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The Determination of the Rental Increase Rate and 25% Limitation

The Determination of the Rental Increase Rate and 25% Limitation

Turkiye
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According to the Provisional Article 1, that is added to the Turkish Code of Obligations with the 4th article of the "Law on Amendments to the Lawyers' Code and the Turkish Code of Obligations" numbered 7409, which was published in the Official Gazette on 11.06.2022 and is valid as of that day residential rent agreements regarding the rental fee to be applied in the renewed rental periods between the date of entry into force of this article and 01.07.2023 (including these dates) are valid, provided that they do not exceed twenty-five percent of the rental fee of the previous rental year. In other words, contracts containing more than a twenty-five percent increase in housing rent compared to the previous year were deemed invalid in terms of the excess amount. 

The legislator also stated the purpose of the article and made a regulation that is more favorable to the tenant by saying that if the twelve-month change rate of the Turkish Code of Obligations' general rent increase regulation system, that is, the CPI, is less than twenty-five percent, that rate is valid. Even though the legislator was aware of the difficulty of realizing this wish due to economic reasons in the inflationary period, he did a highly protective regulation on behalf of tenants

1. Rental Price Evaluation in the Context of Article 344 of the Turkish Code of Obligations 

Article 344 of the Turkish Code of Obligations No. 6098 is important in determining the rental price. By the aforementioned provision, the agreements made by the parties regarding the rental fee that will be valid in the renewed lease period will be valid provided that it does not exceed the rate of change in the consumer price index according to the twelve-month averages in the previous lease period. It should be considered that this provision will also apply to lease agreements with a term longer than one year. Likewise, if the parties do not arrange in the lease agreement in terms of determining the rent increase rate, it is determined by the judge on an equitable basis, if it does not exceed the rate of change in the consumer price index according to the twelve-month averages in the previous rental period, as stated in this provision.

The legislator also stated the purpose of the article and made a regulation that is more favorable to the tenant by saying that if the twelve-month change rate of the Turkish Code of Obligations' general rent increase regulation system, that is, the CPI, is less than twenty-five percent, that rate is valid. Even though the legislator was aware of the difficulty of realizing this wish due to economic reasons in the inflationary period, he did not hesitate to make a highly protective regulation.

It should be noted that it is also possible to determine the rental fee in foreign currency in the rental agreement. In such kinds of contracts, unless five years have passed, it is not possible to make changes to the rental fee, without prejudice to the provisions of the "Law on the Protection of the Value of Turkish Currency" dated 20.02.1930 and numbered 1567. Another exception at this point is the situation of extreme difficulty in performance, which is expressed in Article 138 of the Turkish Code of Obligations. After five years, the rental fee is determined as in the case of five-year or longer lease agreements, considering the changes in the value of foreign currency.

2. Housing Rent Increase Rate and 25% Limitation under Law No. 7409

As explained above, agreements regarding the rental fee to be applied in renewed rental periods between the date of entry into force of this article and July 1, 2023, according to Provisional article I of Turkish Code of Obligations shall not exceed 25% of the rental fee of the previous rental year. It is valid provided that the change rate is valid if the change rate in the CPI index of the previous rental year compared to the twelve-month averages is below 25%. The said provision also applies to lease agreements with a term longer than one year. It should be noted that increase rate made contrary to the said provision, that is, exceeding the 25% limit, will be invalid in terms of excess amount.

In the last sentence of the relevant provisional article, the legislator has foreseen the preservation of this twenty-five percent limit by not allowing the fairness assessment that the judge can use in accordance with Paragraph 2 of Article 344 of the Code of Obligations. Accordingly, if any agreements are made regarding the rental increase rate by the parties, this twenty-five percent limit should be preserved in the case of the determination of the rental increase rate by the judge. 

3. Thoughts and Criticisms Regarding the Amendment

According to the TSI’s data, published by the CBRT, the CPI in the second half of 2022 -which is the period of 25% rent price proportion increasing limitation- was identified annually 78,62%, twelve-month average 44,54%, and monthly 4,95% in June 2022.

As can be seen from the data, the economic crise has causes negative impacts not only on landlords but also on tenants. Thanks to the choice of the legislator, the property owners -landlords- facing grave breach of their rights to property which are under the protection of Article 35 of the Turkish Constitution, the title line is “Right to property”, and the first article of Protocol No.1 to the ECHR. In fact, even though to the landlord, as a consumer, was imposed 78,62% CPI, he could only reflect 25% of this increase to his tenant. The provisional article interfered to the landlord by causing more than 50% and irreversible loss.

Hereby interference to landlords made the way to set off the rent price very high when parties having an agreement for the first time due to the knowledge of the landlord will not be able to increase the rent price on his own will or in a logical amount in the next renewal period. This situation caused problems contradicts to the act of law “The State shall take measures to meet the need for housing…” which is regulated of Article 57 of the Turkish Constitution, the title line is “Right to housing”. Essentially, the legislator was a part of the violation of the landlord’s right to property and tenant’s right to housing instead of protecting their rights at the end of the day.

Because of the Turkey’s current economic situation, legislator had to regulate another provisional article, the second one titled “Provisional article 2”, under the same part of the Turkish Code of Obligations. Rent price proportion increasing restriction period’s time has been extended to 01.07.2024 (including this date) by Law No. 7456 with almost the same regulation as the “Provisional article 1”. The month of “Provisional article 2” entry into force and repeal of the “Provisional article 1” is July 2023 and the annually CPI is 47,83%, twelve-month average 57,45% monthly 9,49% in this month.

4. Conclusion

Taking every data into consideration, because of and considering the unfavourable economic conditions, the legislators’ choice will not bring the desired benefits in the long term, and it causes grave violations of the right to housing and right to property. It seems that the legislator aims to protect tenants’ right to housing with this regulation. However, it must be considered that this regulation can cause grave violations of the landlords’ right to property. The necessity of a balance in law and regulating system is beyond dispute. Therefore, it is imperative to create a balance in terms of both landlords and tenants.

By Semanur Gelturan and Serkan Demir, Trainees, KP Law