This article explains what foreign manufacturers should know when appointing, managing and replacing a distributor in Türkiye.
For many foreign manufacturers, a local distributor is the fastest and least capital-intensive way into the Turkish market. The distributor knows the customers, holds stock, handles imports and often provides after-sales service. The relationship usually starts well. The legal issues tend to surface later: when the manufacturer wants to set prices across Europe and Türkiye, limit sales into other territories, add a second distributor, sell online directly, or end the relationship and appoint someone else. At that point, Turkish law can come as a surprise. Distribution agreements are not specifically regulated, but Turkish courts apply agency rules by analogy, Turkish competition law sets firm limits on pricing and territorial restrictions, and an exclusive distributor may be entitled to a goodwill indemnity on termination that cannot be waived in advance. This article explains these issues from the perspective of a foreign manufacturer.
1. How Turkish Law Treats Distribution Agreements
A distribution agreement, also referred to in Türkiye as a sole dealership or dealer agreement, is a continuing contract not specifically regulated by statute. The distributor buys the products in its own name and resells them on its own account, which distinguishes it from a commercial agent acting in the name or on behalf of the principal.
Where the contract is silent, Turkish courts apply the general rules of the Turkish Code of Obligations, the rules on sale and, by analogy, the agency provisions of the Turkish Commercial Code (TCC), particularly as regards termination and its consequences. A foreign manufacturer should therefore assume that agency-style protections may be relevant to its Turkish distributor, even if the contract says nothing about them.
2. Exclusivity and Performance Obligations
Exclusivity is usually at the heart of the commercial bargain. It may run both ways:
- the distributor may undertake not to sell competing products or to buy only from the manufacturer; and
- the manufacturer may undertake not to appoint other distributors in a territory or customer group, and sometimes not to sell directly.
In return, manufacturers typically require annual sales targets or minimum purchase obligations. These should be measurable, and the contract should spell out what happens if they are not met. Graduated remedies, such as converting exclusivity into non-exclusivity, reducing the territory, or withdrawing price advantages, are often more useful in practice than a simple right to terminate, and they reduce the risk of a dispute over whether termination was justified.
3. Turkish Competition Law: What Your Distribution Policy Can and Cannot Do
Distribution agreements are vertical agreements under the Turkish Competition Law No. 4054. They benefit from the block exemption under Communiqué No. 2002/2 on Vertical Agreements if its conditions are met. Since the 2021 amendment, the supplier's market share must not exceed 30% for the block exemption to apply. Suppliers above this threshold need an individual assessment of their distribution arrangements.
The rules broadly follow the EU model, and foreign manufacturers with an EU distribution policy will find much that is familiar. The key limits are:
- Resale prices: the manufacturer cannot fix the distributor's resale price or impose a minimum resale price. Maximum and recommended prices are permitted, provided they do not in practice operate as fixed or minimum prices through pressure or incentives.
- Territories and customers: as a rule, the distributor's sales cannot be restricted by territory or customer. The manufacturer may prohibit active sales into a territory or customer group reserved exclusively to itself or to another distributor, but it cannot prohibit passive sales, that is, responding to unsolicited orders.
- Online sales: a complete ban on internet sales is generally treated as a restriction of passive sales. Objective quality and brand image criteria may, however, be imposed.
- Non-compete: a non-compete obligation during the contract does not benefit from the block exemption if it is indefinite or exceeds five years. Post-term non-compete obligations are permitted only in narrow circumstances and generally for no more than one year.
Breaches can render the relevant provisions unenforceable and expose the parties to administrative fines. A distribution policy designed for another market should therefore be checked before it is rolled out in Türkiye.
4. Termination: Notice and Non-Renewal
A fixed-term distribution agreement expires at the end of its term, but if the parties continue to do business afterwards, it may become an indefinite contract. A frequent source of disputes is a fixed-term contract that has been renewed for many years, where a decision not to renew is argued to be, in substance, a termination.
An indefinite agreement can be terminated by either party on reasonable notice. By analogy with the agency rules, which provide for three months' notice, Turkish courts look to a notice period that allows the distributor to adjust; in long-standing relationships involving significant investment by the distributor, a longer period may be considered reasonable. Either party may terminate with immediate effect for just cause. Terminating without proper notice or just cause exposes the terminating party to a damages claim.
