The penalty clause is the one place in a Turkish commercial contract where the law treats companies more harshly than individuals, and the foreign general managers I advise rarely know it until the invoice for the penalty arrives. The Code of Obligations lets the parties fix a penalty for non-performance or delay at any amount, makes it payable without proof of loss, and gives the judge a power to reduce an excessive penalty. The Commercial Code then takes that power away from merchants: a company that has agreed a penalty cannot ask the court to reduce it, however disproportionate it turns out to be, and is left with the general prohibition of immoral contracts as its only shield. The consequence for a purchasing or sales department is simple to state and often ignored: the figure a Turkish company signs is, in the ordinary case, the figure it will pay. This page sets out the statutory rules, the merchant exception and its limits, the way the penalty interacts with default interest, employment contracts and liability caps, and how each side should draft the clause.
Sources, checked 11 September 2026. Turkish Code of Obligations No. 6098, Articles 27, 115, 120, 121, 179 to 182 and 420; Turkish Commercial Code No. 6102, Articles 8, 16, 18, 22 and 1530; Law No. 3095, Article 2; the Central Bank's communiqué of 2 January 2026 (Official Gazette 33125).
What Articles 179 to 182 provide
Article 179 distinguishes two penalties. Where a penalty is agreed for the case that the contract is not performed at all or not properly, the creditor may claim either performance or the penalty, unless the contract shows otherwise. Where the penalty is agreed for the case that the obligation is not performed at the agreed time or place, the creditor may claim the penalty together with performance, unless it has expressly waived the penalty or accepted performance without reservation. The third paragraph reserves the debtor's right to prove that it was entitled to end the contract by paying the penalty. Article 180 makes the penalty payable even where the creditor suffered no loss, and lets the creditor claim loss exceeding the penalty only if it proves the debtor's fault. Article 181 applies the penalty rules to clauses under which, on rescission, the part already performed remains with the creditor, subject to the rules on instalment sales. Article 182 lets the parties fix the amount of the penalty freely, provides that the penalty cannot be claimed where the principal obligation is invalid for any reason or has become impossible for a cause the debtor does not answer for unless otherwise agreed, keeps the principal obligation valid where the penalty is invalid, and, in its third paragraph, gives the judge the power to reduce a penalty he considers excessive on his own motion.
| Point | Turkish rule | Article |
|---|---|---|
| Penalty for non-performance | Creditor chooses performance or penalty | Code of Obligations 179(1) |
| Penalty for late or misplaced performance | Creditor may claim both, unless it waived or accepted without reservation | 179(2) |
| Proof of loss | Not required; excess loss recoverable only on proof of the debtor's fault | 180 |
| Amount | Freely agreed | 182(1) |
| Invalid or impossible principal obligation | No penalty, unless otherwise agreed | 182(2) |
| Judicial reduction | Available on the judge's own motion in general | 182(3) |
| Merchant debtor | May not request reduction | Commercial Code 22 |
| Penalty against an employee only | Void | Code of Obligations 420 |
| Penalty on a monetary debt | Allowed, but interest-on-interest agreements are treated as penalties | 121 |
The merchant rule of Article 22
Article 22 of the Commercial Code provides that a debtor who has the status of a merchant may not ask the court to reduce a fee or a contractual penalty on the ground that it is excessive, in the cases of Article 121(2), Article 182(3) and Article 525 of the Code of Obligations. Every commercial company is a merchant under Article 16 of the Commercial Code, so every Turkish subsidiary and joint venture company is caught. The rationale is the standard of the prudent businessperson in Article 18(2) of the Commercial Code: a merchant is presumed to know what it signs. What remains is Article 27 of the Code of Obligations, which makes void contracts contrary to mandatory law, morality, public order or personality rights; the courts have used it against penalties so extreme that they would destroy the debtor economically, but the threshold is high, the outcome is uncertain and the remedy is nullity of the clause rather than moderation of the figure. A company negotiating a Turkish contract should therefore assume that no court will rescue it from a penalty it has agreed, and price the clause accordingly.
Penalties and money debts
Unlike Montenegrin law, Turkish law does not forbid a penalty on a monetary obligation, but it constrains it through the interest rules. Article 121 of the Code of Obligations provides that a debtor late in paying interest or an annuity owes default interest on it only from the day enforcement or an action is started, and that agreements to the contrary are subject to the penalty clause provisions, which for a merchant means that they bind without reduction. Article 120(2) caps an agreed default interest rate at twice the legal rate, while Article 8(1) of the Commercial Code leaves the rate in commercial transactions to the parties; the statutes do not say how the two meet for merchants, and each side's lawyer will use the reading that helps. In supplies of goods and services between businesses, Article 1530 of the Commercial Code supplies default without notice, the sixty-day cap on payment terms and, where no rate is agreed or the clause is void, the Central Bank's rate, 43 per cent for 2026 with a minimum recovery cost of 2,020 TL, and voids clauses that exclude or minimise late payment interest; a penalty on late payment that is really a disguised interest rate above those limits invites the argument that it falls under Article 120 rather than Article 182. The interest regime is set out on the late payment page.
