Determination of the Rent
The rent can be freely determined between the lessee and the lessor as per the principle of freedom of contract that dominated Turkish legislation, without prejudice to provisions of undue influence. Although increase in the rent initially determined by the parties is subject to the limitations regulated in the Turkish Code of Obligations unless otherwise agreed by the parties, the concept of “freedom of contract
1” that is regulated by Article 26 of the Turkish Code of Obligations (“
TCO”) is applicable in this case.
In this regard, first of all, pursuant to the TCO, the rent determined in the first year of the tenancy may only be increased once in each rental period. In terms of renewed lease agreements, increase in the rent shall be determined within the limitations regulated under the TCO. In this regard, pursuant to Article 344/I; a cap (ceiling) has been regulated such as the increase rate would not exceed the rate of change in the consumer price index of the previous rental year compared to the twelve-months' average.
If the agreed increase rate within the scope of the rental agreement is determined higher than the consumer price index, the rent increase in the renewed period will only take place at the rate of the consumer price index. In other words, should the settled rate of increase is lower than the consumer price index, the rate of increase agreed upon in the agreement will be applied.
For example, according to the data announced by the Turkish Statistical Institute (“TSI”) in September 2022, the rate of change in the consumer price index compared to the twelve-months' average was determined as 59.91%. This rate shall be taken as the basis for the increase in Turkish Lira denominated rents to be made in September, as the cap of rent increase. The same method would be mutadis mutandis applicable for any month that the rent increase is subject to.
However, in case the lessee accepts the increase rate which is determined in excess of the rate stipulated in the TCO and commences to make payments as per the increased rent; the increased rent shall be valid for the parties pursuant to the established precedents of Turkish Supreme Court
2. Therefore, should any lease agreement regulates a higher increase of rent and the rent is paid compliant with the agreement, it will be legally assumed that the rent is increased in line with the agreement.
Determination of the Rent Within The Following 5 Years:
Pursuant to the Article 344/III of TCO; the limitation of increase rate for the rent based on consumer price index shall not be applied on the rental agreements ongoing more than five years. In this regard, at the end of the fifth rental year, the market rent should be determined by taking into account not only the consumer price index, but also the status of the leased property, precedent rents, and equityregardless of whether there is a provision for an increase in the agreement or not. It should also be noted that it is not a mandatory element to request the determination of the market price from the court at the end of the fifth year. In the absence of such a request from the lessor, the consumer price index shall be applicable in the increase of rent to be made.
Furthermore, it is also regulated in the lease agreement that if the rent is determined in foreign currency, no modification can be made to the rent unless five years have elapsed. In this case, the rent determined in foreign currency shall be valid for 5 (five) years without applying any increase. In case of no agreement between the parties at the end of the fifth year, to the rent shall be determined by the judge considering the rate of change in the foreign currency, the status of the leased property and the precedent rent.
Filing a Rent Determination Lawsuit
As stated above, both parties have the right to initiate a legal action in the event that the parties cannot agree on the rent increase. Pursuant to the Article 345 of TCO; a rent determination lawsuit may be filed following the expiry of the 5 (five) years’ lease term during the renewed rent period. However, the filing date of the lawsuit or the date of the notification made by the lessor regarding the rent increase plays a huge role on the effective date of the new rent to be determined by the judge.
In this regard, if the lawsuit is filed within at least thirty days prior to the beginning of the new rental term or provided that the lessor has given written notice to the lessee that the rent will be increased during the new rental term within the same period, the rent to be determined by the court will retroactively bind the lessee from the beginning of the relevant new rental term. Otherwise; the price to be determined by the judge shall only be valid for the following year (i.e. 7th year).
The Fresh Temporary Amendment for the Residence Rentals
Due to the inflation increase in Turkiye the increase rate of the rent applied to the immovables classified as residence is capped at 25% for a duration of 1 (one) year in order to protect the lessees against high inflation on temporary basis, as per the amendment made in the TCO with the law numbered 7409 and entered into force on June 11, 2022.
With the fresh amendment, in case the change in the consumer price index in the previous rental year compared to the twelve-months' average exceeds the rate of 25%; the increase rate shall be applied as 25% unless otherwise is agreed between the parties.
Conclusion
Although the principle of “freedom of contract” is generally accepted in terms of the lease agreements under Turkish Law, in some cases, freedom of contract is limited in order to protect the lessee as explained above. Apart from legislative limitations, parties are free to negotiate and determine the rent increase even varying from the limitations in order to sustain a contractual relationship.
MORAL | KINIKOĞLU | PAMUKKALE | KÖKENEK
Serkan Pamukkale, Senior Partner
Cerensu Çetin Yenigün, Senior Associate
Bekir Yağız Kızkapan, Associate
1TCO Article 26: The parties can freely determine the content of a contract within the limits stipulated in the law.
2Supreme Court, 3rd Civil Chamber E. 2019/3381 K. 2019/9536 dated 02.12.2019