A New Period in Workplace Leases the Articles of the Turkish Obligations Code, Which will Enter into Force on 01.07.2020

The Turkish Obligations Code numbered 6098 (the “TOC”) entered into force on 01.07.2012. However, under the temporary article 2 of the Law numbered 6217 that was published shortly after the publication of the TOC in the Official Gazette dated 04/02/2011, the effectiveness of the nine TOC articles protecting the lessees in the workplace lease agreements where the lessee is a merchant or a legal person were postponed for a period of eight years.  

Until expiration of the postponement period, the provisions (if any) in the lease agreements were primarily applied in respect of the matters regulated by the articles included in the scope of the postponement, by virtue of the freedom of contract; and in case the agreement does not contain a relevant provision, the provisions of the repealed Obligations Code numbered 818 were taken into consideration.  

The TOC articles 323, 325, 331, 340, 342, 343, 344, 346 and 354, which are of particular concern to the lessees and the lessors, will enter into force on 01.07.2020, and these articles shall apply to the workplace leases where lessee is a merchant or a legal person. Accordingly, this newsletter carries out an evaluation on the scope of the articles that will enter into force, their effects on the agreements and on what they will change in the commercial life.  

A quick overview of the articles that will enter into force

Firstly, we would like to review the articles briefly:  

• TOC art. 323 Assignment of the lease
• TOC art. 325 Return of the leased property before the end of the lease
• TOC art. 331 Termination based on a probable cause
• TOC art. 340 Linked agreement prohibition
• TOC art. 342 Security deposits
• TOC art. 343 Rent
• TOC art. 344 Rent / Determination of rent
• TOC art. 346 Prohibition as to the regulation to the detriment of the lessee
• TOC art. 354 Limitedness of the causes of action

Since some of these articles are already applicable, they are not expected to cause an innovation. For example, since the prohibition as to the regulation to detriment of the lessee and the limitedness of the causes of action are also contained in the articles 343 and 354 of the repealed Obligations Code numbered 818, respectively; they are not new legal arrangements. Besides, since the article “return of the leased property before the end of the lease” (TOC art. 325) is in the same direction with the established jurisprudences of the Supreme Court of Appeals, we are of the opinion that the article will not make difference in practice.

The legal arrangements that will cause changes are the TOC art. 323 about the assignment of the lease, the TOC art. 340 about the linked agreement prohibition, the TOC art. 342 containing innovations about delivery of security deposit by the lessee, the TOC art. 344 about the determination of rent, the TOC art. 346 which deems penal and acceleration clauses invalid and the TOC art. 331 which contains innovation as to the compensation amount in the termination of the agreement based on a probable cause. It is of quite importance to analyze the scope of these articles and to carry out an evaluation on the effects of these articles.  

TOC art. 323 Assignment of the lease

The provisions of the article are as follows:

“The lessee is not entitled to assign the lease to a third party, unless the lessee obtains the relevant written consent from the lessor. In workplace leases, the lessor shall not abstain from granting this consent unless there is a justifiable reason.  

The person to whom the lease has been assigned under the lessor’s written consent shall become a party to the lease agreement in substitution for the lessee, and the assignor lessee shall be relieved of his obligations to the lessor.  

In workplace leases, the assignor lessee shall be responsible and liable severally with the assignee by the end of the lease agreement and for a maximum period of two years.”

Assignment of the agreement represents a consensus which is reached by and among the agreement assignee, assignor and the other party to the assigned agreement and by which the assignor’s all the rights and obligations arising from the agreement, including the assignor’s capacity as being a party to the agreement, are assigned to the assignee.  

Pursuant to the TOC, in assigning a lease agreement, a limitation is introduced against the principle “freedom of form” and thus, assignment of the lease is made conditional upon the lessor’s written approval. Pursuant to the article 323 that will enter into force as of 01.07.2020, the lessor shall no longer abstain from granting approval for the assignment of the lease, without indicating a justifiable reason.  

