In accordance with the Turkish Code of Obligations No. 6098 ("TCO"), lease relations are categorised under three main headings: (i) general provisions, (ii) residential and roofed workplace leases, and (iii) product leases. Properties to be leased as offices, warehouses, etc. for the purpose of conducting commercial activities will be subject to the provisions of "Residential and Roofed Workplace Leases".
Due to the prohibition of regulations against the lessee, which is the main principle within the scope of residential and roofed workplace leases, the regulations within the scope of the TCO are mandatory and it is not possible to change such against the detriment of the lessee in the lease agreements. The courts have also adopted the principle of interpretation in favor of lessees.
1. Rate of Increase and Determination of Rent i
According to Article 344 of the TCO, the upper limit for the rent increase rate in roofed workplace leases is the change rate of the 12-month averages of the consumer price index ("CPI") in the previous lease year, determined by the Turkish Statistical Institute. Provided that it does not exceed this upper limit, if a lower rate is determined in the agreement, the rate determined in the agreement shall be valid.
The 25% limitation imposed by the government on rent increases applies only to residential leases, and for roofed workplace leases, the rent increase rate can be determined freely provided that the above-mentioned upper limit is complied with.
a. The Inability to Determine Rent and Other Payment Obligations in Foreign Currency
In property lease agreements to be signed by residents of Turkey, Article 8 of the Communiqué on Decree No. 32 on the Protection of the Value of the Turkish Currency (Communiqué No: 2008-32/34) prohibits the determination of the rent and other payment obligations in foreign currency or indexed to foreign currency.
There are certain exceptions to this prohibition, and in lease agreements made within the scope of these exceptions where the rent is determined in foreign currency, without prejudice to the provisions of Law No. 1567 on the Protection of the Value of Turkish Currency, the rent cannot be changed unless 5 years have passed since the agreement date. After 5 years, considering the change rate based on the 12-month average of the CPI, the condition of the leased property, comparable rental amounts, and changes in the value of foreign currency, the rent may be requested to be determined by the competent authority. The parties have the right to request the adaptation of the lease agreement to new conditions due to excessive difficulty of performance, without any time limit.
b. Rent Determination Lawsuit
According to Article 345 of the TCO, the lawsuit for the determination of the rent can be filed at any time following the expiration of the 5 (five) year lease period. Therefore, this lawsuit can also be filed within the renewed lease period. For lease agreements that have not yet expired 5 (five) years, this lawsuit can only be filed to determine the new rent within the CPI rate limitation.
In the event that a lawsuit is filed at the latest 30 days before the beginning of the new lease period or a written notification is made by the lessor to the lessee regarding the increase of the rent within this period, if the lawsuit is filed until the end of the following new lease period, the rent determined by the court will be binding the lessee as of the beginning of the new lease period.
2. Lessee’s Guarantee (Deposit)
Article 342 of the TCO limits the amount of security deposit that the lessee should pay up to the sum of three months' rent. This security deposit can be provided in cash or as negotiable instruments. Although the TCO stipulates that the security deposit must be transferred or paid to a savings account that cannot be withdrawn without the consent of both the lessee and the lessor or can only be withdrawn based on a finalized enforcement proceeding/court decision, in practice, it is frequently encountered that the security deposits are given in cash, handed to the lessor or deposited in the lessor's bank account.
3. Invalidity of Maturity and Penalty Clauses
According to Article 346 of the TCO, in residential and roofed workplace leases, it is prohibited to impose any payment obligation on the lessee, other than the payment of the rent and ancillary expenses (related to common area heating, lighting, cleaning, security expenses, etc.). In this context, any provisions that stipulate the payment of a penalty clause by the lessee in case the rent is not paid on time and that the rent for coming months will become due and payable are invalid.
4. Transfer of Lease Agreement
According to Article 323 of the TCO, even if the transfer of the lease relationship is prohibited, in the case of workplace leases, the lessor cannot refrain from giving consent to this transfer without a justified reason. However, in terms of workplace leases, in case of the transfer of the lease relationship, the responsibility of the transferor lessee continues with the transferee lessee for a maximum period of 2 years.
