Distribution and Dealership Agreements in Turkey: Termination and Compensation

When a foreign brand enters the Turkish market, it usually sells through a local distributor or dealer; equally, a Turkish company often becomes the sole distributor or regional dealer of a brand it imports from abroad. The relationship may run smoothly for years. Yet the day the brand owner decides to end it, what remains behind is a distributor who has invested capital, built a customer base and grown the market. That is exactly when two questions surface: was the contract terminated unjustly, and is the distributor entitled to compensation? Under Turkish law the answers are more nuanced than they first appear, because the distribution and dealership contract has no statutory definition of its own.

Distribution and Dealership as an Unnamed (Atypical) Contract

Turkish law contains no dedicated statute governing distribution (sole distributorship) or dealership agreements. These are unnamed (atypical) contracts that the parties construct within the freedom of contract recognised by the Turkish Code of Obligations (TCO), Law No. 6098. As a result, such relationships are governed first by the contract's own terms, and then by the general provisions of the TCO (good faith, performance, termination).

The essential feature that distinguishes this relationship from commercial agency is this: an agent is an auxiliary who mediates in the name and on the account of a principal; a distributor, by contrast, purchases the goods in its own name and for its own account and resells them at its own risk as an independent trader. Although the economic difference is significant, both relationships are of a continuing nature, envisage single-channel distribution and, over time, create a customer portfolio for the brand. It is this structural similarity that makes the analogy described below possible.

Analogous Application of Agency Rules and the Goodwill Indemnity

In unnamed contracts a statutory gap is filled by applying, by analogy, the rules of the closest regulated contract type. For distribution and dealership, that type is found in the agency provisions, articles 102-123 of the Turkish Commercial Code (TCC), Law No. 6102. Settled precedent of the Court of Cassation accepts that these provisions apply by analogy to the distribution relationship to the extent they are appropriate.

The most important consequence of this analogy is the goodwill indemnity (denkleştirme claim). TCC art. 122 grants an agent, when the agency ends, a claim to compensation for the customer portfolio it created. The critical point is this: the final paragraph of art. 122 (art. 122/5) expressly states that the provision "shall also apply, unless contrary to equity, upon the termination of sole distributorship and similar continuing contractual relationships granting exclusive rights." In other words, the distributor's goodwill claim flows not merely from case law but directly from the wording of the statute.

Three conditions must be met together: (a) the brand owner continues to derive substantial benefit, after the relationship ends, from the new customers the distributor brought in; (b) the distributor loses the earnings it would have made from those customers; and (c) payment is equitable in the concrete case. The indemnity is capped at the distributor's average annual income over the last five years. Moreover, under art. 122/3, the distributor cannot claim the indemnity if it terminated the contract itself without good cause, or if its own fault gave the brand owner good cause to terminate. This right cannot be waived in advance, and the claim must be raised within one year of the relationship ending (art. 122/4).

Unjust Termination, Termination for Cause and Notice Period

Separately from the goodwill indemnity, a second form of compensation arises where the termination itself is unjust. Here too the agency rule (TCC art. 121) provides guidance. An agency contract of indefinite duration may be terminated on three months' prior notice; a fixed-term contract may be ended at any time for good cause. A party who terminates without good cause or without observing the notice period must compensate the other for the loss caused by works left uncompleted.

Where the contract fixes no notice period, the principle of good faith (Civil Code art. 2) takes over. Ending a long-standing, indefinite relationship in which the distributor has invested heavily, abruptly and with a single day's notice, is incompatible with good faith. Such an unjust termination can trigger compensation for the investments the distributor made in stock, staff, advertising and premises that it could have recouped had a reasonable notice period been granted. Conversely, circumstances such as the distributor failing to pay, selling competing products or otherwise breaching the contract give the brand owner grounds for termination for cause; here no notice period applies and, as a rule, no goodwill indemnity arises.

Making the Contract Clear on Termination from the Outset

Most of this uncertainty can be prevented by drafting the contract correctly on day one. For foreign brand owners appointing a distributor in Turkey, the key steps are to spell out the term, the grounds for termination and the notice period, to define the scope of exclusivity, and to make the goodwill consequences as foreseeable as possible. A Turkish distributor of a foreign brand, in turn, should seek clauses that protect its own investment and the customer portfolio it built, a reasonable notice period, and terms on the buy-back of stock upon termination. Fixing the governing law and the competent court or arbitral forum at the outset likewise clarifies the ground on which any future dispute will be resolved.

Frequently Asked Questions

Is there a dedicated statute for distribution agreements in Turkey? No. Distribution and dealership agreements are unnamed (atypical) contracts; they are governed first by the contract itself, then by the general provisions of the TCO, and, to the extent appropriate, by the TCC's agency provisions.

Does the distributor always receive compensation when the contract ends? No. The goodwill indemnity arises only if the conditions in TCC art. 122 are met together. A distributor who terminated the contract without good cause, or whose own fault led to a justified termination, loses this right.

Is there a time limit for the goodwill claim? Yes. Under TCC art. 122/4 the claim must be raised within one year of the relationship ending. This right cannot be waived in advance by contract.

Can the brand owner terminate an indefinite contract with one day's notice? As a rule, no. Where the contract fixes no notice period, the principle of good faith (Civil Code art. 2) requires a reasonable notice period; an abrupt and unjust termination can trigger compensation for the distributor's investments.

How Mona Hukuk Can Help

Distribution and dealership relationships are among the areas where Turkish commercial law intersects most closely with international trade, and when they are not properly structured they create serious compensation risks for both the brand owner and the distributor. At Mona Hukuk we advise foreign brand owners appointing distributors in Turkey, and Turkish distributors of foreign brands, on drafting the contract, structuring exclusivity and termination clauses, goodwill claims, and litigation arising from termination.

For consultancy in Antalya, you may write to contact@monahukuk.com or call +90 (242) 606 14 32.