The following study aims to focus on the issue in the view of common knowledge. It is obvious that many theoretic discussions will take place on the issue and decisive answers will be given with comments by our First Degree Courts and the Supreme Court. Therefore, this study should be read as a general legal review based on our actual knowledge before a pandemic spread all over the country simultaneously with the rest of the world. It is our advice to review the relevant contracts and documents for the answers to questions of special circumstances.
1) Determination of the Situation
The coronavirus outbreak has affected all commercial leases but no doubt the ones concluded in retail and food and beverage industries more.
In very specific circumstances, to avoid sharing misleading information about any parties contracts by making general statements, we strongly remind that our statements herein may only provide an insight, and that the final evaluation of each contract or commercial relationship must be evaluated by considering the characteristics of the contract and the concrete case in itself into account.
Another important point is that the Turkish Code of Obligation does not require lease contracts to be made in writing and verbal lease contracts are as valid as the written ones; in other words, one should consider that there is a lease contract wherever there is a lessor and a tenant for a specific premise. Therefore, even if there is no written agreement between the parties, the statements given below should be taken into account for verbal lease contracts also.
2) Force Majeure in Turkish Law
The definition of force majeure is not stipulated in the Turkish legislation, however various legal conclusions are attributed to judicial decisions and definitions in the doctrine. The Court of Appeals defines force majeure as an extraordinary and unavoidable event that cannot be foreseen, which inevitably prevents the debtor to perform its debt.
According to this definition, for an event to be considered as force majeure:
- An event other than the business or regular activity should occur.
- This event should inevitably lead to the breach of the obligations.
- It should not be possible to foresee or avoid such an event.
3) Does The Lease Contract Include A Force Majeure Provision?
Force majeure provisions are regulated in most of the lease contracts in the general provisions or in the final provisions, which are not much thought over in contract negotiations or the wording. Therefore, the content of the provisions should be carefully reviewed, if circumstances such as force majeure or impossibility of performance are regulated by the contract, the rules of implementation should be determined in detail. Failure to perform the actions as defined in a contract in which these provisions are included, failure to comply with time and notification obligations force majeure shall not prevent the consequences due to failure to act, despite the existence of force majeure wording.
4) Turkish Code of Obligations and the Event of Hardship
By its three Articles (136, 137, 138), The Turkish Code of Obligations regulates the rules that are to be followed and the possible consequences for any kind of contract if the obligor is unable to perform its obligation in part or whole, due to force majeure reasons which are not caused and expected to be foreseen by the obligor. These regulations indicate that the legislator considers it more possible to end the obligation due to force majeure for instantaneous performance contracts, and to adapt the contract actions due to the difficulty of excessive-performance caused by force majeure for continuous performance contracts.
According to the Article 138 of The Turkish Code of Obligations, “If an extraordinary situation, that was not foreseen and was not expected to be foreseen by the parties at the time of the conclusion of the contract, arises due to a reason that does not attribute from the debtor and changes the existing facts at the time against the debtor in such a way as to violate the rules of honesty and if the debtor has not yet performed its obligations and has become excessively difficult to perform, the debtor shall have the right to request from the judge the adaptation of the contract to the new conditions and to revoke the contract if this is not possible. In contracts of continuing obligations, the debtor shall terminate the contract. This article also applies to foreign currency debts.”
5) Termination of a Lease Contract for Extraordinary Reasons Under the Turkish Code of Obligations
Article 331 of The Turkish Code of Obligations states that “Each party, in the event of significant reasons which the continuation of the lease relationship is unbearable for itself, may terminate the contract at any time under the legal termination notice period. The judge, decides the monetary consequences of the notice of extraordinary termination, taking the terms and circumstances into account.”
The regulation above shall not be applied until 01.07.2020, where the tenant is private law and public law legal entities or a person who is considered as a merchant as per the Turkish Commercial Code.
In the current circumstances, a party of the contract shall not be able to terminate the lease contract regarding that the contract conditions becoming unbearable for him due to the existing outbreak until 01.07.2020; that is, the party will suffer the consequences of unjust termination.
6) Communiqué No. 518 on Tax Procedure Law
Within the scope of Article 3 of the Communiqué, published in the Official Gazette on 24.03.2020, besides those operating in other sectors that are not included here, shopping centers, retail, artistic services such as cinema and theatre, food and beverage services including restaurants and cafes, textile and apparel manufacturing, building construction services are accepted under force majeure measures between 01.04.2020 to 30.06.2020.
We believe, this regulation that is made in the context of The Tax Procedure Law, does not damage the right of parties who operate in the sectors and business fields that are not included to this regulation, to claim that they are affected by the force majeure about the lease agreements where they are a party.
In the future, this regulation may even be a reference for the consequences of force majeure or excessive performance difficulties in the settlement of disputes that will be subject to the judiciary, at least for the lessors and tenants of real estate leases for commercial purposes within the period mentioned above.
7) Provisional Article 2 of the Law No. 7226 on Amendments to Certain Laws, Dated 26.03.2020
Failure to pay the rent of a workplace between 01.03.2020 and 30.06.2020 does not constitute a reason for termination of the lease agreement or eviction.
It is necessary to emphasize that this regulation, without releasing the tenant from its obligation to pay the rent or common expenses, temporarily suspends the right to request eviction due to the failure of paying rent according to the Article 315 of the Turkish Code of Obligations.
8) Can Lessors Force Tenants To Pay Their Rents During The Temporary Conditions?