In case the lessor does not grant consent for the assignment and if the lessee is of the opinion that the lessor does not rest on a justifiable reason, the lessee may assert this circumstance through litigation. The judge shall determine whether or not there is a justifiable reason, depending on the specifics of the concrete case.

However, since the article regulates expressly that the lessee will assign the lease provided that the lessee has obtained the relevant consent from the lessor, replacement of the lessor is not included in the scope of the article. Furthermore, as per TOC art. 323, in workplace leases, the assignor lessee shall be responsible and liable severally with the assignee lessee by the end of the lease agreement and for a maximum period of two years.

TOC art. 325 Return of the leased property before the end of the lease

 The provisions of the article are as follows:

“In case lessee returns the leased property without observing the agreement term or the termination period, the lessee’s obligations arising from the lease agreement shall resume for a reasonable period of time in which the property may be leased under similar conditions. If, prior to the expiration of this period, the lessee finds a new lessee that has the capacity to pay the rent, is ready to take over the lease and that would reasonably be accepted as a lessee by the lessor, the lessee’s obligations arising from the lease agreement shall discontinue.  

The lessor is obliged to deduct from the rent the expenses he has saved and the benefits which he has obtained, or intentionally failed to obtain, from using the leased property in another way.”

If the lessee terminates the agreement unilaterally prior to the expiration date of the agreement or without complying with the notice periods (at least 3 months before the end of each 6 months’ period), the lessee shall continue to be responsible and liable for his obligations arising from the lease agreement, for a reasonable period of time in which the property may be leased under similar conditions. The Code does not expressly prescribe the scope of “a reasonable period of time”; nonetheless, the established jurisprudences of the Supreme Court of Appeals adopt this period of time as 3 months.

However, the lessor shall be obliged to deduct from the rent the expenses he has saved and the benefits which he has obtained, or intentionally failed to obtain, from using the leased property in another way.

In spite of the fact that the article is not set out by the repealed Obligations Code numbered 818 and the repealed Law numbered 6570 on Real Estate Leases, the prescribed principles were also being applied previously within the framework of the Supreme Court decisions.   

TOC art. 331 Termination based on a probable cause

The provisions of the article are as follows:

“In case there are significant reasons which make the continuation of the lease unbearable for either party, such party may terminate the agreement at any time by complying with the legal termination notice period.

The judge shall, by taking the circumstances and conditions into consideration, adjudge for the monetary consequences of the notice for termination based on a probable cause.”

As this was the case prior to 01.07.2020; if the continuation of the lease becomes unbearable for either party, the lease agreement may be terminated provided that the legal notice periods (at least 3 months before the end of each 6 months’ period) are observed.

However, differently from the above article; the party that terminated the agreement in the period of the repealed Code was obliged to pay a compensation. In those agreements where the lease term is longer than one year, the party that terminated the agreement in the mentioned period was obliged to pay this compensation in such an amount not less than the six months’ rent. However, as per the new article, the judge shall assess the amount of this compensation and whether or not a significant reason has taken place. It can also be possible not to pay such compensation, given the concrete dispute. Differently from the repealed statutory article, the lower limit has been revoked in determining the amount of the compensation, and the discretionary power is conferred upon the judge in this regard.

The party that wishes to terminate the agreement should not have a fault in the emergence of the significant reason causing unbearableness under the agreement. A significant reason may either be objective such as economic crisis, earthquake, etc., or subjective i.e. a significant reason that takes place on the part of either party, such as insolvency, bankruptcy, etc.

In practice, in the articles prescribing the cases of termination in workplace lease agreements, the amount of compensation arising from the termination is usually made subject to a penalty for breach of the agreement or it is stated that the amount of the loss shall be set off against the amount of the security deposit. Even though such articles are contained in the agreements; the judge shall, in case of a dispute, determine the compensation amount and whether or not there is an unbearableness in the concrete case, pursuant to the article 331 of the TOC.

