What is a penalty clause (cezai şart)?
A cezai şart is a contractually agreed sum payable upon breach of an obligation (Turkish Code of Obligations Arts. 179–182). Its power: the creditor need not prove loss: breach alone triggers payment. This makes Turkish law friendlier to penalties than common law, which voids clauses characterised as punitive; the “penalty vs. liquidated damages” anxiety of English-law drafting largely does not translate.
Where it earns its keep in tech deals
Penalties carry the enforcement weight in exactly the places damages are hardest to prove: shareholders’ agreement covenants (transfer restrictions, funding obligations, vetoes), non-compete and non-solicit undertakings, NDA breaches, and side-letter promises. A SHA veto right without a cezai şart is a plea; with one it is a price list. Drafting essentials: tie the penalty to specific obligations rather than “any breach”; state that it is payable in addition to performance where you need both (Art. 179/2 mechanics for that choice); and reserve the right to claim excess loss beyond the penalty.
The two limits to respect
Judicial reduction: courts must reduce excessive penalties (Art. 182/3): proportionality to the obligation, the parties’ economic positions and actual consequences guide the trim. The critical exception: merchants cannot demand reduction of excessive penalties under TCC Art. 22 unless the penalty is ruinous to the point of offending morality, so B2B and SHA penalties largely hold as written. Second limit: penalties tied to employees are constrained: one-sided penalties against workers are invalid; employment penalties must be mutual and balanced, which reshapes how non-competes are secured.
Can we combine a penalty with termination?
Yes, if drafted for it: specify whether the penalty survives termination and whether it applies per breach, per day or as a lump sum.
Is a penalty subject to stamp duty?
A penalty clause referencing a determinable sum can affect the agreement’s stamp-duty base; structure and cap with that cost in view.
Related: protective provisions.
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