Alp CAL Attorney at Law / Partner /Mediator
Sena SEVIMLI Associate
[email protected]
09 February 2024
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In recent years, due to inflation, fluctuating exchange rates, exorbitant increases, and economic and political difficulties that occur in Turkey, the legal relationship between the lessee and the lessor has perhaps been on the agenda the most, and disputes and questions about how to protect the legal interest have started to arise for the first time.
With this article, we aim to summarize the lease disputes arising from the residential lease, which has been on the agenda of recent times, and dispute resolution methods, and to eliminate some question marks.
WHAT IS A RENT DETERMINATION LAWSUIT?
Per the lease relationship established between the lessor and the lessee, the moment when the lease agreement is concluded is the first and last moment when the lease price can be freely determined. At the time of the conclusion of the lease agreement, both parties may freely determine the rental price per the freedom of contract. However, this freedom ends with the conclusion of the lease agreement and is limited to protect the weaker party in the continuation of the lease agreement. Especially in lease agreements regarding immovable properties, it is clear that lessees in need of housing or a workplace are in a weaker position compared to the lessor. In this sense, one of the ways to protect the lessee is to limit the rent that the lessor may demand. This limitation is introduced by Article 344 of the Turkish Code of Obligations in the lease of residential and commercial premises;
"The agreements of the parties regarding the rental price to be applied in the renewed lease periods are valid, provided that they do not exceed the rate of change in the consumer price index in the previous lease year according to the twelve-month averages. This rule also applies to lease agreements with a term longer than one year.
If the parties have not made an agreement on this matter, the rent shall be determined by the judge in accordance with equity, taking into account the condition of the leased property, provided that it does not exceed the rate of change in the consumer price index of the previous lease year according to the twelve-month averages.
Regardless of whether an agreement has been made by the parties on this matter or not, in lease agreements with a term longer than five years or renewed after five years and at the end of each subsequent five years, the rental price to be applied in the new lease year shall be determined by the judge in an equitable manner, taking into account the rate of change in the consumer price index according to the twelve-month averages, the condition of the leased property and the comparable rental prices. The rent determined in this way in the lease year after each five years may be changed according to the principles in the previous paragraphs.
If the rental price is agreed in foreign currency in the contract, the rental price cannot be changed until five years have passed, without prejudice to the provisions of the Law on the Protection of the Value of Turkish Currency dated 20/2/1930 and numbered 1567. However, the provision of Article 138 of this Law titled "Excessive difficulty of performance" is reserved. In determining the rental price after five years, the provision of the third paragraph shall apply, taking into account the changes in the value of the foreign currency."
As it can be understood from the provision of the Article, in residential and roofed workplace leases, the rent that the lessor may demand is limited to the twelve-month average of the consumer price index (CPI).
However, with the provisional article added to the Turkish Code of Obligations with Article 4 of Law No. 7409 on the Amendment of the Law on Lawyers and the Turkish Code of Obligations published in the Official Gazette dated 11.06.2022, regardless of the twelve-month CPI rate, the rate of increase in the rental price to be made in residential rents will not exceed 25% in the lease renewals until and including 01.07.2024.
So, what does this limitation mean?
As stated above, according to Article 344 of the Turkish Code of Obligations, while it is stipulated that the parties may determine the rental price to be applied for each renewed lease period in residential and commercial premise leases according to the twelve-month averages in the consumer price index of the previous lease year, a special regulation was introduced for housing rent increases with the legal regulation made in 2022 and it was regulated that the rate of increase in housing rents may not exceed 25% as per the temporary article. In other words, the rent increase rates that exceed the rate of change according to the twelve-month averages in the consumer price index of the previous lease year in commercial premise rents and 25% in residential rents are invalid. However, this invalidity does not make the increase clause completely invalid. In other words, even if the contract clause is arranged to exceed the twelve-month CPI rate for commercial premise rents and 25% for residential rents, the increase to be applied will be at most the twelve-month CPI rate or 25% depending on the nature of the leased immovable.
If the rent increase rate is not regulated in the housing and commercial premise lease agreement, this time the rent determination lawsuit will come to the agenda.
If the determination of the rent increase rate cannot be provided by the contractual clause and causes a dispute between the parties, the rent shall be determined by the judge according to equity, taking into account the condition of the leased property, provided that it does not exceed the twelve-month CPI average for roofed workplace rents and 25% for residential rents. This determination request will be legalized by the rent determination lawsuit.
