The entry into force of certain provisions (i.e. Articles 323, 325, 331, 340, 342, 343, 344, 346 and 354) of the Turkish Code of Obligations numbered 6098 ("TCO") had been postponed for workplace leases of merchants and legal entities until July 1, 2020 with the Provisional Article 2 of the Law No. 6217 on the Amendment of Certain Laws for the Acceleration of Judicial Services ("Law No. 6217").
In cases where TCO did not have a provision regarding the issue at hand, relevant provisions of the lease agreement and in case there is no provision on the agreement, abrogated Code of Obligations numbered 818 ("aCO") and with aCO's reference, Law No. 6570 on Real Estate Leases ("Law No. 6570") were applicable.
As of July 1, 2020, with the entry into force of 9 postponed articles, the analysed articles below will govern the workplace leases of merchants and legal entities.
- Explanations and Evaluations regarding Postponed Articles
1. Assignment of lease relationship (Article 323)
There was no regulation regarding the assignment of lease agreements in aCO which was applicable in case there is no provision in the lease agreement. Therefore, parties could agree on such a provision preventing transfer of the lease agreement with their free will, and the lessor could avoid providing his consent for transfer of the lease agreement.
As of July 1, 2020, lessors will be bound with Article 323 of TCO, and they will be obligated to provide their consent regarding transfer of the workplace lease agreements unless there is a valid/just cause. Also, as of July 1, 2020, such regulations prohibiting the transfer of the workplace lease agreement will be deemed to be void. However, in case of transfer of the lease agreement, former lessee transferring the agreement, who is deemed to be relieved from his obligations against the lessor, shall be severally liable with the lessee taking over the lease agreement until the end of the lease agreement and yet for maximum 2 year period in any case.
2. Return of the leased property before the term of the contract (Article 325)
In accordance with Article 325 of TCO, in case the leased property is returned before the term of the contract, the lease agreement shall, nevertheless, continue for a reasonable time in which the leased property may be leased under similar conditions. However, the Article provides an alternative way of early termination in case the lessee finds a new lessee who is capable of fulfilling the obligations under the lease agreement and is willing to duly take over the lease relationship. In such a case, the lessee's obligations under the lease agreement shall be deemed to terminate immediately.
Prior to Article 325 of TCO, there was no clause regarding return of the leased property before the term of the contract in aCO. However, with the precedents of High Court of Appeals, liability of lessee had been limited for a reasonable period of time in which the property may be leased under the same circumstances.
3. Extraordinary termination based on substantial grounds (Article 331)
Even though Article 331 of TCO is postponed until July 1, 2020, since aCO contains a similar clause (Article 264 of aCO), even before Article 331 of TCO came into force, parties could terminate the lease agreement based on probable cause for fixed-term workplace lease agreements. As of July 1, 2020, the workplace leases for indefinite terms may also be terminated based on probable cause making the continuation of the rental relationship unbearable based on Article 331 of TCO, with a slight difference. As per Article 264 of aCO, if the lease period was more than one year, the compensation amount to be paid in case of the termination by the party terminating the agreement could not be less than the six-month rental price. However, in accordance with Article 331 of TCO, the amount of indemnity will be determined by the judge considering the specifics of the case.
4. Prohibition of linked agreement (Article 340)
There was no provision in aCO which corresponds to Article 340 of TCO. Pursuant to this article, if formation or continuation of a lease agreement pertaining to residential and workplace leases is linked to assumption of an obligation that is not related to the use of the leased property and not in the interest of the lessee, such agreement linked to the lease will be deemed invalid.
5. Security deposit by the lessee (Article 342)
As per Article 323 of TCO, which will be effective only on the lease agreements to be concluded after July 1, 2020, the deposit amount cannot exceed a "three-month lease amount". Furthermore, the deposit amount shall be deposited to a bank account, not to be withdrawn without the lessor's consent. The bank shall return the deposit only on the grounds of the parties' mutual consent, finalization of enforcement proceedings or a final court decision.