Penalties in employment and in liability caps
Article 420 of the Code of Obligations makes void a penalty clause in an employment contract that is stipulated only against the employee; a training cost clause or a minimum service commitment must be reciprocal to survive, and a foreign group's standard employment template usually fails this test. A penalty that is also expressed to be the exclusive remedy operates as a liability cap and is tested against Article 115, under which an advance exclusion of liability for gross fault is void, so a supplier's "sole and exclusive remedy" penalty caps ordinary negligence but not gross negligence or intent. And because Article 182(2) ties the penalty to the validity of the principal obligation, a penalty in a contract that is void for a currency clause between residents, or for a missing form, falls with it. The currency rules are set out on the outsourced legal counsel page.
Drafting for the buyer
Say which breach the penalty covers, because Article 179 gives different options for non-performance and for delay. Set a daily or weekly rate for delay with a cap the company would be content to receive and could explain, since a merchant counterparty cannot have it reduced and an extreme figure only invites an Article 27 argument. State expressly that acceptance of late performance does not waive the penalty, and write the reservation into the acceptance procedure so that the site or warehouse manager's acceptance form reserves it; Article 179(2) loses the penalty on unreserved acceptance. State whether the penalty may be claimed together with termination and with damages exceeding it, and keep the evidence of loss, because excess loss under Article 180 requires proof of the debtor's fault. Keep the penalty in the same document as the contract, in Turkish or with a governing-language clause, and remember that a penalty in a contract that needs a form, such as a limited company share transfer, needs that form too. Where the counterparty is an individual rather than a company, the judge may reduce the penalty on his own motion, so the figure should be one the company can justify on paper.
Drafting for the supplier
Never sign an uncapped penalty in Turkey; there is no judicial moderation for a company. Insist on a grace period, a daily rate with an overall cap, and the words that make the capped penalty the exclusive remedy for delay, which converts Article 180's excess loss into an Article 115 cap valid for ordinary negligence. Define the events for which the supplier is not responsible, so that Article 182(2) operates without argument, and add a force majeure and hardship clause tied to Articles 136 and 138 of the Code of Obligations. Refuse mirror penalties on the supplier's monetary obligations that exceed the interest limits of Article 120. And answer a penalty demand in writing; where the company itself puts the counterparty in default or terminates, use the notary, registered letter or registered electronic mail channels that Article 18(3) of the Commercial Code prescribes between merchants.
When the clause is invoked
Once a penalty is claimed, the dispute is about whether the breach occurred and was the debtor's responsibility, whether the creditor reserved the penalty on acceptance, whether the principal obligation was valid, and, for a non-merchant debtor only, whether the figure is excessive. For companies the last question is closed, which is why the first three have to be won on the documents. Enforcement of the resulting claim is on the debt collection page and, against a company, on the page for claims against Turkish companies; disputes seated abroad or in arbitration on the arbitration page.
Whose side we are on, and how we are paid
The counterparty's lawyer drafted the penalty for the counterparty and knows that your company cannot have it reduced. The project manager accepts the late delivery to keep the line running and does not know that the acceptance form released the penalty. The accountant books the penalty invoice and waits. None of them is paid to tell you, before you sign, that the figure is final, that your employment penalty is void because it binds only the employee, or that your exclusive remedy clause caps ordinary negligence and nothing else.
We take no commission or referral fee from contractors, suppliers, agents or counterparties, in any form, on any file. The fee you pay us is our only income from your matter, and it does not depend on whether a penalty is paid or a contract is signed. Because our position does not move with the outcome, telling a buyer that its penalty will not survive Article 27, or a supplier that its exposure is uncapped and irreducible, costs us nothing to say.
One boundary, stated plainly. We are lawyers, not licensed investment advisers and not project managers. We do not decide what delay a project can absorb. What we protect is the Turkish legal position: a penalty that covers the right breach, at a level the company can live with, reserved when it matters, valid against the employment and interest rules, and claimed or resisted on the documents.
Before the next contract is signed or the next penalty is claimed
Send us the draft or the contract, the delivery and acceptance records, the correspondence about the delay and the evidence of loss on either side. We will tell you what the clause is worth under Turkish law, what must change before signature, whether a penalty already claimed can be resisted, and what step preserves or defends the claim. Our corporate work is described on the corporate law page.
What this page does not settle
Earnest money and withdrawal payments under Articles 177 and 178, penalties in consumer contracts, penalties in public procurement contracts, the detail of construction delay damages, the interaction with insurance and the conduct of litigation are separate subjects.