Is it possible to determine a rent increase above the twelve-month CPI rate or the 25% rate determined by the provisional article with the filing of a rent determination case?
We have stated that in cases where the rate of rent increase cannot be determined, one of the solutions is to file a rent determination lawsuit. With the filing of a rent determination lawsuit, the court will resolve the dispute between the parties and determine the rate of increase in the rent that has not been made into a contractual clause.
However, the five-year rule, which we will detail below, is important here. Namely, if the lease agreement, which is the subject of the rent determination lawsuit to be filed, has not yet completed five years, the court will determine an increase rate not exceeding the twelve-month CPI average for roofed workplace rents and 25% for residential rents, and will not violate Article 344/1 of the TCO.
In rent determination lawsuit involving lease agreements with a term longer than five years or renewed after five years, it is possible for the court to determine an increase rate above the twelve-month CPI average for commercial premises or the 25% rate determined by the provisional article for residential buildings.
When is it possible to set a rent increase rate above the twelve-month CPI rate or 25% as per the provisional article? What is the five-year rule?
As mentioned above, to file a rent determination action, the rent increase rate must not have been determined in the lease agreement. However, for lease agreements with a term longer than five years or renewed after five years and at the end of every five years thereafter, a rent determination lawsuit may be filed even if the rent increase rate has been determined in the agreement.
On the other hand, there is no obligation to act in accordance with Article 344/1 of the TCO in lease agreements with a term longer than five years or renewed after five years and in rent determination lawsuit filed at the end of each subsequent five years. In other words, after a five-year lease period, it may be requested to determine the rent increase rate over the twelve-month CPI average or 25% depending on the nature of the immovable. The rent to be applied in the new lease year shall be determined by the judge in the rent determination lawsuit to be filed by taking into consideration the rate of change in the consumer price index according to the twelve-month averages, the condition of the leased property, and the comparable rental prices.
In summary, if the parties have maintained the lease relationship for five years and the rent increase rate will be determined for the sixth lease year, it will not be considered whether an increase rate has been agreed in the lease agreement. Furthermore, the rent increase rate to be determined for the sixth lease year does not have to be limited to the twelve-month CPI average or 25%; the court may also decide on an increase rate above this rate.
When will the rent increase rate determined by the rent determination lawsuit become effective?
As a rule, the rent determination lawsuit verdict is effective prospectively and is applied for the lease periods after the date of the lawsuit. However, Article 345 of the Turkish Code of Obligations provides some exceptions to the rule of prospective application of the determined rent;
"A case for the determination of the rental price can be filed at any time.
However, if this case is filed at the latest thirty days before the beginning of the new lease period or if it is filed until the end of the following new lease period, provided that the lessor has notified the lessee in writing that the rent will be increased within this period, the rent to be determined by the court shall bind the lessee as of the beginning of this new lease period.
If there is a provision in the contract that the rent will be increased in the new lease period, the rent to be determined by the court in the case to be filed until the end of the new lease period shall be valid from the beginning of this new period."
Thus, it is understood that, in cases where the case is filed at the latest thirty days before the beginning of the new lease period, a written notification regarding the increase of the rent is made at the latest thirty days before the beginning of the new lease period, or there is a provision in the lease agreement that the rent will be increased in the new lease period, the rent increase rate determined in the case to be filed until the end of the new lease period will be valid from the beginning of the new period, not from the date of filing the case.
WHAT IS A RENT ADJUSTMENT LAWSUIT?
Unlike the rent determination lawsuit, the rent adjustment lawsuit is a type of case that does not only cover residential and commercial premise rents but can be substituted for all types of lease agreements. On the other hand, the five-year rule regarding the rate of increase in the rent, which is legally limited in the rent determination lawsuit, is not in question in the rent adjustment lawsuit. No statute of limitations or prescription period has been set in the law for the adjustment lawsuit, and the completion of a certain lease period is not foreseen in any way in order to eliminate the limitations imposed by Article 344 of the TCO.
However, in order to file a rent adjustment lawsuit, certain conditions must be met. These conditions and basic principles can be listed as follows in the light of the decisions of the Court of Cassation;
How will it be determined that the foundation of the lease has collapsed?
