Local distributors and commercial agents

Distribution structures

What distribution structures are available to a supplier?

There are several distribution structures available to a supplier. The most common ones are those described below.

Distributors buy goods from their principal and sell them directly to their own customers on their own behalf, and at their own risk, and are remunerated through a margin. There is no specific legislation regarding distribution agreements. If there are disputes between the parties as to a distribution agreement, then the provisions of the sales agreement, the agency agreement, proxy or service agreement shall apply by way of analogy, depending on the legal matter that is to be decided.

Agents are intermediaries who promote the conclusion of agreements, negotiate agreements between the principal and the customer, at no risk to themselves, and are entitled to a commission. Commercial agency agreements are regulated under articles 102 to 123 of the TCC.

Sales representatives undertake the obligation to mediate in the process of transactions, or conclude agreements or make transactions set forth in the agreement, concluded between the merchant and themselves, in the name and on behalf of the merchant, consistently and outside the business, in return for payment. By concluding a sales representation agreement, a relationship of dependent merchant assistance shall be established between the parties.

Joint venture agreements, which qualify as ordinary partnership agreements, are subject to the provisions of Turkish Code of Obligations (TCO) No. 6098. As joint venture agreements are not exclusively regulated under Turkish law, they are not subject to any formal requirement.

Although there is no specific legislation, or any regulation governing franchise agreements under Turkish Law, a franchising contract can also be concluded, and it is commonly used in Turkish commercial practice.

Moreover, licence agreements can be concluded in accordance with Industrial Property Law No. 6769. Accordingly, industrial property rights, except geographical indications and traditional speciality guarantees, may be subject to licensing.

Legislation and regulators

What laws and government agencies regulate the relationship between a supplier and its distributor, agent or other representative? Are there industry self-regulatory constraints or other restrictions that may govern the distribution relationship?

Agency agreements are regulated by the TCC in articles 102 to 123, sales representation agreements are defined and regulated under the TCO, trademark licensing agreements are regulated under Law No. 6769, and joint venture agreements, which qualify as ordinary partnership agreements, are subject to the provisions of the TCO. Although franchise agreements are not explicitly defined under Turkish legislation, they can be concluded as sui generis agreements, and provisions of the TCO and TCC regarding sales, agency, service and proxy agreements apply to franchise contracts by way of comparison. There is no specific legislation regarding distribution contracts. The TCO does not regulate exclusive distribution agreements or distribution agreements. If there are disputes between the parties to a distribution agreement, then the provisions of agency agreements, sales agreements, and proxy or service agreements shall apply by way of analogy depending on the legal matter that is to be decided. Also, the general provisions of the TCO, as the case may be, as they relate to agreements, may apply when appropriate, especially in the event of any breach of contractual obligations and default.

Contract termination

Are there any restrictions on a supplier’s right to terminate a distribution relationship without cause if permitted by contract? Is any specific cause required to terminate a distribution relationship? Do the answers differ for a decision not to renew the distribution relationship when the contract term expires?

As per the TCC, either party to an agency agreement may declare the termination of an indefinite-term agency contract by giving three months’ prior notice to the other party. In accordance with Turkish legal practice, this three-month notice period also applies to distribution contracts. Additionally, it is possible for a party to claim compensation for damages arising out of the unjust termination of a contract or without having received three months’ prior notice.

Is any mandatory compensation or indemnity required to be paid in the event of a termination without cause or otherwise?

Article 122 of the TCC stipulates the goodwill indemnity, also known as goodwill compensation, in terms of commercial agency agreements. Pursuant to the fifth paragraph of this article, this provision shall also be applied in exclusive distribution agreements, as well as in other continuous contractual relationships that grant similar exclusive rights. In this respect, after the termination of the contractual relationship, the agency may claim reasonable compensation from the principal (i) if the principal, after termination of contractual relationship, continues to derive substantial benefits from the new customers that the agent has brought to the principal; (ii) as a result of the termination of the agency agreement, if the agent loses its right to demand commission that would have been obtained from the agreements entered into or to be entered into within a short period of time with the new customers, if the contractual relationship has not been terminated; and (iii) if payment of the compensation is equitable by taking into consideration all circumstances in question.

The goodwill compensation may not exceed a figure equivalent to the average of the annual commissions or other payments made to the agent as a result of its activities in the last five years. If the agency agreement continued for less than five years, then compensation shall be calculated on the average for the period in question. However, the agency shall not be entitled to claim compensation if the agent terminates the agency agreement, unless the termination is justified by circumstances attributable to the principal, or if the principal due to a default attributable to the agent terminates the agency agreement. Additionally, pursuant to article 122(4) of the TCC, the parties may not derogate from the goodwill indemnity prior to the expiry of the agency agreement.

Transfer of rights or ownership

Will your jurisdiction enforce a distribution contract provision prohibiting the transfer of the distribution rights to the supplier’s products, all or part of the ownership of the distributor or agent, or the distributor or agent’s business to a third party?

The parties may stipulate in their agreement that the supplier may transfer the products to the distributor, without transferring the right of ownership of the products. This is referred to as the ‘sale with retention of title’ clause under Turkish law. The retention of title clause is regulated under article 764 of Turkish Civil Code (CC) No. 4721. Accordingly, ownership of a good that has been transferred to a distributor may be retained if a notary in the transferee’s place of residence registers the transfer agreement that is subject to official form with the special registry.

Transfer of the commercial business is regulated both under the TCO (articles 202 and 203) and the TCC (article 11(3)). The said provisions do not stipulate any requirement of approval to be given by the supplier in order to be able to transfer the business to a third party. Nevertheless, the parties may stipulate such restrictions within the framework of the contractual freedom. Likewise, the parties may also stipulate the scope and results of change of control in their agreement, and such clauses will be enforced under Turkish law.