TOC art. 340 Linked agreement prohibition

The provision of the article is as follows:

“If, in the lease agreements for houses or roofed workplaces, the establishment or survival of the lease agreement is made subject to burdening the lessee with a debt which is not directly in relation to use of the leased property, without the lessee’s benefit; such agreement linked to the lease shall be invalid.”

In the case that another agreement is concluded in addition to the lease agreement and that the establishment or survival of the lease agreement is made subject to such agreement, the mentioned agreement is qualified as a linked agreement.  

As per the article 340 of the TOC, for the establishment or survival of a lease agreement for a house or a roofed workplace, the conclusion of an agreement, which causes the lessee to be burdened with debt independently of the use of the leased property, shall be invalid. Prior to the effective date of the article 340 of the TOC, pursuant to the principle “freedom of contract”, it was possible to conclude linked agreements which are not directly related to the lease agreement. However, if the conclusion of linked agreements is prescribed by the lease agreements signed as of 01.07.2020, such linked agreements shall not be deemed to be valid.

The aim of the mentioned legal arrangement is to prevent the lessor from exploiting, in bad faith, the lessee’s need of concluding the lease agreement and thus, from burdening the lessee with a debt other than the obligations arising from the lease agreement. In case of a dispute between the parties in this regard, the court shall investigate whether or not a provision, which includes a linked condition contained in the lease agreement, and/or a linked agreement is imposed on the lessee along with the lease agreement.

Pursuant to this new legal arrangement, for instance, the conclusion of the lease agreement shall not be made subject to the conclusion of a license agreement or subject to a different service relationship, independent from the lease relationship between the lessee and the lessor.   

TOC art. 342 Security deposits

The provisions of the article are as follows:

“In the lease agreements for houses or roofed workplaces, if the obligation to deliver a security deposit is imposed on the lessee under the agreement, the amount of such security deposit shall not exceed the amount of the three months’ rent.  

If it is agreed that cash or a negotiable instrument shall be delivered as security deposit, the lessee shall deliver the negotiable instrument to a bank as the depository institution or transfer the cash to a forward savings account, provided that it is not withdrawn without the lessor’s approval. The bank may return the security deposit only upon both parties’ consent or upon the enforcement proceedings become final or on the basis of a final court decision.  

In case the lessor does not inform the bank, in writing within three months following the termination of the lease agreement, that the lessor has filed a lawsuit or initiated enforcement or bankruptcy proceedings against the lessee in relation to the lease agreement, the bank is obliged to return the security deposit upon the lessee’s request.”

Security deposit can be qualified as usually an amount of cash or a negotiable instrument, which is delivered to the lessor by the lessee at the commencement of the lease agreement and aims to constitute a collateral against possible losses and damages that may be caused against the leased property by the lessee and which does not, other than that, have a function such as provision of an economic benefit to the lessor.  

The repealed Obligations Code numbered 818 and the repealed Law numbered 6570 on Real Estate Leases do not contain a provision for delivery of a security deposit by the lessee. However, in practice, almost in all lease relationships, the lessees deliver a security deposit, and this matter is also addressed in the Supreme Court decisions.

The security deposits, delivered under workplace leases, had been determined as the parties wished, within the freedom of contract. However, with the article that will enter into force on 01.07.2020, such security will henceforth have a limitation and a change will occur in the way that the security is deposited and in the conditions for return of the security.

As of 01.07.2020:

• The amount of the security deposit shall not exceed the amount of the 3 months’ rent;
• In cases where the security deposit is delivered in cash or as a negotiable instrument, the amount shall be transferred to a forward savings account or the negotiable instrument shall be delivered to a bank as the depository institution;
• The bank shall not return these security deposit unless both parties grant the relevant consent or unless the enforcement proceedings become final or unless there is a final court decision;
• Unless the lessor informs the bank, in writing within 3 months following the termination of the lease agreement, that the lessor has filed a lawsuit or initiated enforcement proceedings arising from the lease agreement against the lessee, the bank shall be obliged to return the security deposit to the lessee upon the lessee’s request.