5. Annotation to Land Registry
In property leases, it is possible to annotate the lease relationship to the land registry. In the event that the lease agreement is drawn up before a notary public, it is possible for the lessee to annotate the lease agreement to the land registry with a unilateral application. If the lease agreement is not drawn up before a notary public (ordinary written lease agreement is concluded), both the lessee and the lessor must apply to the land registry office together in order to annotate the lease agreement to the land registry.
6. Workplace Opening and Operation License (Business License) for Roofed Workplace Leases
In accordance with Article 24 of the Condominium Ownership Law, if the property to be leased for use as a roofed workplace is a recorded as a “residential property” with the land registry, this proposed activity of such workplace must be permitted with unanimous decision of the board of condominium owners.
However, some documents to be provided by the owner/lessor of the property in order to be submitted under all circumstances for obtaining a business license are; (I) copy of the title deed, (ii) certificate of occupancy, (iii) numbering certificate/certified numbering sketch, (iv) subscription notification form, (v) environmental cleaning tax debt-free letter and (vi) fire brigade report that must be obtained from the owner and submitted to the relevant municipality.
In practice, the roofed workplace lease agreements, regulations that impose an obligation on the lessor to provide these documents are added and obtaining a "business license" is regulated as a prerequisite for the continuity of the lease agreement. In the event that these documents are not provided at all or in due time, the lessee's right to indemnify the damages and the right to terminate the agreement is regulated, and the lessee is entitled to terminate the lease agreement with immediate effect in case of failure to obtain a license to open and operate a workplace. However, this issue is entirely subject to the agreement of the lessee and the lessor and there does not exist any regulation in this scope in the TCO.
Since the information and documents required to obtain a business license may vary depending on many factors such as the nature of the activity to be carried out and the location and nature of the relevant property, information should be obtained from the municipality that will issue the license for each application.
7. Termination of Roofed Workplace Lease Agreements
Pursuant to the TCO, the lessor does not have the right to terminate the lease agreement on the grounds that its term has expired. The cases where the lessor may terminate the lease agreement by filing a lawsuit or initiating enforcement proceedings are limited in the TCC and are as follows; (i) in case of necessity for personal use of the lessor or the new owner, (ii) the leased property requires reconstruction and cannot be used in this process, (iii) the lessee has made an eviction commitment, and (iv) the lessor has issued 2 justified notices to the lessee due to the lessee's failure to duly pay the rent twice within 1 lease year.
The parties' right of termination by notice varies depending on whether the lease agreement is for a definite or indefinite term. In this context, according to Article 347 of the TCO;
- For lease agreements with definite-term
- Unless the lessee gives notice of termination at least 15 days before the end of the lease term, the agreement is deemed to be extended for a 1 year term with the same conditions.
- The lessor may terminate the agreement without giving any reason only at the end of the 10-year extension period, provided that the lessor gives notice at least 3 months before the end of each extension year following this period.
- For lease agreements with indefinite term,
- The lessee may terminate the lease agreement for the of the 6-month lease period by complying with the 3-month termination notice period.
- The lessor may terminate the lease agreement for the end of the 6-month lease period by complying with the 3-month termination notice period. However, the lessor has the right to exercise this right after 10 years from the beginning of the lease agreement.
The lessor's right of termination after a lease period of 10 years is valid at the end of the 10-year extension period in addition to the initial agreement period determined in the lease agreement. For example, after a lease agreement with a term of 1 year is automatically extended for 10 years, the lessor's right to terminate by notice arises at the end of the 10th year of extension, which is 12 years after the execution date of the agreement.
Apart from these, some special circumstances such as the lessee's bankruptcy, death and the lease relationship becoming unbearable are accepted as extraordinary grounds for termination in the TCO.
If the lessee evacuates and returns the leased property by terminating the agreement before the expiry of the term of the agreement -without complying with the termination notice periods- the obligations arising from the lease agreement may continue for a reasonable period of time during which the leased property can be rented under similar conditions. In practice, this period is determined by the courts as 3-4 months and the lessee is required to pay the rent for such 3-4 months.
By Asli Pamukkale, Senior Partner, Aybike Gurcan Arslan and Cerensu Cetin Yenigun, Senior Associates, and Gokce Aksoy, Trainee Lawyer, Moral, Kinikoglu, Pamukkale, Kokenek