6. Prohibition of changes to the detriment of the lessee (Article 343)
Article 343 of TCO is a reflection of the principle of interpretation in favour of the lessee and provides a momentous protection for the lessee. Article 343 stipulates that the lease agreements shall not be amended to the detriment of the lessee, except for determination of the lease amount. By way of example, condensation of the payment terms or increase of the lessee's maintenance obligations are prohibited within the scope of Article 343.
Even though this article is listed among the postponed articles for workplace leases of merchants and legal entities, Article 9 of Law No. 6570 corresponds to this provision; therefore, entry into force of this article has not brought any changes in practice.
7. Determination of the rent amount (Article 344)
The first sub-paragraph of the Article 344 of TCO provides that periodical increase rate designated by mutual agreement of the parties cannot exceed the 12-month average of the consumer price index changes of the previous rental year.
As per sub-paragraph 2 of Article 344, in case parties could not agree on a periodical increase rate, the court shall determine an equitable increase rate not exceeding 12-month average of the consumer price index changes of the previous rental year by considering the consumer price index of previous year and the conditions of the leased property.
Regardless of being agreed on a periodical increase rate, for the lease agreements longer than 5 years or renewed after the fifth year, the court shall determine the rent considering the 12-month average of the consumer price index changes of the previous rental year, conditions of the leased property and rents of similar properties. It should be highlighted that, unlike sub-paragraph 2 of this article, the 12-month average of the consumer price index changes of the previous rental year is not binding for the court in determination of the rent, but only a criteria for such determination.
The gist of this legislation is to determine the rent amount, which falls behind the market value, in a reasonable way. The sub-paragraph also clearly states that there is no need to place an article about this in the lease agreement as this article shall still be implemented regardless of the agreement including such a regulation. Once the rent amount is determined by the court as per this sub-paragraph, the rent will be increased in following 4 years as per the first and second sub-paragraphs of this article and then a court determination as to the rent can again be requested for the fifth year.
Finally, the last sub-paragraph indicates that in case the rent has been determined in foreign currency, i.e. any currency other than Turkish Lira, then the rent cannot annually increase, unless 5 years pass, preserving the occasions where the adaptation of the agreement is a necessity as per Article 138 of TCO. However, while determining the rent in foreign currency, the Law on the Protection of the Value of Turkish Currency No. 1567 and the Communiqué on the Decree No. 32 on the Protection of the Value of Turkish Currency should be certainly taken into account since it has been prohibited to determine the rent in or indexed to foreign currency subject to specific conditions stipulated in the Decree. It should also be noted that the new rent can be determined pursuant to sub-paragraph 3 of this article yet the newly determined rent should be in Turkish Lira, unless determination in foreign currency is agreed by both parties, as per the settled practice of the High Court of Appeals.
8. Prohibition of regulation to the detriment of the lessee (Article 346)
As per Article 346 of TCO, the only financial obligation that the lessee can undertake is acknowledged as (i) the rent and (ii) secondary expenses, which was also an embraced practice by Article 16 of Law No. 6570. That said, Article 346 of TCO, effective as of July 1, 2020, widened the scope of this principle by forbidding penalty and maturity clauses to the detriment of the lessee.
9. Limitedness of the grounds of action (Article 354)
In accordance with Article 354 of TCO the lessor is not entitled to file a lawsuit against the lessee, claiming the eviction of the leased property, based on any reason other than the ones listed under Articles 350 - 352 of TCO. Although this article has been postponed until July 1, 2020 to be implemented on lease agreements of merchants and legal entities subjecting work places, Article 8 of Law No. 6570 covers the same principle and considers opposite agreements invalid. Therefore, the entry in force of this article does not change the present practice.
Entry into force of these articles evaluated under this article will have considerable effect on workplace leases of merchants and legal entities. That said, due to application of aCO and Law No. 6570 with the reference of Law No. 6217 and aCO respectively, some of the current practices will continue. However, taking into consideration that some of the postponed articles did not have an equivalent in aCO or Law No. 6570, entry into force of these articles will bring along various theoretical and practical questions. The concrete application of these provisions will be determined through the precedents of the High Court of Appeals.
This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in September 2020. 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.