Constitutional Court rules that statutory interest does not apply to non-contractual obligations

With its decision of 22 July 2025 and published in the Official Gazette on 1 December 2025 (E. 2024/24, K. 2025/164), the Constitutional Court ruled that the statutory interest rate set out in Article 1 of Law No 3095 on Legal Interest and Default Interest (the “Law”) is unconstitutional in respect of “obligations not arising from a contract.”

The Constitutional Court issued this decision following a request by Kahramanmaraş Third Administrative Court in connection with a lawsuit seeking compensation for damage arising from immovable property destroyed in an earthquake. The local court argued that the statutory interest rate violated the right to property, which is protected under Article 35 of the Constitution.

ASSESSMENT REGARDING THE EFFECTS OF INFLATION

Article 1 of the Law, titled “Legal Interest”, provides that:

In cases where interest is required to be paid under the Code of Obligations and the Turkish Commercial Code, if the amount is not determined by contract, such payment shall be made at an annual rate of twelve percent.

The President is authorised to set this rate on a monthly basis, to reduce it by up to , or to increase it up to one fold.

Highlighting that the interest rate defined in this article is insufficient to protect the creditor’s assets, especially during periods of high inflation, the Constitutional Court decided to annul the provision.

In its decision, the Constitutional Court emphasised that;

• The erosion in the value of money that the creditor fails to receive on time may be partially or wholly compensated by awarding interest against the debtor,
• Updating the amount of compensation or other receivables by eliminating the effects of inflation, namely by applying interest in a manner that offsets the significant loss of value between the date when the receivable became due and the date of payment, is an instrument that can prevent deterioration in the value of the receivable protected under the right to property,
• In cases where inflation and the resulting exchange rate movements, deposit interest rates, treasury bills, and government bond yields exceed statutory legal or default interest rates by a significant margin, the debtor benefits while the creditor suffers a financial loss,
• In a high-inflation environment, the yield obtained from holding money and investing it outweighs the legal interest payable upon settlement of the debt, giving the debtor an incentive to delay payment. This, in turn, causes the creditor to incur an economic loss beyond reasonable limits and disrupts public order, affecting individual and societal security.
• Accordingly, the “12 per cent” statutory interest rate regulated in the first paragraph of the Law is insufficient to protect the creditor’s interests during periods of inflation, causing the creditor to suffer an economic loss beyond what is reasonable.
• The Law lacks mechanisms ensuring that payments are made without suffering a substantial loss in value due to inflation, and the legal system does not provide an effective legal avenue to prevent a deterioration in the value of receivables due to inflation.

Based on these grounds, the Constitutional Court concluded that the provision, in its current form, violates the right to property under Article 35 of the Constitution and the right to an effective remedy under Article 40 of the Constitution.

The Constitutional Court’s analysis is also significant for establishing a connection between inflation and the right to property. Accordingly, the decision may have implications for all disputes where no contractual interest rate is agreed upon and may also serve as a basis for claims of additional damages tied to inflationary effects.

EFFECTIVE DATE OF THE DECISION

The decision annulling the expression “obligations not arising from a contract” in Article 1 of the Law will enter into force nine months after its publication, i.e. on 1 August 2026.

During this period, it is expected that the legislator will adopt a new interest regulation addressing inflationary economic conditions.

For the nine-month transition period, the current statutory interest rate will continue to apply.

IMPACT ON PENDING DISPUTES

By its annulment decision, the Constitutional Court indirectly emphasised that the practice of “low and fixed-rate interest” can no longer be sustained, and that mechanisms must be created to offset the loss in value of monetary receivables under inflationary conditions.

The interest regime applicable to legal disputes initiated or ongoing after the effective date of the annulment will depend on the legislator’s new approach.

Legal proceedings such as tort claims, unjust enrichment cases and full remedy actions brought against the administration, where Article 1 of the Law has traditionally been applied, will be affected by this change.