Turkey: Amendment To The Regulations On Rent Increase Rates

Remarkable changes have been introduced to Turkish lease regulations with The Law No. 7161 on Amendment to Tax Law and Certain Other Laws and Decree Laws ("Omnibus Law") published on the Official Gazette of January 18, 2019. The Omnibus Law altered the cap on rent increase rates regarding housing and workplaces. The Regulation amended the maximum increase rate regulated in Article 344 of the Turkish Code of Obligations No. 6098 ("TCO") by restricting the rent increase rate to "change in averages of the consumer price index in twelve months" ("CPI"). With this amendment, "increases to the producer price index" ("PPI"), which was the previous upper limit, has been removed so that lessees could have better protection, given the CPI tends to be more stable than the PPI.

Article 56 of the Omnibus Law further amended Article 344 of the TCO and provided that the rate of increase in rent will be determined pursuant to the average of the previous year's CPI. However, should the parties agree on a lower increase rate in the relevant lease agreement, the rent increase rate will be applied based on the determined rate. In the event that parties do not reach to an understanding on the increase rate, the rent will be decided by a judge, taking into account the circumstances and market price relating to the leased property and in accordance with the limit of twelve months average of CPI. Notwithstanding the parties' consensus on increase rate with respect to rent, rent for the lease agreements which are longer than five years or which will be renewed at the conclusion of the fifth year, will be determined by a judge every fifth year, taking into account the circumstances and market price relating to the leased property and in accordance with the limit of twelve months average of CPI.

Furthermore, Article 59 of the Omnibus Law amended Article 344 of the TCO for the implementation of the amendment in terms of the workplace rents wherein the lessees are merchants. Earlier, the implementation of the Article 344 of the TCO was postponed until July 1, 2020 regarding agreements where the lessees (tenants) are merchants. Pursuant to Article 59 of the Omnibus Law No. 7161, the obligation to determine the CPI for a twelve month average is now applicable for all kinds of lease agreements (including the one the lessees are merchants). The provision entered into force retroactively, is effective from January 1, 2019.

The Omnibus Law also amended paragraph 3 of Article 344 of the TCO. The article previously indicated that the lease agreements' rent determined in foreign currency for housing and workplaces may not be increased until five years had passed. Amendment on the third paragraph of Article 344 refers to the Law No. 1567 on the Protection of the Value of Turkish Currency and its secondary legislations. Article 59 of The Omnibus Law has been drafted in accordance with Communiqué No. 32 on the Protection of the Value of the Turkish Currency and 32 of the Decree on the Presidential Organization, which was published in the Official Gazette on September 12, 2018 ("Decree"). The Decree regulates restrictive principles regarding the determination of the value of Turkish currency against foreign currencies. In the last paragraph of Article 344, it is stated that "if amount subject to the lease agreement is determined as foreign currency in the agreement, without prejudice to the provisions of the Law on Protection of Value of Turkish Lira Law No 1567, the rent cannot be changed unless five years period has passed". Value of an agreement and any other payment obligation arising from the specific agreements such as lease agreements cannot be determined in foreign currencies or indexed to foreign currencies according to the Decree. Therefore, the amendment reaffirms the application of the Decree by making a reference to it.

Lastly, if there is no agreement on the rent increases to be made during 2019 for housing and workplaces or with public agreements or in case that a lower rate of increase is not determined by the parties, the rate of increase should be the CPI of 2018 as a maximum. In this regard, if the increase rate is unlawful, where the lease agreement lasts more than five years, in accordance with the foregoing amendments, the lessor will be entitled to request from the court the determination of the new rent price rate.

In conclusion, the amendments particularly concern rent increases and are apparently made in an effort to protect consumers from the volatility in the market, by changing the maximum limit of the increase rate from PPI to CPI and clarification of calculation of this benchmark through indicating the period that needs to be taken into account as twelve months.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in September 2019. A link to the full Legal Insight Quarterly may be found here

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.

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