Interest, Costs, and Ancillary Charges in Ship Mortgages

Ship mortgages are one of the most frequently used collateral instruments in financing maritime trade. However, in practice, the creditor's belief that "I have collateral" is often based only the principal amount ; whereas the true cost of the credit relationship interest, default interest, collection costs, mandatory protection costs, and insurance premiums . Therefore, if the "scope of collateral" of the ship mortgage is not properly established, the creditor may be forced to pursue some of the items they hope to collect based on the mortgage as undebt receivables .

The Turkish Commercial Code No. 6102 ("TCC") deliberately links the scope of security in ship mortgages to the system of the Turkish Civil Code ("TCC"). Indeed, TCC Article 1018 explicitly stipulates that a mortgaged ship provides security for the claims stipulated in TCC Articles 875/1 and 876. ( E-Uyar ) This link means that a ship mortgage secures not only the principal but also interest and expenses within the limits set by law. Below, I will discuss how the "interest-expenses-ancillary" triad is structured in the context of ship mortgages, the registration/upper limit logic, and practical risk points within an academic framework.

1) Distinction between ancillary claims and "secondary obligations": Conceptual framework

In classical mortgage law, "ancillary items" refer to subsidiary items dependent on the principal debt: contractual interest, default interest, enforcement costs, certain mandatory expenses, and in some cases, payments related to insurance relationships. The common feature of these items is that they are added to the main debt relationship, increasing the total debt burden.

The Turkish Commercial Code's ship mortgage regime regulates the scope of ancillary rights through two channels:

1. Rule set (TMK connection): Article 1018 of the Turkish Commercial Code states that a ship mortgage constitutes security for items covered by Articles 875/1 and 876 of the TMK.
2. Registration procedure (ship registry): Article 1016 of the Turkish Commercial Code mandates that interest rates and, if accepted, the amounts of "other secondary obligations" be recorded in the registry.

The concept of "secondary obligations" (e.g., commission, expense item, specific contractual ancillary obligation) is important here: not every ancillary obligation automatically falls under the scope of the mortgage; the registration technique plays a critical role in ensuring that some obligations are visible in the register and enforceable against third parties.

2) Core items secured by ship mortgages: Application of Articles 875 and 876 of the Turkish Civil Code to ship mortgages

Article 875 of theTurkish Civil Code defines the scope of security for real estate mortgages as "principal, enforcement costs, default interest, and a certain amount of interest." The article specifically emphasizes that the security is limited to three years' worth of accrued interest and interest accruing from the final due date; furthermore, it states that the previously determined interest rate cannot be increased to the detriment of subsequent rights holders.

Article 876 of the Turkish Civil Code claims arising from the necessary expenses incurred by the creditor for the protection of the pledged property, and especially the insurance premiums owed by the owner, shall benefit from security as if they were secured claims, without the need for registration .

Due to the explicit reference in Article 1018 of the Turkish Commercial Code, these two articles constitute the "core security package" with regard to ship mortgages:

• Principal
• Collection costs and default interest
• Interest to the extent prescribed by law (especially the logic of three-year interest that has become due and payable and interest accruing from the final due date)
• Mandatory protection costs and insurance premiums (unregistered insurance)

The practical conclusion at this point is that a ship mortgage is not a security "only for the principal"; it also includes ancillary items that increase the creditor's ability to collect within the limits set by law. However, the extent to which falls within the scope is clarified by the following interest and registration rules.

3) Interest: Contractual interest, statutory interest, and default interest

a) Obligation to record interest in the register (Turkish Commercial Code, Article 1016)

In the registration of a ship mortgage, if the debt is interest-bearing, the interest rate must be recorded in the register. This rule provides transparency, especially in terms of risk assessment for third parties (subsequent mortgage creditors, those who take over the ship). In practice, if the interest rate/calculation method is not clear in terms of banking loans, serious disputes may arise in the collection of interest items from the mortgage.

b) Limit on interest and ancillary charges in upper limit mortgages (Turkish Commercial Code Article 1016/3)

If the amount of the debt is not fixed or is variable, an upper limit is set for the debt that the mortgage will secure and registered in the registry; if the debt is interest-bearing, it is stipulated that the interest will also be included within the upper limit .

