Resolution of disputes arising from rental agreements ("lease disputes") is of great importance, since the arbitral awards with regard to non-arbitrable matters may be subject to annulment or may give rise to a ground of refusal of enforcement. If particular subject matter of a dispute is not capable of settlement by arbitration -a non-arbitrable matter-, the arbitral awards may be challenged for annulment or refusal of its enforcement. Consequently, the issue, whether the disputes arising from rental agreements are arbitrable matters, will be further analyzed.
As is known, arbitration, which is an alternative means of dispute resolution, may only come into question with regard to arbitrable matters. The term of arbitrability may be defined as whether a certain dispute may be resolved by arbitration or not1. The basic principle concerning arbitrability is laid down under Article 408 of the Civil Procedure Code numbered 6100 ("CPC"). Pursuant to this article, disputes arising out of rights in rem over immovable properties or disputes, which are not subject to the will of the parties, are not arbitrable. Besides the CPC, provisions with regard to arbitrability may be found in the International Arbitration Act numbered 4686 ("IAA"). Pursuant to Article 1/4 of the IAA, the relevant act shall not be applied to disputes arising out of rights in rem over immovable or disputes which are not subject to the will of the parties. With the said provisions, it is clarified that arbitration may not be referred to as a dispute resolution process with regard to matters outside of the scope of the free will of the parties.
The Relevance of Rental Disputes to the Rights in Rem over Immovable
Provisions of the CPC and IAA regulate that "the disputes arising out of rights in rem over immovable" are non-arbitrable. Considering the said phrase, certain authors in the doctrine opine that the disputes arising out of rental agreements do not arise from the rights in rem, and therefore, the rental agreement disputes may be resolved through arbitration2.
It may be stated as a fact that rental agreement disputes are not related to the rights in rem over immovable. However, it should be considered that, even though rental agreement disputes are not related to the rights in rem over immovable, they may still be classified as disputes which are not subject to the will of the parties. Moreover, the Turkish Court of Cassation opines that the actions pertaining to fixation of rental or eviction of the immovable are non-arbitrable. This issue shall be further analyzed below.
Actions Pertaining to Fixation of Rental or Eviction of the Immovable
It is supported that certain disputes arising out of rental agreements are not arbitrable, since the matter concerns the public order and the will of the parties on the relevant matter are limited by the legislator.
The Turkish Court of Cassation opines that the disputes with regard to fixation of rental arising out of the Law on the Rental of Immovable numbered 6570 ("Law No. 6570") are non-arbitrable:
"In the event that the parties may freely conclude agreements in order to resolve the dispute and if the said agreement is valid without a court decision, it is possible to conclude an arbitration agreement (or arbitration clause) on that matter. ... Pursuant to the established precedents of the Court of Cassation, disputes with regard to fixation of rental are non-arbitrable. As the issue of fixation of rental is related to public order, the parties may only fix the rental within certain limits with their free will. Therefore, the authority of the parties on the relevant matter is limited. Moreover, the lessee is not obliged to pay the rental claimed by the lessor." (Court of Cassation, 3rd Civil Chamber, decision dated 2.12.2004 and numbered 2004/13018 E., 2004/13409 K.)
As the fixation of rental is related to the social policy of states, the parties may not dispose on the relevant matter with their free will. Consequently, it may be supported that the actions pertaining to fixation of rental are non-arbitrable.
The Turkish Court of Cassation renders decisions supporting the non-arbitrability of the disputes pertaining to eviction of the immovable3. The Turkish Court of Cassation opines that, taking into consideration the provision on the jurisdiction of civil courts of peace and as the relevant matter is related to public order, the said disputes may not be resolved by arbitrators.
Commercial Rental Agreements
Law No. 6570 includes provisions in favor of the lessee, as the lessee is the less- favored party in rental agreements. As is known, the said Law does not make a distinction between residential and commercial rentals, nor rental agreements concluded by and between commercial and private parties. However, it is not possible to say that one of the parties is less favored in rental agreements concluded by and between merchants.
In some of the European countries such as Germany and Switzerland, only the rental agreements pertaining to residential rentals are outside of the scope of international commercial arbitration4. It may be said that this distinction is accurate since the merchants may not really need more favorable or additional statutory protection as much as ordinary individuals need, as they are highly sophisticated parties when concluding any contract and usually negotiate to get the best deal for their interests.
Additionally, merchants are under obligation to act as prudent businessman. Pursuant to Article 20/2 of the Turkish Commercial Code numbered 6762, merchants are under obligation to act as prudent businessmen with regard to their commercial activities5. It shall not be possible that merchants who are expected to act as prudent businessmen claim that they were not aware of the outcomes of the arbitration clause that may be found in rental agreements.
The disputes arising out of rental agreements vary as per their qualification and parties of the relevant dispute. Consequently, while assessing the arbitrability of the said disputes, the case at hand shall be evaluated in its entirety. The Turkish Court of Cassation opines that the disputes pertaining to fixation of rental or eviction of the immovable are non-arbitrable. However, we are of the opinion that especially for the commercial rental agreements concluded by and between merchants, arbitrability shall have a wider interpretation, as one of the parties is not less favored nor requires additional protection.
1. AKINCI, Ziya, Milletlerarası Tahkim, 2nd Edition, Ankara 2007, p. 284 ("AKINCI").
2. . AKINCI, p. 203; HUYSAL, Burak, Milletlerarası Ticari Tahkimde Tahkime Elverişlilik, İstanbul 2010, p. 135-136 ("HUYSAL")..
3. Court of Cassation, 6th Civil Chamber, decision dated 10.07.1970 and numbered 3170 E., 3032 K.
4. HUYSAL, p. 134
5. This principle is affirmed by Article 18/2 of the Turkish Commercial Code numbered 6102 that shall enter into force on 01.07.2012.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.