legal person whose property ownership has ended due to expropriation or urgent expropriation decisions to receive compensation, they have the right to claim interest and excess damage if the administration opts for installment payments or fails to pay. The Constitutional Court’s decision, published in the Official Gazette on 01.08.2023 (No. 2022/83 C., 2023/69 D.), which annulled the paragraph added to Article 10 of the Law in 2013, aims to eliminate issues that lead to conflicts of interest and violations of property rights between the rights holders and the administration. This decision seeks to achieve a more just approach concerning interest and prevent the occurrence of excess damage.

                  Authors

                  Eren Can Ersoy

                  Eren Can Ersoy

                  Senior Lawyer

                  Elif Akman

                  Elif Akman

                  Lawyer