A. As stated in paragraph (V) above, the failure to pay the rent between 01.03.2020 and 30.06.2020 does not constitute a reason for termination of the lease agreement and eviction. This regulation will not, of course, abolish the right of the lessor to demand the eviction for unpaid rents for the period before 01.03.2020.
B. Is it possible to start a legal proceeding for the collection of rental fees that have not been paid since the beginning of March and for those related earlier? According to Article 1 of the Presidential Decree No. 2279, the execution of all enforcement and bankruptcy proceedings carried out throughout the country, except execution proceedings regarding the maintenance receivables, will seize until 30.04.2020 and that no new execution is to be carried out within this time frame. In the scope, within the period between 01.03.2020 and 30.06.2020, if the tenants do not pay the rental fees arising from a commercial lease agreement, the lessor will be able to start legal proceedings on 30.04.2020 earliest. However, the payments that are not made until 30.06.2020 will not constitute a legal justification for the request for eviction.
C. Can the lessor request interest for the lease payments not made on time? There is no regulation preventing the issuing of an interest if payment is not made on the due day defined by the lease agreement. However, we consider that the interest to be requested by the lessors should be handled together with the requests for adaptation of the contract terms for those the tenants may demand “excessive-performance difficulties”.
9) Notes for the Lessors
An issue to remind the lessers is that, although some legal experts and professional organizations have different opinions, the payment of the rent is not suspended or postponed, and only the lessors right to request the eviction is temporarily suspended. For this reason, if the lessers due obligation by contract is concerning the notification of the invoice to the tenant, the lessors should continue to notify their invoices to the tenants; tenants may also have to pay some delay interest for unpaid rents in the future.
Another practical issue has arisen regarding the chain store tenants, whether risk provisions for delay interest are to be set aside due to unpaid rents. Our view is that the tenant company manager who will answer this question has the right to demand the adaptation of the rental price under Article 138 of the Turkish Code of Obligations, and that there is no need to set aside a risk because the delay interest can be offset by swapping in this context.
10) Can The Tenants End The Lease Agreement?
Before starting to think about the answer to this question, it would be more appropriate to search for answers such as the date on which the lease contract concluded between the parties, whether the real estate subject to the contract has yet been delivered to the tenant, the duration of the lease contract and whether the field of activity where the leased premise will be used is restricted by the contract. As a simple and basic principle, if the premise is delivered to the tenant, it should be considered that the lessor has fulfilled the principal obligation committed by the contract and therefore the tenant’s commitment to act under the commitments undertaken by the contract has not removed.
However, the tenant will be able to request the implementation of Article 138 of the Turkish Code of Obligations, due to the performance of the rent payment becoming extremely difficult because of the epidemic and self-isolation.
It should be evaluated separately for each contractual relationship whether the conditions of Article 138 of the Turkish Code of Obligations have been met, if so, at what level they have occurred. Of course, the tenant of a children’s playground should be subject to different agreements or judicial decisions comparing to a tenant that continues to provide takeout service in the same shopping center.
Besides, if the agreement was concluded at a time when the epidemic was seen or expected to be seen in our country and the debtor becomes unable to fulfill its obligations, the lessor will be able to claim that the tenant committed the obligations already knowing the conditions.
11) Can the Lessor and the Tenant Demand the Adaptation of the Conditions in the Lease Agreement Due to the Outbreak?
We hope that this question will be answered positively in the future by judicial decisions. Because it is indisputable that the conditions causing excessive-performance affect both parties of the contracts. Therefore, our opinion is that the parties may request not only the reduction of the rent amounts but also the adaptation of other contract terms, for example, the extension of the contract period. However, as mentioned earlier, the conditions of the adaptation may be different even for tenants in two workplaces side by side. Each adaptation will be made by evaluating different factors such as the contract, the actions taken by the tenants and the lessor, the date of the contracts, the field of activity, the duration.
12) Fulfillment of Performances
It seems that today different stakeholders are taking steps considering the total benefit in daily life and commercial life. There are two issues to remind here. First of all, it is to review the contract terms, how your obligations are described in it and the terms defining your rights. On the other hand, it should not be neglected to include clauses of reservations, such as “all our rights arising from the contract and laws are reserved; and will not be considered as an implied acceptance of waiving our rights or changing the contract”, when notifying other parties of existing contracts of a situation or implementations that creates changes to the contract. Such clauses will be of great importance in the judicial processes in the future, where demands for adaptation of the contract are argued due to excessive-performance difficulties.
13) To Benefit from the Results of The Favor Due to Force Majeure
A constructive and quick solution for the parties will be reached through the decisions without self-reservations. The contracting parties, who try to turn this situation into an opportunity and disregard the damage caused to the other party for the same reason, will remain in the uncertainty of the judicial processes that will last for years, while making a new investment, production or operational decisions.
Finally, in any case, it should be reminded that any party that thinks their field of activity and business is affected by the coronavirus epidemic and therefore cannot fulfill their contractual obligations; whether or not there is a written lease agreement, should notify the lessor or lessee of,
- the situation and why they are affected,
- how long they expect to be affected,
- What their contractual obligations are, even if they are not included in the contract or the contract that cannot be fulfilled partially or completely because of the effect
With a written notification without a delay and also serve notifications in the same way for new developments, regarding that the notifications will be beneficial in the process of resolving possible disputes.
This information and our comments above are for guidance purposes only and should not be regarded as a substitute for taking legal advice. Vona Law Office makes every effort to ensure accurate and up to date content, however, it may not reflect the most current legal developments based on the amendments on the applicable laws and legislations after the publishment of this article. Therefore, nothing in this article should be considered as legal advice and you should consult with lawyers before making any decision or taking any action based on the information included in this article.