In practice, this means that in a maximum limit mortgage, the total of principal + interest + expenses + other collateral items cannot exceed the "limit" set in the registry. It is also emphasized in legal doctrine and case law that this approach is consistent with the upper limit logic in Article 875 of the Turkish Civil Code.

c) Possibility of extension with legal interest (Turkish Commercial Code, Article 1019)

Article 1019 of the Turkish Commercial Code stipulates that if the debt is interest-free or the interest rate is below a certain threshold, the mortgage to include statutory interest (without requiring the approval of holders with equal or subsequent rights). This provision can be seen in practice as a mechanism that partially offsets risks such as "we forgot to include interest/we included too little." However, the technical conditions of the provision should be evaluated separately according to the specific circumstances of the case.

d) Default interest and notification requirement to the owner (Turkish Commercial Code, Article 1018/2)

An important detail regarding ship mortgages: For a debt to become due upon notification by the creditor, notification must be given to both the debtor and the owner ; the debt does not become due to the owner unless notification is given to them. If the debt becomes due to the owner, the mortgage also covers default interest

This provision makes the "notification" step a strategic key in the creditor's process management, especially in relationships where the debtor and the ship owner are different entities (e.g., business/financial structures, group companies): Lack of notification can create disputes in the collection of default interest from mortgage collateral. 4) Costs and mandatory protection expenses: Security strengthened by Articles 876 and 1022 of the Turkish Commercial Code

a) Necessary expenses (Turkish Civil Code Article 876)

If the creditor has incurred necessary expenses for the protection of the pledged property, and especially if they have paid the insurance premiums owed by the owner, the resulting claim , without the need for registration .

In maritime maintenance, the concept of "necessary preservation expenses" can refer to items such as keeping the ship in a safe port, emergency preventive maintenance/repair, necessary measures to ensure seaworthiness, and expenses to prevent the ship's depreciation in value during forced execution proceedings. Of course, not every expense is considered "necessary"; the creditor must be able to prove this.

b) Insurance compensation and insurance premiums (Turkish Commercial Code, Article 1022)

Article 1022 of the Turkish Commercial Code stipulates that if the interest covered by the ship mortgage is insured by the owner or another party acting on their behalf, the mortgage shall also cover the insurance compensation ; furthermore, the mortgage shall secure the funds spent by the creditor to pay insurance premiums or other payments due to the insurer under the insurance contract, as well as the interest thereon

This provision brings ship mortgages closer to "realities of life" in terms of costs and ancillary expenses: because in ship financing, insurance is a necessary layer that protects the value of the collateral. Indeed, a decision of the Supreme Court's General Assembly of Civil Law (in the context of mortgages on ships under construction) emphasizes certain conditions for insurance compensation to be included in the coverage.

5) “Other ancillary matters” and registration strategy: Commissions, ancillary obligations, and contractual clauses

Article 1016 of the Turkish Commercial Code states that if "other secondary obligations" are accepted, their amounts in the currency in which the debt is determined shall also be registered. This statement demonstrates of registration .

The safe approach in practice is as follows:

• The principal + interest + default interest regime should be clearly stated
• It should be specified which items are included in the security as "secondary obligations"
• If the receivables are variable, the upper limit must be set realistically; otherwise, exceeding the limit will result in the risk of becoming an undeclared receivable.

In maritime mortgages , interest, expenses , and ancillary charges are the elements that determine the "actual value" of the collateral. The Turkish Commercial Code (TTK), by deliberately linking this scope to the Turkish Civil Code (TMK) system, acknowledges that a mortgaged vessel secures not only the principal but also collection costs, default interest, and interest to the extent prescribed by law . In addition, expenses aimed at preserving the value of the vessel, such as mandatory protection costs and especially insurance premiums , are, as a rule, included in the security coverage without the need for registration; in the context of marine insurance, TTK Article 1022 further reinforces that the mortgage also covers insurance compensation, insurance premiums paid by the creditor, and their interest.

However, in practice, the effectiveness of the collateral is often directly related to "what is written in the registry": the accurate reflection of the interest rate and any other secondary obligations in the registry (Turkish Commercial Code Article 1016), knowing that the interest will remain within the limit in a maximum limit mortgage, and the notification requirement to the owner in case of default interest (Turkish Commercial Code Article 1018/2) are of critical importance.

In conclusion: When properly structured, a ship mortgage is a powerful real security that protects the creditor not only with the principal but with interest and mandatory expense layers, ; if improperly structured, the items the creditor needs most may extend beyond the mortgage, weakening their ability to collect.