However, there are different opinions about the scope of and the field of application pertaining to the mentioned article. While it is obvious that the provisions of the article shall apply in cases where the security deposit is delivered in cash or as a negotiable instrument; it is, however, predominantly opined that the provisions of the article 342 in the TOC shall not apply in cases where the parties agree that any other securities, such as surety, pledge, letter of guarantee, shall be provided[1].

The wording “three months’ rent”, prescribed by the provision, is also debatable. There are various comments about whether or not the concept of rent includes subsidiary costs.  According to the majority opinion, a monthly rent shall be taken basis, without inclusion of subsidiary costs[2]. In our opinion, the judicial decisions and the developments in practice should be monitored and followed in order to reach a conclusion within this context.

TOC art. 343 Rent / In general

The provision of the article is as follows:

“A lease agreement shall not be amended or modified to the detriment of the lessee, other than determination of the rent.”

In a lease agreement, no arrangement shall be made to the detriment of the lessee, other than determination of the rent. Since the mentioned article is also accepted prior to 01.07.2020 in the established practice, the article will not create a change in practice.

TOC art. 344 Rent / Determination of rent

The provisions of the article are as follows:

“The parties’ consensus on the rent to be applicable for the renewed lease periods shall be valid, provided that it does not exceed the rate of change depending on the twelve months’ averages in the consumer price index within the preceding lease year. This rule shall also apply to the lease agreements with a term longer than one year.

In case the parties have not reached a consensus on this matter, the judge shall determine the rent in accordance with the principles of equity by taking into consideration the condition of the leased property, provided that it does not exceed the rate of change depending on the twelve months’ averages in the consumer price index of the preceding lease year.

Regardless of whether the parties have reached a consensus on this matter; in the lease agreements with a term longer than five years or which are renewed after five years, and at the end of each five years thereafter, the judge shall determine the rent to be applicable in the new lease year, in compliance with the principles of equity by taking into consideration the rate of change depending on the twelve months’ averages in the consumer price index, the condition of the leased property and the precedent rents. The rent, determined by this way in the lease year after each five years, may be revised in accordance with the principles mentioned in the preceding paragraphs.

If the rent is agreed in a foreign currency in the lease agreement, the rent shall not be revised unless five years have elapsed, without prejudice to the provisions of the Law dated 20/2/1930 and numbered 1567 on the Protection of Value of Turkish Currency. However, the provisions of the article 138, entitled “Extreme difficulty of performance”, in this Code are reserved. In determining the rent after five years have elapsed, the provisions of the third paragraph shall apply by also taking into consideration the changes in the value of the foreign currency.”

The rent increase to be applicable in the new lease periods shall not exceed the rate of change depending on the 12 months’ averages in the consumer price index within the preceding lease year. In the lease agreement, also in cases where the parties do not reach a consensus on any rate of increase, the judge shall determine a rate of increase, provided that it does not exceed the mentioned rate. Thus, efforts are made in order to prevent exorbitant rent increases from which the lessees frequently suffer in practice.

Nonetheless, if the rent is determined in a foreign currency, the rent shall not be revised unless the lease term exceeds 5 years. However, this is without prejudice to the provisions of the Law numbered 1567 on the Protection of Value of Turkish Currency, which introduces restrictions in respect of the agreements on foreign currency.  

Furthermore, in case of occurrence of the circumstances which may be experienced in the rents determined in foreign currency and change the balancing in the agreement substantially to the detriment of the lessee, the provisions of “Extreme Difficulty of Performance” may also apply as regulated by the article 138 of the TOC.

Even if the agreements signed prior to 01.07.2020 regulate a rent increase exceeding the rate of increase specified by the article 344 of the TOC, the provisions of the article 344 shall apply since they are mandatory provisions, and the relevant provision contained in the agreement shall be deemed to be invalid.

