Turkey: Determination Of The Rental Price In Fixed-Term Residential And Roofed Workplace Lease Agreements Within The Scope Of Article 344, Paragraph 3 Of The Turkish Code Of Obligations Numbered 6098

I. INTRODUCTION

In accordance with Article 299 of the Turkish Code of Obligations numbered 6098, a "Lease Agreement" is described as a contract wherein the lessor commits to granting the use of an item or both its use and advantages to the lessee, who, in turn, agrees to pay the predetermined rental fee. This provision aims to examine the fundamental guidelines concerning the determination of rental fees in enduring lease agreements, acknowledging the fluctuating nature of rental terms in contemporary conditions.

The involved parties hold the liberty to mutually establish the rent within the lease agreement. Nevertheless, given the public nature of lease contracts, legal provisions curtail judicial involvement by imposing constraints on rent escalation rates and permitting legal action for rent determination. Presently, the prevailing high inflation in our nation may lead to disagreements concerning the initially agreed rental price, potentially resulting in disputes over time.

Article 347 of Turkish Code of Obligations No. 6098 governs the termination of lease agreements through notification. The initial paragraph of this article pertains to the conclusion of fixed-term leases for residential and roofed workplace properties. It stipulates that unless the lessee provides a minimum of fifteen days' notice before the fixed term's conclusion, the contract automatically extends for one year under the same terms. The lessor is prohibited from terminating the contract solely due to its expiration. However, post the ten-year extension period, the lessor may terminate the agreement without specifying a reason, provided a minimum of three months' notice is given before the end of each subsequent extension year. In fixed-term lease agreements, the termination right typically rests with the lessee. The lessor's ability to terminate the lease via notice only becomes viable following the ten-year extension, subject to compliance with the specified legal conditions.

Indeed, the established legal interpretation by the Court of Cassation aligns with this principle. As explicitly highlighted in a ruling, "In accordance with Article 347/1 of the Turkish Code of Obligations No. 6098, the lessor is prohibited from terminating residential and roofed workplace leases solely due to contract expiration. However, post the ten-year extension period, the lessor may terminate the contract without specifying a reason, contingent upon issuing a minimum three-month notice before the conclusion of each subsequent extension year following this period."

Furthermore, alongside the previously mentioned regulations, Article 23 of Law No. 7456, specifically addressing residential rents, stipulates: "Agreements dictating the rental price for lease periods renewed between 2/7/2023 and 1/7/2024 (inclusive of these dates) concerning residential rents remain valid if they do not surpass twenty-five percent of the previous lease year's rental price. Should the consumer price index's twelve-month average change rate in the previous lease year fall below twenty-five percent, that rate shall apply. This criterion extends to lease agreements exceeding a one-year term. Any agreements surpassing these rates are deemed invalid concerning the excessive amount. This paragraph's provision similarly extends to judgments made by the judge per the second paragraph of Article 344." The restricted legal increase rate established by Provisional Article 2 of Law No. 6098 has significantly escalated disputes in this regard.

In such scenarios, the lease arrangement might persist for several years against the lessor's wishes. However, the rental fee, constrained by inflation and legal limitations, may fall significantly short of the lessor's expectations. Consequently, determining an appropriate rental fee becomes a prominent issue. Addressing this challenge involves the redetermination of the rental price, tackled within the purview of Articles 344 and 345 of the Turkish Code of Obligations numbered 6098. The effectiveness of these articles, subject to debate regarding their adequacy in practical application, primarily relies on precedents set by the Court of Cassation.

II. BASIC PRINCIPLES REGARDING THE DETERMINATION OF RENTAL FEES IN RESIDENTIAL AND ROOFED WORKPLACE LEASES

In line with Article 344/I of the TCO, parties have the option to reach an agreement concerning the increment of the rental price in a renewed lease agreement. Specifically, the first paragraph of this provision states, "Agreements between parties pertaining to the rental price for subsequent lease periods remain valid, provided they do not surpass the rate of change in the consumer price index based on twelve-month averages from the previous lease year. This regulation is applicable even to lease agreements extending beyond one year in duration." As stipulated, these agreements are not limited to the first extension year but persist for the duration of the ongoing lease relationship between the involved parties.

According to Art. 344/I of the TCO, a cap has been set on the increase in the rental price. It specifies that agreements between parties concerning the rental price increase will only be valid if they do not surpass the rate of change in the consumer price index based on twelve-month averages from the previous lease year. Moreover, with the amendment introduced by Article 4 of Law No. 7409, agreements governing rental prices for lease periods renewed between 2/7/2023 and 1/7/2024 (inclusive of these dates) for residential leases are restricted to be valid only if they do not exceed twenty-five percent of the rental price from the previous lease year. Consequently, Art. 344/f. 1 of the TCO will notably apply today, particularly concerning roofed workplace leases.

Article 344 f. 3 of the TCO delineates that in lease agreements extending beyond five years or renewed after five years and subsequently at the end of each subsequent five-year span, the determination of rent for the new lease term will be adjudicated by the judge in an equitable manner. This process, technically termed a rent determination lawsuit, entails the judge's innovative decision to establish a fair rental price, considering factors like the producer price index's increase rate, the leased property's condition, and comparable rental rates. This provision alleviates the lessor's obligation to accept a rent below market standards by ensuring that the rent aligns with prevailing market rates during specific intervals, structured in five-year periods. Article 344 f. 3 of the TCO introduces several circumstances to consider in determining the fair rental price: expiration of the initial lease agreement, extensions in one-year periods under Article 347 of the TCO, and the passage of five lease years since the agreement's inception. For instance, if an initial one-year lease agreement extended in one-year increments as per Article 347 of the TCO and, after the expiration of four extension years, a total of five lease years has transpired since the agreement's commencement, the rent for the sixth lease year (fifth extension period) may be established in accordance with Article 344 f. 3 of the TCO.

III. THE STATUTE OF LIMITATIONS FOR INITIATING LEGAL PROCEDDINGS AND THE IMPACT OF THE VERDICT

Article 345 of the TCO specifies the conditions for filing a lawsuit to determine the rent. This lawsuit can be initiated at any time. However, its timing impacts its binding effect on the lessee. If the lawsuit is filed either within thirty days before the start of the new lease period or within the subsequent new lease period's duration, and the lessor has provided written notification to the lessee about an impending rent increase within this period, the court's determined rent becomes binding for the lessee from the commencement of this new lease period. Moreover, if the lease agreement includes a provision about a rent increase for the new lease period, any court-determined rent from a lawsuit filed until the end of this new lease period will also be valid from the beginning of this new period. The timing of filing the lawsuit depends on whether an increase clause exists in the lease agreement. If such a clause is present, the court-determined rent from a lawsuit filed until the new lease period's end will apply from the start of this new period.

V. CONCLUSION

Within the scope of Article 344, paragraph 3 of TCO No. 6098, in cases where lease agreements extend beyond five years or are renewed after a five-year period, if the lease persists against the lessor's wishes for an extended duration, a rent determination lawsuit can be initiated. Through this legal action, the court has the authority to re-evaluate and establish the rent based on a fair assessment of its value.

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.