Stay Home & Read The Legal Articles

TENANCY AND COVID-19 PANDEMIC

Upon the declaration of Covid-19 outbreak as pandemic by the World Health Organization, many legal questions and problems have arisen. The most popular one of these questions is whether tenancy would be affected by Covid-19 pandemic or not. It is the best solution to evaluate each contractual relationship separately. If we need to state the general principles; matters to consider are whether the lease agreement is made for a definite term or not, the kind of the property which is the subject of rental (residential-business place), the location of the property (shopping mall, street, etc.), for which activity the property is used for, the tenancy agreement articles, etc. This legal issue will be examined in light of general explanations and current developments about tenancy.

General Regulations on Tenancy:

The concepts arised especially with the Covid-19 pandemic for tenancy are “the termination of the contract” and “the adaptation of the contract”. The linked concepts for “the termination of the contract” are ordinary and extraordinary termination of contract and the linked concepts for “the adaptation of the contract are impossibility and hardship.

In relation to the termination which is the will of not to continue the tenancy, there is a division between contracts for definite terms and contract for indefinite terms under Turkish Code of Obligations. There are also different criteria for extraordinary termination.

A. Ordinary Termination of Tenancy :

Regarding the tenancy; it is possible to terminate the lease contract through notification by complying with the procedures and principles stipulated in the law.

Lease Contracts with Definite Term : Pursuant to Article 327 of the Turkish Code of Obligations, the lease contract expires automatically at the end of the specified period. If the parties clearly continue to the tenancy after the agreed period, the contract will turn into a lease contract with indefinite term. It is also stated in the Article 347 of the Turkish Code of Obligations for lease contract of dwelling house and roofed working place that unless the lease holder give notice with a written declaration 15 days before the termination of the definite term contracts, the contracts shall be accepted to be extended one year more under the same conditions.

It has been stated regarding dwelling house and roofed working place that the contract cannot be terminated on the basis of the expiration of the contract by the lessor. However, at the end of the ten-year-long extension period, it is possible for the lessor to terminate the contract without giving any reason in case the lessor notifies at least three months before the end of each extension year following this period.

Lease Contracts with Indefinite Term : The parties may not specify a certain period of time in their lease contract. In this case, there will be an indefinite term lease agreement. Regarding the lease contract with indefinite term; it has been stated in the Article 347 of the Turkish Code of Obligations that the lessee can always terminate the contract with the notice of termination according to the general provisions and the lessor can terminate the contract with the notice of termination according to the general provisions ten years after the beginning of the tenancy. For the periods, Article 328 and following articles of the Turkish Code of Obligations will be applied.

It is important to state that the notification regarding termination of the lease contracts of dwelling house and roofed working place should be made in written according to Article 348 of Turkish Code of Obligations in terms of matters explained above.

In case the property subject to the lease contract is a matrimonial home, pursuant to Article 349 of the Turkish Code of Obligations; in case the spouse who is not the lessee becomes a party of the lease contract by notifying the lessor; the lessor is obliged to notify the termination and payment period related to termination both to the lessee and the other spouse separetely.

B. Termination of the Lease Contract of Dwelling House and Roofed Working Place with Legal Proceedings:

In terms of dwelling house and roofed working places, the possibility of termination of the lease contract with legal proceedings is specified under the Article 350 and following articles of Turkish Code of Obligations. Cause for proceedings may be due to the lessee or lessor. For the lessor, the reasons may be the needs, reconstruction, the needs of the new owner of the property. The reasons for the lessee are regulated under the Article 351 of Turkish Code of Obligations. The principle of numerus clauses is adopted in this regard. Since Covid-19 pandemic cannot be evaluated within this scope, details regarding this issue will not be considered.

C. The Concept of Extraordinary Termination of Tenancy :

In tenancy, extraordinary situations that make the tenancy unbearable may occur. In this case, the concept of extraordinary termination of the lease contract will come to the agenda. For extraordinary termination, the qualification of the contract is important for termination. The regulations and conclusions of termination of a lease contract for a dwelling house and roofed working places are different.