5. The Distributor's Goodwill Indemnity
Under Article 122 TCC, a commercial agent is entitled on termination to a goodwill indemnity, known as portföy tazminatı, if the principal continues to benefit from the customers the agent introduced. Article 122(5) TCC expressly extends this rule to exclusive dealerships and similar continuing relationships, unless this would be inequitable. An exclusive distributor in Türkiye may therefore be able to claim an indemnity when the relationship ends.
In assessing whether the indemnity is equitable for a distributor, the following factors are particularly relevant:
- whether the distributor was integrated into the manufacturer's sales organisation in a way comparable to an agent;
- whether the distributor was obliged to share customer data with the manufacturer, or in practice did so; and
- whether the manufacturer continues to benefit substantially from the customers the distributor brought in.
The indemnity is capped at the distributor's average annual earnings over the last five years, or over the life of the contract if shorter. No indemnity is due where the manufacturer terminates for just cause attributable to the distributor, or where the distributor itself terminates, subject to limited exceptions. The claim must be brought within one year of termination and cannot be waived in advance. A clause in the distribution agreement excluding the indemnity will therefore generally not protect the manufacturer.
6. Does Choosing Foreign Law Help?
Under Turkish private international law, the parties to an international distribution agreement may choose the governing law. Many foreign manufacturers choose their home law and assume this excludes the Turkish goodwill indemnity. The position is less certain than it may appear. It is debated whether Article 122 TCC, as a protective provision, may be applied as an overriding mandatory rule where the distributor operates in Türkiye, a question similar to the one addressed by the Court of Justice of the European Union in the Ingmar case for commercial agents. Turkish competition law, in any event, applies to agreements that have effects in Türkiye, whatever law governs the contract.
A foreign governing law combined with an arbitration clause can still provide a more predictable framework, but it should not be treated as a guarantee that no indemnity will be payable. We discussed the drafting of arbitration clauses involving Turkish parties in this article.
7. Replacing a Distributor: A Practical Sequence
Changing distributors in Türkiye is often more complex than expected. Before giving notice, foreign manufacturers should consider:
- Exposure: estimate the potential goodwill indemnity and any damages for insufficient notice, and factor them into the decision and any settlement.
- Regulatory transfers: in regulated sectors, product registrations, importer records and licences may be held in the distributor's name. Their transfer to the new distributor or to the manufacturer's own entity should be planned in advance.
- Brand assets: domain names, social media accounts and, in some cases, trademark registrations may have been registered by the distributor. The contract should require their transfer on termination.
- Stock: agree whether the manufacturer will buy back stock, at what price, or whether the distributor may sell it off during a limited period.
- Customers and service: plan the transition of after-sales and warranty service so that end customers are not affected.
- Security: where the distributor buys on credit, outstanding receivables should be secured before termination. We discussed how to take enforceable guarantees from Turkish counterparties in this article.
8. Drafting Checklist for Foreign Manufacturers
- Make clear whether the relationship is distribution or agency, and on whose account sales are made.
- Define the exclusive territory, reserved customers and the manufacturer's direct sales rights precisely.
- Set measurable targets and graduated consequences for missing them.
- Check pricing, territorial, online sales and non-compete clauses against Turkish competition law and the 30% market share threshold.
- Regulate renewal, notice periods and just cause grounds expressly.
- Assess the goodwill indemnity risk, bearing in mind that it cannot be excluded in advance, and consider how customer data is shared.
- Include post-termination obligations on stock, brand assets, domain names, registrations and licences.
- Choose governing law and dispute resolution with enforcement in Türkiye in mind.
9. Conclusion
A well-structured distribution agreement can give a foreign manufacturer flexibility in Türkiye; a poorly structured one can make it expensive to change course. The key points are:
- Distribution agreements are not specifically regulated, and agency rules may be applied by analogy.
- Resale price maintenance and bans on passive or online sales prevent the block exemption from applying; non-compete obligations should not exceed five years.
- Indefinite agreements require reasonable notice, which may be longer than three months in long-standing relationships.
- Exclusive distributors may claim a goodwill indemnity under Article 122(5) TCC, which cannot be waived in advance.
- Choosing foreign law does not necessarily exclude the indemnity, and Turkish competition law applies regardless.
- Replacing a distributor requires planning for regulatory transfers, brand assets, stock and security.
For advice on structuring, reviewing and terminating distribution agreements in Türkiye, competition law compliance and goodwill indemnity claims, please contact us at info@guzeloglu.legal.