To adapt the price agreed upon in the lease agreement, the payment of the rental price must have become almost impossible or if it is paid, it must constitute a serious breach of equity. The relevant rental price must have disrupted the current situation at the time of the conclusion of the contract by the parties, causing the debtor to have excessive difficulty of performance and changing the performance of the contract in such a way that it can no longer be expected from the debtor. The hardship may vary according to the concrete case, and therefore, whether the debtor has fallen into hardship is evaluated separately by the judge in each case.
The Court of Cassation considers the increase in inflation as one of the extraordinary circumstances that disrupt the balance between the contractual obligations. However, it should be kept in mind that each concrete case will be evaluated according to its own characteristics in determining whether the conditions for adjustment are met.
"Examples of extraordinary circumstances that disrupt the balance between the obligations of the contract are war, economic crises that shake the country, excessive increases in the inflation graph, shock devaluation, significant decrease in the value of money, and situations where adherence to the contract cannot be expected." (3rd Civil Chamber 2017/7432 M., 2019/397 D.)
DIFFERENCES BETWEEN RENT DETERMINATION AND RENT ADJUSTMENT LAWSUITS
SHOULD A RENT ADJUSTMENT LAWSUIT BE FILED OR A RENT ADJUSTMENT LAWSUIT?
We have already stated above that it is possible to determine the rate of increase in the rent for lease agreements with a term longer than five years or renewed after five years and at the end of each subsequent five years, without being bound by the twelve-month CPI average and the 25% rate limit added to the Turkish Code of Obligations with the provisional article.
When the lease agreement has not completed its five-year term, it has become the nature of the business to prefer the rent adjustment case in cases where the basis of the lease agreement has collapsed, and the rent determined now creates excessive difficulty of performance or is unfair.
As a matter of fact, with the current judicial decisions, it is obvious that the adjustment of the rent cannot be avoided due to the economic conditions;
"In the concrete lawsuit; the lease agreement, which is considered valid between the parties, is dated 01/04/2019 and has a term of 1 year, and it is seen that the plaintiff has requested the adjustment of the rental price according to the changing conditions and circumstances to be valid as of 01/04/2022. If the balance between the performances in long-term lease agreements deteriorates excessively and the contract becomes unbearable for the parties, an "adjustment" lawsuit can always be filed to adjust the rent to the economic conditions of the day
In that lawsuit, the work to be done by the Court; The rules that should be applied in the adjustment lawsuits explained above are put forward one by one as stated and all these data, the nature of the leased property, the area of use, the location, the zoning and commercial changes in the region that will affect the rental money, the precedent rental money, It is necessary to decide according to the result to be obtained by obtaining a report by investigating and evaluating the existence of events that require the reorganization of the payment principles due to increases in tax and depreciation expenses, sudden and excessive fluctuations and fluctuations in exchange rates, and serious economic crisis or natural disasters that shake the country. (Precedent: Court of Cassation 3 LC- 2017/14157 Main, 2019/6526 Decision)" (Istanbul Regional Court of Appeals, M. 2023/845, D. 2023/536, H. 15.03.2023)
As a result, per the recent judicial decisions, an example of which is given above, we can say that it is possible to file a rent adjustment lawsuit without waiting for the expiration of the five years stipulated in the rent determination lawsuit, and this will create an opportunity for the lessee and lessor who are worn out in the economic conditions.
However, a comment should be made on this approach. Indeed, many opinions have emerged in the literature due to the increase in the relevant lease lawsuits, and it has been stated that the rent adjustment lawsuits filed before the expiration of the five-year lease period are like circumvention of the law and that the provisions regulating the rent determination lawsuits may become inapplicable at all.
Prof. Dr. M. Murat İnceoğlu also stated that the increases in the fair market value do not mean that the foundation of the lease agreement has collapsed and that although the increases in the fair market value are exorbitant, they cannot be evaluated within the scope of Article 344/3 of the Turkish Code of Obligations and cannot be subject to a rent adjustment lawsuit, since there will be no extraordinary change in the terms of the contract. [1]
Therefore, without determining a predominant approach within the framework of case law and doctrinal opinions, it has become very difficult to predict the decisions to be rendered in lease lawsuits.
[1] Rayicin Artması Nedeniyle Kiraya Verenler Uyarlama Davası Açabilir Mi? , Prof. Dr. M. Murat İnceoğlu
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