In Turkish Code of Obligations, extraordinary termination is regulated under 3 main headings as “important causes”, “bankruptcy of the lessee” and “death of the lessee”. The issue that needs to be evaluated in terms of Covid-19 pandemic is the regulations under the heading of “important causes”.

It is stated in the Article 331 of Turkish Code of Obligations that; each party may always terminate the contract by complying with the legal termination notice period in case of important reasons occur that make the continuation of the tenancy unbearable for them. The quality of the contract is important in accordance with the regulation in the Provisional Article 2 of the Law No. 6353.

In this case, the regulation stipulated under the Provisional Article 2 of the Law No. 6353 (For lease contract of working place where the lessee is a private law and public law legal person who is a trader according to Turkish Commercial Code; the Articles 323, 325, 331, 340, 342, 343, 344, 346 and 354 of Turkish Code of Obligations dated 11/1/2011 and numbered 6098 can not apply for 8 years since the date of 1/7/2012. In this circumstances, the provisions of the lease contract will apply in relation to these matters specified in these articles. If there is not any article related to this issue abrogated Turkish Code of Obligations provisions will apply.) will apply. In this regard, Article 331 of Turkish Code of Obligations No. 6098 will not apply in the working place lease contracts when the lessee is a private law and public law legal person who is a trader according to Turkish Commercial Code and the provisions of the contract and abrogated Turkish Code of Obligations provisions will be examined.

  • Lease Contract for Dwelling House : In dwelling house lease contracts; the property subject to the contract is rented for residential use. In terms of Turkish Code of Obligations; the contractual relationship must become unbearable for the parties in order for the extraordinary termination of the lease contract for dwelling house to occur. In the current circumstances; termination of the lease contract for dwelling house due to Covid-19 pandemic by the lessee will not be in line with the regular life fluency. While working from home and isolating ourselves from outside is the new trend due to quarantine and social distance practices, dwelling house has become the basic need. There may be problems for the lessee to pay the rent amount and this issue will be stated under the heading “Adaptation of the Lease Contract with the Changing Conditions”.
  • Lease Contract for Roofed Working Place : In dwelling roofed working place contracts; the property subject to the contract is rented to be used as an office/workplace to carry out a commercial activity. In terms of roofed working place lease contract; in case the lessee is a trader, the extraordinary termination stated under the Article 331 of the Code of Obligations will not be applicable for 8 years as of 1/7/2012 in accordance with the regulation under the Provisional Article 2 of the Law No. 6353. In accordance with the related article; it has been stated that it cannot be applied for 8 years in the workplace lease contracts where the lessee is a private and public law legal person considered as a trader under Turkish Commercial Code.

D. Regulations Introduced within the Scope of Covid-19 Pandemic on Tenancy :

Since the economic life has been adversely affected during Covid-19 pandemic, measures have been taken in many fields. Tenancy is also one of these fields. Under the Provisional Article 2 of the Law numbered 7226 on Amending Some Laws, it has been stated in terms of workplace lease contracts that; “Failure to pay the rent to be processed from 1/3/2020 until 30/6/2020 does not constitute a reason for the termination of the lease contract and evacuation of the property.” arrangement is included. In accordance with the mentioned article, failure to pay the rent between the specified dates will not constitute a reason for the termination of the lease contract or evacuation of the property.

E. Adaptation of the Lease Contract with Changing Conditions:

Increasing social distancing, quarantine practice and working from home have decreased many commercial activities and even brought some activities to a halt. These negative effects also negatively affected the tenancy.

About lease contracts; the lessees can not pay their rent and the lessors need those rental payments. It should be noted that if there are provisions related to concepts of force majeure, pandemic disease etc. in the contract, those regulations shall be evaluated and applied to the dispute firstly. However, such provisions may not be included in the contracts. So, how will the process be carried out in this case, how will the problem be solved? It is better to evaluate the situation for working place lease contracts and dwelling house lease contracts separetely.

