In residential and roofed workplace rental agreement, the agreement does not automatically terminate upon expiration of the term. Pursuant to Article 347 of the Turkish Code of Obligations (''TCO''), in residential and roofed workplace rents, the agreement will be deemed to be extended for 1 year with the same conditions, unless the lessee notifies at least 15 days before the end of the term of the fixed-term agreement. In this situation, the rent relationship between parties may last for years regardless of the duration of the agreement.

However, since it would be disregarding the interest of the lessor to keep the rental price same for this whole period in the face of inflation; TCO in order to protect the interests of both parties, exempted the rental price for the rental contract that continues for 1 year under the same conditions if the lessee does not notify the lessor and Article 343 of the TCO states that ''lease agreements cannot be amended to the detriment of the lessee, except for the determination of the rental price''.

Redetermination of the rental prices is regulated in Article 344 of the TCO. This article is a mandatory provision and limits the authority of the parties to determine the rental price within freedom of contract. In this article, Article 344 of the TCO regarding the rent to be applied in the renewed lease periods of the parties is discussed.

i. In The Situation of There Is a Provision In The Lease Agreement Regarding The Rent Increase:

The first paragraph of Article 344 of the TCO is regulated as follows:

"The agreements of the parties regarding the rental price to be applied in the renewed lease periods are valid provided that they do not exceed the rate of change in the consumer price index according to the twelve-month averages in the previous lease year. This rule, shall also apply to lease agreements with a term longer than one year."

Pursuant to this regulation, the rent increase rate that is determined in the lease agreement cannot exceed the rate of change in the Turkey Consumer Price Index (''CPI'') according to the 12-month averages in the previous lease year. If the rent increase rate exceeds this, the rate that exceeds the limit will not be valid and the rent increase rate will be realized over the upper limit.

In other words, if the parties have agreed to increase the rent by a certain rent or amount each year and this increase rate is higher than the rate of change in the CPI, the rent increase will be realized at the rate of change in the CPI. Conversely, if the agreed rent increase rate is lower than the rate of change in the CPI, the agreed increase rate will be applied.

According to this article, in the situation of renewal of the lease agreement, the agreement may not contain a provision regarding the increase to be applied to the rent. In this situation, the parties can make an agreement regarding the increase to be made in the renewed rental prices and they can apply this agreement as long as the lease relationship between these parties continues.

ii. In The Situation of There Is No Provision In The Lease Agreement Regarding The Rent Increase:

The second paragraph of Article 344 of the TCO is regulated as follows:

"If the parties have not made an agreement on this matter, the rent shall be determined by the judge in accordance with equity, taking into account the condition of the leased property, provided that it does not exceed the rate of change in the consumer price index of the previous lease year according to the twelve-month averages."

Pursuant to this regulation, in the situation that the lease agreement is renewed, if there is no provision in the agreement regarding the increase to be applied to the rent, the rental cost will be adjudicated by the judge. However, the judge cannot adjudicate an increase at a rate higher than the rate of change in the CPI.

Although the lawmaker hereby grants the judge a discretionary power to determine the rental price, it has introduced a limitation by including the phrase ''.provided that it does not exceed the rate of change in the CPI according to the twelve-month averages.''

iii. Determination of the Fair Market Value:

The third paragraph of Article 344 of the TCO is regulated as follows:

"Regardless of whether an agreement has been made by the parties in this respect or not. In lease agreements with a term or renewed after five years and at the expire of each five years thereafter, the rent to be applied in the new lease year shall be determined by the judge in an equitable manner, considering the rate of change in the consumer price index according to the twelve-month averages, the condition of the leased property and the comparable rental prices. The rent determined in this manner in the lease year after each five years may be changed according to the principles in the previous paragraphs."

The first and second paragraphs of the article 344 of TCO are based on the rate of change in the CPI. The third paragraph, referred above, limits the obligation to determine the rental price in this manner according to the first or second paragraph to 5 years.

At the end of 5 years, the following issues will be considered during the determination of the rental price to be made by the judge and will determine the fair rental price:

  • Rate of change in CPI,
  • Status of the leased property,
  • Precedent rental prices,
  • Equity

The presence or absence of an agreement provision in the agreement will not be effective in making this determination. It should also be noted that there is no obligation for the judge to determine the fair value at the expire of the 5th. leasing period. If the parties wish, they may apply for the determination of the fair value in the following years after the 5th year. In such a situation, it is possible to file the next fair value determination case 5 years after the first fair value claim.

iv. In The Situation of Rental Price Is Agreed In Foreign Currency:

The above-mentioned provisions shall apply in the case that the lease agreement price is agreed in Turkish lira. In the fourth paragraph of Article 344 of the TCO, a special provision has been introduced for the situation where the contractual rental price is agreed in foreign currency.

The fourth paragraph of Article 344 of the TCO is regulated as follows:

"If the rental price is agreed in foreign currency in the contract, the provisions dated 20/2/1930 and without prejudice to the provisions of the law No. 1567 on the Protection of the Value of Turkish Currency, the rental price cannot be changed until five years have elapsed. However, the provision of Article 138 of the TCO titled "Excessive difficulty of performance'' is reserved. In determining the rental price after five years, the provision of the third paragraph shall be applied by taking into consideration the changes in the value of the foreign currency

Pursuant to this regulation, if the rental price is determined in foreign currency, it is not possible to increase the rental price for 5 years, even if the contract is structured differently.

It is important to note that, within the scope of determining the rental price specified in the lease agreement in foreign currency, the Decree No. 32 on the Protection of the Value of Turkish Currency and the Communiqué on the Decree No. 32 on the Protection of the Value of Turkish Currency should not be neglected. For example, in accordance with these regulations:

  • It is not possible to determine the contract price and other payment obligations arising from these agreements in foreign currency or indexed to foreign currency in real estate lease agreements, including residential and roofed workplaces, the subject of which is real estate located in the country, to be concluded between residents in Turkey.
  • In real estate lease agreements to which Turkish residents who do not have Turkish citizenship or foreign residents who have branches, representative offices, offices, liaison offices, companies in which directly or indirectly have fifty percent or more shareholding or joint control and/or control, and companies in free zones within the scope of their activities in free zones, it is possible to agree on the contractual price and other payment obligations arising from these agreements in foreign currency or indexed to foreign currency.

v. Regulation on the Rate of Increase in Residential Rents:

Pursuant to Article 23 of the "Law on Additional Motor Vehicles Tax (MTV) to compensate the Economic Losses Caused by the Earthquakes Occurring on 6/2/2023 and Amendments to Certain Laws and Decree Law No. 375" published in the Official Gazette No. 32249 dated July 15, 2023, Temporary Provision 2 has been added to the Turkish Code of Obligations. According to this, agreements regarding the rent to be applied in the lease periods renewed between July 2, 2023 and July 1, 2024 are valid provided that they do not exceed 25% of the rent of the previous lease year. Agreements exceeding these rates will be invalid in terms of excess amount.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.