TOC art. 346 Prohibition as to the regulation to the detriment of the lessee

The provisions of the article are as follows:

“Other than the obligation to pay the rent and subsidiary costs, no payment obligation shall be imposed on the lessee. In particular, the agreements stating that a penalty for breach of the agreement shall be paid or the rents for the subsequent years shall be become due and payable in case the rent is not paid in a timely manner are invalid.”

With the article that will enter into force, no payment obligation, other the obligation to pay the rent and subsidiary costs, shall be imposed on the lessees of houses and roofed workplaces; and if it is agreed that a penalty for breach of the agreement shall be paid or the subsequent rents shall become due and payable in case the rent is not paid in a timely manner, such agreement shall be deemed to be invalid.  

Effective until 01.07.2020 as from the effective date of the TOC, the clauses, e.g. penalty for breach of the agreement, acceleration, etc., contained in the agreements were applied deeming that they are valid.

In practice, it is observed that many lease agreements for workplaces contain clauses stating that a penalty for breach of the agreement shall be paid or the rents for the following years shall become due and payable in case of a delay in the payment of the rent. With the new article that will enter into force, these provisions shall remain invalid. We are of the opinion that, for the lessors who wish to secure themselves, an additional protocol may be concluded with the lessees, which additional protocol revokes the penalty for breach of the agreement and determines a lump sum compensation.

Besides, according to some of the opinions in the doctrine, which opinions are however debatable, a penalty for breach of the agreement may be prescribed, to be applicable to the other cases of breach of the agreement, with the exception of the case that the rent is not paid in due time[3]; and according to the other opinions in the doctrine, no payment obligation, other than the obligation to pay the rent and subsidiary costs, shall be imposed on the lessees, in other words, the penal clauses shall become null and void. Accordingly, we are of the opinion that the practice will become clear by means of the jurisprudences of the Supreme Court of Appeals.

TOC art. 354 Limitedness of the causes of action

The provision of the article is as follows:

“The provisions regarding termination of a lease agreement through litigation shall not be amended or modified to the detriment of the lessee.”

Accordingly, lease agreements may be terminated only in case of existence of the causes regulated by the articles 350, 351 and 352 of the TOC. As of 01.07.2020; lease agreements may not be terminated through litigation, in the absence of the causes listed on a numerus clausus basis by the articles referred to above.

The articles referred to above regulate the following causes due to which the lease agreement may be terminated through litigation:

• The lessor’s need, reconstruction and restoration
• The new owner’s need
• Due to the causes originating from the lessee

To analyze the articles in detail, the provisions of the articles are as follows:

“Need, reconstruction and restoration

ARTICLE 350- The lessor may terminate the lease agreement by filing a lawsuit, for the lease agreements of indefinite duration, within one month starting from the date to be determined by complying with the periods prescribed for the notice of termination and with the termination period in accordance with the lease-related general provisions, and for the fixed term lease agreements, at the end of the term, if:   

1. the lessor is under the necessity to use the lease property as a dwelling or a workplace for himself, for his spouse, for his descendants, for his lineal ancestors or for other individuals namely his dependants as required by the laws,   

2. it is necessary to carry out substantial alternation, enlargement or repair works for the reconstruction or restoration of the leased property, and it is impossible to use the leased property during these works.”

“The new owner’s need

ARTICLE 351- If the person, who subsequently acquired a leased property, has to occupy the leased property due to the need of house or workplace for himself, for his spouse, for his descendants, for his lineal ancestors or for other individuals namely his dependants as required by the laws, this person may terminate the lease agreement by means of a lawsuit that he shall file six months later, provided that this person notifies the lessee of this circumstance in writing within one month of the date of acquisition of the leased property.

The person, who subsequently acquired the leased property, may optionally exercise his right to terminate the agreement due to need, by means of a lawsuit that he shall file within one month as from the expiration of the agreement.”