Lease Contract for Dwelling House : Due to changing conditions, the lessee may have difficulties for paying the rent in a lease contract for dwelling house. The contract may become unbearable for the lessee with its current provisions. In this case, the adaptation of the lease contract with changing conditions may be requested as based on the “hardship” concept stated under the Article 138 of Turkish Code of Obligations. The judge evaluates the characteristics of the parties and the effect of Covid-19 on the contract and may adapt the contract with changing conditions.

It is important to point out that; in case a payment is made by the lessee, this payment should be made with reservation. The lessee should make payments by stating that he/she has difficulty in paying the rent and reserves the request for the adaptation of the contract.

Lease Contract for Roofed Working Place : In the property subject to the roofed working place lease contract, the activity may have decreased or completely stopped. The lessee may have difficulty for paying the rent due to these reasons. In this case, the evaluation should be made for different possibilities.

– If the rented property is a hairdresser, barber, beauty center etc. whose activity has ecpecially stopped with the circular of the Ministry of Interior:

In this case, the evaluation should be made in connection with the lessor’s obligation to provide the property as ready for use. Under the Article 301 of Turkish Code of Obligations, it has been stated that the lessor should provide the property as ready for use during the lease contract.

If the property is one of the above-mentioned enterprises and its activities have been stopped by a the circular, it is seen that the lessor could not fulfill the obligation of providing the property as ready for use due to the property not being able to be used.

Accordingly, the concept of order in fulfilment/defence of non-payment that is regulated under the Article 97 of Turkish Code of Obligations will come to the agenda and the lessee will be able to avoid fulfilling the payment with this reason unless the property is provided as ready for use.

 Again, in terms of the workplaces mentioned above, the adaptation of the contract with the changing conditions be requested. (Turkish Code of Obligations, Article 138: Hardship) Considering the concrete incident, Covid-19 pandemic may be evaluated within the context of an unexpected situation that may cause hardship. In order to benefit from the hardship provisions, the debt should not be fulfilled, if fulfilled, the fulfilment should be done with reservation and the debtor should not have any fault in the unexpected situation. If there are any payments made before the adaptation, the payment should have been made with reservation. Suspension of the contract, adaptation of the contract or termination of the contract may be requested within the scope of the adaptation.

The rented property may be located in a shopping mall and it may be closed to operation as per the shopping mall’s operational decision. In such case, defence of non-payment/adaptation of the contract concepts may be applied in accordance with the principles stated above.

Yet, it is possible to talk about the temporary impossibility of fulfillment in connection with the property not being provided as ready for use. Accordingly, the contract provisions will be suspended during this period. Since the lessor’s obligation to provide the property as ready for use cannot be fulfilled temporarily, the lessee’s obligation to pay the rent will not come to the agenda during this period.

– In case the rented property is not a enterprise which mentioned above and where the activities are suspended by the circular but not being used due to social distancing practices and remote working order (home-office working), etc:

In this case, it is not possible to mention the contradiction to the lessor’s obligation to provide the property as ready for use. In this possibility, if the lessee has difficulty in paying the rent and the contract is unbearable with its current provisions, the contract may be adapted. The suspension of the contract or the termination of the contract may be requested, too.

– For subsidiary obligations such as contribution, etc. related to rented property :

In such case, if the contract is suspended with a request for adaptation of the contract; the subsidiary obligations such as contribution, etc. will also be suspended.

– If the rental fee is paid in advance annually:

In this case, if the contractual relationship becomes unbearable due to Covid-19 and the activity of the rented property has suspended and lessor can not fulfill his/her obligation to provide property as ready for use, it is considered to apply the principles of temporary impossibility of fulfilment and the principle of good faith which is regulated under the Article 2 of Civil Code and balancing of sacrifices in this regard.

In case of temporary impossibility of fulfilment: A warning letter may be sent to the lessor by the lessee and the situation may be explained and the refund of the payment made for the period of temporary impossibility of fulfillment or the extension of the lease contract fort he mentioned period may be requested.

