The postponed articles of the Turkish Code of Obligations No. 6098 (the “TCO“) will enter into force for office leases on July 1, 2020. We pointed out that these articles of the TCO will enter into force if not postponed again, and this will cause considerable effects for the ongoing office lease agreements in several articles and alerts we drafted, as well as in our webinars.
The Articles Which That Will Enter Into Force and Their Impact
Assignment of the Lease
Article 323 of the TCO regulates the assignment of the lease to third parties. As per the article, as a rule, the lease agreement cannot be assigned to a third party without the written consent of the landlord. However, for the office lease agreements, the landlord cannot refrain from providing such consent unless there is a just cause. In other words, following July 1, 2020, if the tenant wishes to assign the lease agreement, the landlord cannot refuse to provide consent to this assignment unless there is a valid/just cause.
Return of the Leased Property before the End Date of the Lease
Per Article 325 of the TCO, in case the leased property is returned without conforming the lease term or termination period, the tenant will continue to perform its obligations under the lease agreement for a reasonable period of time in which the property may be leased under similar circumstances. As per the same article of the TCO, if the tenant finds another potential tenant that has the capacity to pay the rent, is ready to take over the lease and that would reasonably be accepted by the landlord as a tenant, the tenant’s obligations would be discontinued.
Following the entry into force of the subject article on July 1, 2020 for office leases, in cases where the tenant evacuates the property before the lease term or termination period, they may be released from the obligations of the lease agreement if they find another tenant as explained in the foregoing paragraph.
Termination Based on Probable Cause
Termination based on probable cause is regulated under Article 331 of the TCO. Even though the article is postponed until July 1, 2020, since the abrogated Code of Obligations (the “ACO“) contains a similar clause (Article 264), parties may terminate the contract based on probable cause for fixed-term lease agreements. As of July 1, 2020, the office leases for indefinite terms may also be terminated based on probable cause. Based on Article 331, another difference will be on the determination of the amount of indemnity, which will be determined by the judge considering the specifics of the case.
Linked Transaction Prohibition
Article 340 of the TCO regulates the prohibition of linked transactions. As per Article 340, the landlord cannot ask the tenant to undertake any obligation not related to the use of the leased property and against the tenant benefit. Such contracts will be deemed invalid. As of July 1, 2020, for instance, the landlord cannot request the insurance premiums for the insurance of the whole shopping mall in the lease agreements or car park allocation fee from the tenants who do not have a motor vehicle.
Per Article 342 of the TCO, if a security deposit is foreseen in the lease agreement, the amount of the deposit cannot exceed the amount for three months’ rent. In addition, this deposit should be deposited to a bank account and the parties cannot withdraw the subject amount without either parties’ approval, final execution order or a final court decision. Following July 1, 2020, this article will be applicable to the security deposits under office leases.
Having said that, in practice, it is seen that the banks are hesitant to open up these accounts, as these constitute a considerable risk for the banks due to the conditions of withdrawal.
Further, even though the lease agreement foresees that no interest will be applicable to the security deposit, the tenant will be able to ask for interest following the termination of the lease agreement and the evacuation of the property.
Prohibition of Changes to the Detriment of the Tenant
Article 343 of the TCO states that no changes can be made after the signing of the lease contract to the detriment of the tenant except the rent amount. Even though the enforcement of this article was also postponed, the ACO and the Law on Real Estate Rents contain similar clauses. Thus, there will be no change in practice after the article enters into force on July 1, 2020.
Prohibition of the Regulation to the Detriment of the Tenant
In practice, this article will be the most discussed article among the articles that will enter into force on July 1, 2020.
The prohibition of the regulation to the detriment of the tenant is different from the prohibition of changes to the detriment of the tenant and it is regulated under Article 346 of the TCO. The article regulates no obligation other than the payment of the rent and the side costs. Following July 1, 2020, the penalty clauses for no payment and acceleration clauses will be invalid.
Acceleration clauses -which regulate that if the tenant fails to pay the rent on time, all remaining payments will be due- will obviously be deemed invalid. However, the discussion evolves around other penalty clauses (such as the obligation to keep stores open for certain hours in shopping malls, to declare the turnover inaccurately, etc.) and these should be further evaluated in depth. This matter will become clear following the Supreme Court decisions and precedents.
As explained above, the postponed articles of the TCO are imperative and related to public order and, therefore, they will be applicable to the ongoing office lease agreements right from July 1, 2020. This will cause considerable changes in these lease agreements. The enforcement of these articles — mainly protecting the tenant during the COVID-19 measures applicable to the retail sector, restaurants and cafes — will create several discussions. In that regard, this matter will be an important one for landlord-tenant relationships.
Considering the earlier process of the postponement of these articles, they may be postponed again with the law being implemented on the last day. However, there is no publicly available information on the postponing yet. Considering the effects of the subject articles, it would be operationally, financially and legally prudent for the parties to run through the current lease agreements in light of the subject articles and to conduct a risk assessment.