“Due to the causes originating from the lessee

ARTICLE 352- If the lessee has not evacuated the leased property although the lessee has undertaken in writing towards the lessor to evacuate the leased property on a certain date, after the handover of the leased property; the lessor may terminate the lease agreement by filing a lawsuit or initiating enforcement proceedings within one month starting from that date.

If the lessee has caused to have been served upon him two written justifiable notices by the reason that the lessee has not paid the rent within a period of one lease year or exceeding one lease year in the lease agreements with a term of one year or longer than one year; or within the lease term in the lease agreements with a term shorter than one year, the lessor may terminate the lease agreement through litigation, within one month starting from the end of the lease term or the end of the lease year that the notices have been made in the leases with a term longer than one year.

In case the lessee or his spouse with whom the lessee cohabitates has a house convenient for residing, in the municipal borders of the same district or town, and if the lessor is not aware of this fact at the time of conclusion of the lease agreement, the lessor may terminate the agreement through litigation, within one month starting from the completion of the lease year.”

Summary and Conclusion

In brief, as of 01.07.2020, many new legal arrangements will enter into force for workplace lease agreements and particularly, the legal arrangements:  

• stating that the lessor shall not, without a justifiable reason, abstain from granting approval for the assignment of the lease;
• stating that an agreement, independent from the lease relationship, shall not be laid down as a condition for the establishment or survival of this relationship;
• stating that the amount of the security deposit which will be received shall not exceed the amount of the 3 months’ rent and that, in case the security deposit is delivered in cash or as a negotiable instrument, it shall be kept at a bank as the depository institution; 
• setting forth the limitation of the increase that will be made in the rent;
• stating that the penal and acceleration clauses related to nonpayment of the rent in due time shall be invalid and that any payment obligation, other the obligation to pay the rent and subsidiary costs, shall not be imposed on the lessees;
• stating that, in case of termination of the agreement based on a probable cause, the judge shall assess the amount of the compensation payable by the terminating party and the existence of the probable cause.

After the articles, we have analyzed in our newsletter, enter into force, it is obvious that many changes will take place in workplace lease agreements.

The leases for large workplaces and particularly the leases for shopping centers will be affected by the new legal arrangements. Therefore, the articles that will enter into force should be evaluated within the scope of concrete lease relationships.  

There are various opinions about the scope of and the field of application pertaining to the new articles that will enter into force. Within this context, it is of great importance to monitor and follow the practice as well as the judicial decisions rendered consequently.

Reference:

[1] KONUT VE ÇATILI İŞYERİ KİRASI SÖZLEŞMELERİNDE KİRACININ GÜVENCE (DEPOZİTO) VERME BORCU (THE LESSEE’S OBLIGATION TO DELIVER SECURITY (DEPOSIT) IN LEASE AGREEMENTS FOR HOUSES OR ROOFED WORKPLACES), Assoc. Prof. Dr. Murat Aydoğdu, pg.8, pg.38 https://hukuk.deu.edu.tr/dosyalar/dergiler/dergimiz-14-1/murataydogdu.pdf

[2] KONUT VE ÇATILI İŞYERİ KİRALARINDA KİRACININ GÜVENCE VERMESİ (DELIVERY OF SECURITY BY THE LESSEE IN THE LEASES FOR HOUSES OR ROOFED WORKPLACES), Abdulkerim Yıldırım, pg.247 ff. https://dspace.ankara.edu.tr/xmlui/bitstream/handle/20.500.12575/49128/20758.pdf?sequence=1&isAllowed=y

[3]6098 Sayılı Türk Borçlar Kanunu’nun Kira Sözleşmesine İlişkin Yürürlüğü Ertelenen Hükümlerinin Değerlendirilmesi (Evaluations on the lease agreement-related provisions of the Turkish Obligations Code numbered 6098, the effectiveness of which are postponed), Assoc. Prof. Dr. Ahmet TÜRKMEN, pg. 362 http://www.ankarabarosu.org.tr/siteler/ankarabarosu/tekmakale/2015-1/11.pdf