NEW PERIOD IN WORKPLACE LEASE AGREEMENTS 29 May 2020

All of the articles in the Turkish Code of Obligations  number 6098 (“TCO”), which came into force in 2012, did not themselves come into force  at that time, with certain important articles related to leases not to come into effect until 01/07/2020.  What will change after this date, which is now approaching, and who will be affected by these changes?

First, we address when these postponed articles would be applicable.  Signiciantly, they apply to all lessees, whether they are  merchants or legal persons. The same is true with regard to lessors.I In other words, the type of lessor or lessee involved is not important; all are covered by these articles.

Also important is that the postponed articles apply to leased property used as a workplace. Provided the leased property serves a location of the lessee's economic or profession activites, the lease is considered to be a workplace lease subject to the TCO articles in question. These activities only need to be ”related” to the lessee's professional and economic activities, and the leased property does not necessarily have to be the center of commercial activities. For example, if a leased property is used as a sales office, a workshop or a warehouse for storing manufactured goods, it will likely be treated as a workplace rental. Although the actual use of the leased property is important when determining whether the articles we are considering apply, it will also be important whether the intent to use it for professional and economic activities is clearly, or implicitly, reflected in the lease.

The new articles that apply when the two conditions described above are satisfied include;

• Article 323, which regulates the transfer of tenancies. As of 1.07.2020, Article provides; “Unless the lessee receives the written consent of the lessor, the lease cannot be assigned to someone else. The lessor cannot refuse such consent unless there is a valid reason for doing so related to rent.”
• Article 325, provides that in the event of early termination, the lessee is to continue to be subject to the lease for a reasonable period of time during which the lessor may attempt to find a new lessee to rent the premises under similar conditions. The length of that period is to be determined, if not by an agreement between the parties then by a court, by taking into consideration the term of the original lease remaining while at the same time considering how long it would take the lessor, given the circumstance, to find a new lessee;  the lessee deciding to terminate early would be required to pay rent for this presumably shorter period.
• TCO Article 331, which provides that either party may terminate the lease, provided the party complies with the statutory termination notice requirement and circumstances exist making continuation of the lease relationship unbearable. When determining whether such termination is justified, the judge will consider the circumstances alleged to exist, as well as whether or not there damages should be awarded.
• Article 340 of the TCO provides; “The formation or continuation of the lease agreement with respect to residential and roofed workplaces are not to include any obligation unfavoraable to the lessee which have no relation to the lease agreement; any suchobigations  will be deemed void”. For example, in practice, many leases require the lessee to obtain insurance contract for the risks that would otherwise be the responsibility of lessor . However, in the event the leased property is damaged, the lessor is obliged to repair the damage so that it is once again ready for use by the lessee as provided for in the least. With Article 340, the requirement that the lessee provide insurance would be invalid.
• Article 342 of TCO, which regulates the lessee's security deposit. Pursuant to this Article, which will apply to residential and roofed workplaces, a lessor is only allowed to request a security deposit from the lessee in an amount not to exceed three months of rental. This security deposit can be provided in the form of cash money or equivalent financial instrument., Article 342,however, requires that the security deposit be deposited, or stored, in a bank. The security deposit kept at  the bank can only be refunded by the bank upon the consent of the lessee and the lessor, or upon the finalization of enforcement proceedings or court decision. In addition, although it is provided in the Article that the security deposit can either cash or equivalent financial instrument, no obligation is envisaged in this direction, and only a limitation was introduced in terms of quantity. For this reason, we believe the security deposit, which is not to exceed three -months of rent, a letter of guarantee in that amount would suffice.
• Article 343, which concerns the determination of the rental fee. According to this Article,  a rent increase provided for in a one-year and longer lease, including those providing for renewal that would make the term of the lease one-year or longer, is valid provided the annual rate of change does not exceed the annual average in Consumer Price Ines (“CPI”) in the previous lease year. If a provision regarding a rent increase has not been included in the lease, any increase of the rental fee, if the parties are unable to agree, is to be determined by a judge in accordance with equity, taking into account the condition of the leased property, and provided the increase does not exceed the annual average in the previous year's CPI.  If there is a lease with a term of more than five years or which is renewed so that its term is more than if five , the rental fee to be applied in the for the years in addition to five years new lease year, is also to be determined, in the absence of an agreement between the parties, by a judge in accordance with equity, while taking into consideration the annual rate of change compared to the annual average of the CPI, the condition of the leased property and comparable rental fees.
• Article 346 of the TCO, in which it is clearly stated that no other payment obligation can be provided for in a lease than for rental fees and related expenses. In this regard, the Article makes special note  of penalty clauses triggered when rent is not paid on time, which are invalid. This Article, however, does not pertain to provisions providing for the payment of interest on the amount of rent not paid in a timely fashion.

Article 354 of the TCO, which providesthat provisions related to the termination of leases agreement by lawsuit cannot be revised during the term of the lease so that they are unfavorable to the lessee.