As the COVID-19 pandemic rages worldwide, it has significantly affected legal relationships, particularly leases. The Turkish government has shuttered restaurants, gyms, cafés, and shopping malls among other commercial establishments. In addition, the Ministry of Internal Affair issued the Additional Circular on Precautions against Coronavirus on 16 March 2020, temporarily suspending the activities of a number of businesses operating as a rest area and amusement locations (our legal alert on this development is available at here). These measures necessitate a crucial evaluation of the COVID-19 pandemic’s effects on lease agreements.
Filing a lawsuit for the revision of a lease agreement is unadvisable in this period considering the potentially time consuming court procedures. For this reason, it is the best way for the parties to negotiate revision terms and revise the agreement, if possible. However, if (i) the parties cannot agree on the revision terms; (ii) there is no revision provision; or (iii) the revision provision does not produce just results, parties must inevitably file for revision. This alert offers information on lawsuits that may be filed for the revision of lease agreements due to the COVID-19 pandemic.
COVID-19 as a Reason for Revision
As a rule, parties to an agreement will be bound to their obligations and commitments under the principle of pacta sunt servanda. However, if the balance between the parties’ obligations at the time when the agreement was executed unavoidably and unjustly changes to the detriment of a party, the party can request the revision of the agreement under Article 138 of the Turkish Code of Obligations (“TCO“). As per Article 138 of the TCO, the following conditions must be collectively met in order for a judge to revise the relevant agreement:
- an extraordinary event, which the debtor could not predict, must occur after the agreement was executed;
- the debtor must have no negligence in the occurrence of the unexpected event;
- the balance of the parties’ obligations under the agreement must be distorted due to the unexpected event; and
- the debtor must have fulfilled their obligations under the contract by reserving their rights under this article or not yet have fulfilled their obligations.
COVID-19 has affected all agreements by meeting the conditions of (i) unpredictability and (ii) lack of debtor’s negligence, but whether COVID-19 (iii) distorted the balance of the parties’ obligations and (iv) the debtor fulfilled their obligations by reserving their rights under Article 138 of the TCO should be evaluated on a case by case basis. Additionally, the burden of proof lies with tenants to prove that the revision conditions are met. Considering the foregoing, it is important for the tenants to start collecting relevant evidence and inform their landlords accordingly. Most importantly, if a party has the possibility to file a lawsuit for the revision of a lease agreement due to COVID-19, it is crucially important to make rent payments by reserving the rights under Article 138 of the TCO.