The Turkish Grand National Assembly approved the new Turkish Code of Obligations1 (the "New TCO") on 11 January 2011 and the Law on the Enforcement and Execution Procedure of the Turkish Code of Obligations2 (the "Law on Enforcement and Execution") on 12 January 2011. Both will enter into force on 1 July 2012. Currently, two pieces of legislation regulate the lease of immovables: Law No.6570 regulates "covered" immovables within the borders of municipalities, while the current Turkish Code of Obligations (the "TCO") regulates all immovables outside the scope of Law No. 6570. The New TCO abolishes Law No: 6570 on the Lease of Immovables ("Law No. 6570"). By abolishing Law No. 6570, the New TCO regulates all lease relationships for any immovables, whether covered or not.
Article 1 of the Law on Enforcement and Execution sets forth that – with respect to those agreements (including lease agreements) already executed – the provisions of the TCO will apply to the determination of whether the agreement is binding on the parties. However, after 1 July 2012, the provisions of the New TCO will apply for issues of default, termination and dissolution arising out of such previously executed agreements.
The New TCO introduces substantial changes with respect to the termination of lease agreements. Under Article 347 of the New TCO, with respect to a lease agreement with a definite term, unless the tenant gives notice of termination at least 15 days prior to the expiration of the lease agreement's term, the lease agreement will be deemed renewed for one year with the same terms and conditions, and the lessor may not terminate the agreement based on the expiration of the lease agreement. Although this provision is the same as that under Law No. 6570, Article 347 of the New TCO further provides that at the end of the tenth extension year, the lessor may terminate the definite-term lease agreement by serving a written notice three months' prior to the expiration of each year of extension, without cause. Under lease agreements with an indefinite term, the tenant is entitled to terminate the agreement at any time, and the lessor, likewise, is entitled to terminate the agreement at any time, after the tenth year following the commencement date of the agreement, by serving prior written notice in accordance with the general provisions.
According to Provisional Article 2 of the Law on Enforcement and Execution, Article 347 of the New TCO that enables the lessor to terminate the definite term lease agreement after the expiration of the 10-year extension period will only be enforceable subject to the following transitory conditions:
- With respect to definite-term lease agreements with less than 5 years remaining before the expiration of the 10-year extension period, the lessor's termination right under Article 347 of the New TCO will be effective as of 1 July 2017; and
- With respect to definite-term lease agreements, and the 10-year extension period that has expired, the lessor's termination under Article 347 of the New TCO will be effective as of 1 July 2014.
According to the wording of Article 347 of the New TCO, we understand that the 10-year extension term will be calculated from the end of the lease term determined in the agreement upon the mutual agreement of the parties. Therefore, the initial term of the lease agreement should not be included in the calculation of the 10-year extension term. For example, if the lease agreement is executed for a term of 25 years, the 10-year extension term will start at the end of such 25 years, and the lessor will be able to terminate the agreement at the end of the 36th year.
As the New TCO has not yet come into force, the implementation of Article 347 remains unclear. Some scholars already argue that the term of the lease agreement is to be included in calculating the 10-year extension term. According to such opinion, even if the parties agree to a term of more than 10 years, the lessor may terminate the agreement at the end of the 11th year. The interpretation of the courts, especially the Court of Appeals, will thus be very important. If Article 347 is interpreted narrowly, it may be possible for lessors to terminate agreements at the end of the 10th year, even if the term of the agreement mutually agreed to by the parties calls for a longer term.
Meanwhile, the question of whether the term of the lease agreement will be included in such 10-year extension term is likely to give rise to discussions between the parties to lease agreements. In sum, while the New TCO appears to favor tenants with respect to lengthened terms, it also seems to give benefit to lessors regarding termination rights. Further, the unification of legislation on the lease of immovables is already a step forward for all parties concerned.
Footnotes
1. Law No. 6098, published in the Official Gazette dated 4 February 2011 and numbered 27836.
2. Law No. 6101, published in the Official Gazette dated 4 February 2011 and numbered 27836.
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