The Turkish Code of Obligations ("TCO") was published in the Official Gazette on 04/02/2011 and will be effective on 01/07/2012. Some important issues regarding real estate leases were amended from the prior legislation.

The TCO annuls the prior Code of Obligations ("CO") and the "Code of the Lease of Immovables". In the new TCO, articles relating to leases are addressed under the title of "Private Debt Obligations". The definition of what constitutes a lease agreement, the duration of leases, the obligation of the lessor, obligations of the lessee, private conditions, lease termination, return of the leased property, and the lessor's right of lien are regulated under the "General Provisions".

The TCO regulates the leasing of all residential and commercial space (under-roof) under article 339 without making any distinction with respect to the place of the leased property. Movables (personal property and non-fixtures) left in the possession of the lessee will be subject to the same provisions. In addition, the leases of real property for a term of 6 months or less are not within the scope of the TCO. Lease agreements made by the Turkish government will be subject to the same provisions as private owners and tenants.

TCO article 340 addresses "connected agreements" with the aim of protecting the lessee which was not regulated by the previous code. The TCO provides that the formation or extension of residential and commercial leases will not be connected to any obligation which operates against the interests of the lessee and is not in directly related to the lease agreement. According to the TCO, such agreements connected with leases will be nullified.

The section of the TCO entitled "The Cost of Usage" in article 341 regulates that the costs such as heating, lighting, and water. It provides that these costs will be borne by the lessee unless it is stated otherwise in the lease, or is contrary to local practice. It is now obligatory to submit a copy of the invoice or receipt evidencing such costs to the other party, upon their request.

Article 342 in the TCO provides a new tenant-friendly protocol, regarding what is usually known as "key money" because lessor have been requiring additional "deposits" or other guarantees that are not within the scope of the rental. In this respect, requesting a guarantee is permissible, but the code restricts the extent and nature of such requests. The TCO provides that the amount of a guarantee cannot exceed three months' rent. If such guarantee is given in cash, it must be deposited into a bank account and cannot be withdrawn from the bank without the prior approval of the lessee. If the guarantee is a negotiable instrument, it must be deposited with a bank, and the bank will not return it unless both parties approve the return, or an execution proceeding or a court award becomes final and binding upon the parties. The bank may return the guarantee upon the request of the lessee if the lessor informs the bank in writing within three months following the termination of the lease agreement that it has initiated a lawsuit or an execution proceeding regarding the lease. This provision is tenant-friendly to the extreme.

Article 343 of the TCO provides that amendments against the interests of the lessee, with the exception of the amount of rent, cannot occur to the lease after final signature. However, by providing the opportunity to adjust the rent at the renewal of the lease, an exception is made to the restriction of amendments against the interests of the lessee.

Article 344 of the TCO covers the determination of the rent. A rent increase rate is only acceptable if it doesn't exceed the "producer price index". In the absence of any provision within the lease relating to a rent increase, a judge will determine the rent for the new lease period. The judge is instructed to take into consideration the condition of the leased property, subject to the above-stated requirement that the producer price index will limit the maximum increase allowed. On the other hand, the article also states that the judge will determine the rent increase (whether or not there is an agreement between the parties on this subject) by taking into consideration the producer price index, the condition of the leased property, comparable rentals, and equity principles if the lease period is more than five years or the lease is renewed after five years at every fifth anniversary. However, in this case, the producer price index is not accepted as the upper limit for a rent increase.

If the rent is fixed in a foreign currency by the parties, article 344/4 of the TCO states that there is a limitation on any rental increase. Accordingly, no amendment may be made as to the rent during the first five years. The increased rent will be determined by taking into consideration the monetary value of the foreign currency after five years have elapsed.

In article 345 of the TCO regulates the limitation period and the impact of any court award pursuant to a lawsuit initiated for determining the rent. It is accepted that the lawsuit for determining the rent may be initiated at any time. However, the new rent determined by the court will bind the lessee beginning from the new lease period provided that the lawsuit is initiated at least 30 days before the new lease period, or if the lessor has given notice with regard to an increase in rent in writing to the lessee within such period, it may be initiated until the end of the new lease period. If there is an article in the lease agreement stipulating a rent increase for the new lease period, the rent determined by the court in a lawsuit initiated before the end of the new lease period will also be valid beginning with the new lease period.

Article 346 of the TCO gives the tenant new protection that is called "Restriction of Provisions Against the Lessee". Tenants cannot be required to make any payment to the landlord other than rent and ancillary costs, and agreements that include penalties or acceleration clauses in the event of a failure to timely pay the rent (which were commonplace) are now void.

The termination of a commercial or residential lease is addressed in Article 347. If the lessee has not given notice at least fifteen days prior to the end of an agreement with a definite term, then the agreement is deemed to be renewed for a period of one year upon the same terms and conditions. In general, the lessor may not terminate the lease based on the fact that the original term of the agreement has expired. The lessor may only terminate a lease for any reason after ten years of renewals provided that the lessor has given notice to the tenant at least three months prior to the end of the final renewal year. Lease agreements with indefinite terms may be terminated by the lessee at any time, and by the lessor, after ten years, subject to the termination notice provisions required in the lease. The law requires that the termination notice must be in writing.

Notwithstanding the termination provisions discussed immediately above, the termination of leases of family residences are regulated under article 349. This provision states that the lessee is not entitled to terminate the lease agreement for their home without the consent of the

spouse. However, if it is not possible to obtain such consent or the spouse refuses to give consent without a justifiable reason, spouse who wishes to terminate the lease may ask a court to render a decision on the issue. If both spouses are parties to the lease, the lessor must inform both of them respectively of any termination notice and payment terms regarding the termination notice.

Acceptable justification for the termination of a lease is different for lessees and lessors. The termination by the lessor is regulated under article 350 of the TCO "Requirement, Re-construction and Development" and by under article 351 "Requirement of the New Owner". Termination by a lessee is covered under article 352 of the TCO. Pursuant to this article, provided that some other conditions are also met, the lessee may terminate due to: (i) an "evacuation commitment"; (ii) two justified notices; and (iii) the lessee or his/her spouse having another residence within the same municipal borders

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.