If the rent is paid in advance without any reservation, in this case, it will not be possible to request the adaptation of the contract in terms of the hardship. For the hardship provisions to be applied, debt not being paid or being paid with a reservation is a prerequisite.

Yet, the points that should be taken into consideration in the possibility of refund or extension of the lease period are the principles of honesty and balancing of sacrifices.

– If the rent is agreed on with a foreign currency between the parties:

In such case, it is possible to request adaptation of the contract depending on the changing conditions. In fact, considering the increase in the exchange rates these days, it is possible to say that possibility of becoming unbearable of the contract is more expected.

In addition, we would like to state that; the provisions of Announcement related to Decision numbered 32 on the Law of Protection of the Value of Turkish Currency is reserved for determination of the rent with a foreign currency within lease contract. With the decision numbered 85 and dated 12 September 2018 of the President, it is forbidden to determine the price with a foreign currency in lease contracts for movable and immovable properties besides the exceptions and it should not be forgotten that in these contracts, the amount to be paid should be determined in Turkish currency accordingly.

In this mentioned decision, it is also regulated that the payment obligations in the contracts made before this decision entered into force and still valid which should be made in a foreing currency and other payments should be redetermined as to be paid in Turkish currency besides the situations determined by Ministry of Treasury and Finance.

The procedures and principles and exemtions regarding this mentioned decision is regulated under the Announcement on the Decision numbered 32 on the Law of Protection of the Value of Turkish Currency.

For the contradictions to the Announcement, it is stated that 3.000-25.000 TL (approximately 6.300-55.000 TL by considering the rate of revaluation) administrative fine will apply separetely for both parties according to the Article 3 of the Law of Protection of the Value of Turkish Currency. In case of repetition, these administrative fines will apply as twice.

Therefore, we would like to remind that the mentioned announcement should be taken into consideration while determining the contract value for leasing contracts.

– If the adaptation of the lease contract between the parties is prohibited:

It should be noted that prohibiting the adptation of the contract between the parties with the changing conditions is contrary to the honesty principle. In this context, such article is an abuse of the right and is legally invalid. Although there is such article, if the lease contract has become unbearable for the parties, it is possible to file a lawsuit with a request for adaptation of the contract.

In case a lawsuit is filed with a request for adaptation of the contract as based on the hardship in the lease contract, the competent court is the Civil Court of Peace, the authorized court is the court where the property is located.

General Evaluation and Conclusion:

It is clear that the Covid-19 pandemic has negative effects in every field of life such as economic, communal and social life. Due to Covid-19 pandemic, we are having difficult times as a society and if possible, disputes should be resolved with the principle of balancing of sacrifices with friendly solutions. It is also possible for the parties to apply for discretionary mediation. In the post-pandemic normalization process, a great increase especially for contract adaptation cases are expected. In  case a lawsuit is filed, the evaluation of the lease contracts should me made by considering the quality of the parties, the effect of the pandemic on the lease contract, the articles of the contract between the parties, the quality of the rented property, etc. Although the general principles regarding the evaluations are explained above, it should not be forgotten that each contract should be evaluated within its own context.

References:

* Turkish Code of Obligations No. 6098

* Law Amending Some Laws No. 7226

*Prof. Dr. Kemal Oğuzman, Prof. Dr. Turgut Öz, Obligations Law General Provisions, 13th edition

*Prof. Dr. Cevdet Yavuz, Turkish Obligations Law Special Provisions, 10th edition

*Prof. Dr. Haluk Burcuoğlu, The Leasing Contracts in Coronavirus Days, İstanbul Bar Association Webinar

*The Leasing Law and Adaptation Lawsuits, TBB TV webinar


FOR MORE DETAILS , CONSULT THE ARTICLE’s WRITER

Yalçın & Toygar Law Office

Kabatas-Setustu, Inebolu Sok. No:25 Ada Apt. D.11 34427 Istanbul

+90 212 293 09 09

Email : info@yttlaw.com

http://www.yttlaw.com/lawoffice/

Leave a Reply

Your email address will not be published. Required fields are marked *