Scope of Ship Mortgage

In maritime trade, financing relationships are often based on a "high value-high risk" balance. From the lender's perspective, it's clear that a vessel is not merely an asset; it's a "collateral package" encompassing operational capability, technical equipment, revenue generation potential, and insurance protection. Therefore, the most critical question in ship mortgages is: what exactly does the mortgage cover, which elements are excluded, and what additional steps are required to strengthen the collateral in practice?

In Turkish law, a ship mortgage of real security established on a registered ship or ship share . Agreement between the owner and the creditor, and registration of the mortgage in the ship registry, are required for its establishment. Within this technical framework, the issue of "scope" gives rise to specific disputes concerning topics such as the distinction between accessories/integral parts, values ​​replacing the ship, revenues (freight/rent), and insurance compensation.

1) What provisions determine the scope of a ship mortgage?

The Turkish Commercial Code does not merely list the specific provisions of a ship mortgage; it employs an important technical method: it refers to the provisions of the Turkish Civil Code concerning real estate mortgages. According to the Turkish Commercial Code, Articles 862 and 863 of the Turkish Civil Code apply with regard to the scope of the mortgage .

The consequence of this attribution is as follows:

• The core of the insurance coverage is based on the logic of "ship + components + accessories".

• Furthermore, the discussion and application of how the model in Article 863 of the Turkish Civil Code can be applied to income elements such as "rental fees" in comparison to ship mortgages comes to the fore.

2) Core scope: Ship, ship share, integral parts and accessories

2.1. What is an integral part, and does the mortgage automatically cover it?

According to Article 862 of the Turkish Civil Code, a pledge obligates the thing together with its integral parts . In maritime practice, elements inextricably linked to the ship's existence, such as the hull, main engine, shaft, and rudder system, generally integral parts .

However, the Turkish Commercial Code imposes an additional limitation specifically for ships: If integral parts are separated and removed from the ship, except for temporary purposes, the mortgage no longer covers them; exceptionally , if the ship has been seized in favor of the creditor before the removal, the coverage may continue.

2.2. What is an accessory (or addition), and is it covered by a mortgage?

Article 862 of the Turkish Civil Code explicitly states that the pledge also includes accessories. Accessories are movable items permanently dedicated to the main asset and used for the purpose of operation/protection/benefit. (The general definition is within the framework of Article 686 of the Turkish Civil Code; in practice, the important criteria are "continuity and dedication.")

Article 1020 of the Turkish Commercial Code also stipulates that if the accessories are removed from the vessel as required by normal business operations , or transferred and removed from the vessel before being seized in favor of the creditor, the mortgage no longer covers them.

3) “Values ​​equivalent to a ship”: Expropriation compensation and damages claims

The Turkish Commercial Code explicitly includes the value of a nationalized vessel and claims for damages to third parties arising from the loss or damage of the vessel within the scope of a ship mortgage

This arrangement is very important in practice because the ship may have actually lost value, been damaged, or been completely lost. In such a case, the insurance coverage remains valid not on "the ship itself," but on the compensation/value that replaces the ship

4) Does insurance compensation fall under the scope of a mortgage?

According to Article 1022 of the Turkish Commercial Code, if the owner's interest in matters covered by a ship mortgage is insured by the owner or another party acting on their behalf , the mortgage also covers the insurance compensation.

In addition, the mortgage also secures the money and interest that the creditor spends to cover insurance premiums or other payments due to the insurer under the insurance contract.

Article 1022/3 of the Turkish Commercial Code stipulates that the insurer cannot claim "ignorance of the mortgage registered in the ship's registry"; however, mechanisms such as notification and a two-week period that can relieve the insurer of liability are also regulated.

This topic is one of the most misunderstood in practice. Because when "ship security" is mentioned, people naturally think of the ship generating income; however, the scope of real security and the assignment/pledging of receivables are different.

5.1. Approach in terms of "rental/charter income"

Article 1020 of the Turkish Commercial Code also refers to Article 863 of the Turkish Civil Code for its scope. Article 863 of the Turkish Civil Code stipulates that in the case of a leased immovable property, the rental payments accruing from the time the proceedings begin (or in case of bankruptcy) until the moment of foreclosure fall within the scope of the pledge.

How this provision applies to ships will be assessed according to the nature of the contract

• In bareboat charter/rental-like arrangements, the "rental" logic is stronger.

• In transportation contracts, the relationship is one of "freight pay," not "rent.".

5.2. Approach in terms of freight (transportation revenue)

Freight is, as a rule, a receivable arising from a contract of carriage; it is not an accessory or integral part of the ship. Therefore, stating that "freight is covered by a mortgage" would be overly assertive in most cases.

6) Key risk in coverage discussions: Third-party equipment and removable hardware

Article 862 of the Turkish Maritime Code explicitly states that the rights of third parties over the attachments are reserved. In maritime practice, this means, in particular:

• equipment acquired through leasing,

• The distinction between "owner furnished" and "charterer furnished" equipment

• Temporary equipment remaining under the ownership of shipyard/service companies

It is important in situations like these.

The scope of a ship mortgage is not limited solely to "the ship itself"; integral parts and accessories form the basic framework. However, the Turkish Commercial Code explicitly acknowledges that the security may be narrowed in cases such as the removal/transfer of accessories due to normal operation and the permanent separation of integral parts.

On the other hand, the fact that a ship mortgage insurance compensation is a critical area of ​​protection for the creditor; however, the effectiveness of this protection should be strengthened with practical steps such as notification to the insurer, registration of the creditor in the policy, and premium tracking.

freight/revenues , the most sound approach is this: a mortgage secures the physical value of the vessel; in most scenarios, an assignment/pledging of receivables and financial control mechanisms be established to secure the income stream. Thus, by including both the saleable value of the vessel and the operating cash flow in the security package, the creditor's position is significantly strengthened in foreclosure and bankruptcy scenarios.