Commercial rent payments Turkey

Since the COVID-19 outbreak in March 2020, the Turkish government has taken various measures affecting almost all sectors. These measures included curfews, travel restrictions between provinces, closure of certain businesses (e.g. cafes, restaurants, hairdressers, etc.), flexible working arrangements for public institutions, etc. As a result, certain restrictions, such as the curfews and the restriction on the activities of restaurants, had a negative impact on the financial situation of most businesses. In order to prevent the negative consequences of the restrictions, the Turkish government took various economic measures, such as restrictions on the termination of employment, unemployment benefits and rent subsidies. The general aspects of rent subsidies and the reflection of the lease-related complications caused by COVID-19 will be assessed under this article.

The main purpose of the rent subsidies was to eliminate sectoral difficulties resulting from the inactivity of enterprises and to prevent economic stagnation. To this end, the Law on Reducing the Impact of the New Coronavirus Epidemic (COVID-19) on Economic and Social Life and Amending Certain Laws (“Law”) was enacted, providing that rents for immovables owned or managed by local authorities would not be levied for the period during which enterprises ceased their activities. For the period in which there were no closures, rents were deferred for three (3) months.

For individuals or legal entities carrying out their activities with the authorization of the municipality, income subsidies were provided for a period of three (3) months after the publication of the relevant Law. Unfortunately, however, the rent subsidy included only small amounts of direct economic support for temporary periods upon request.

Ultimately, the temporary solutions to the economic complications associated with tenancies were inadequate, resulting in a significant number of tenant businesses taking legal action, majorly with the purpose of obtaining a rental allowance. Although there are several legislative basis on which tenants can rely to achieve such purposes, the main point of contention in these lawsuits was whether COVID-19 falls within the scope of such a legal basis.

1. Subsequent impossibility due to force majeure

There is no standard definition of force majeure in Turkish law. Therefore, the conditions for the application of force majeure are set out in the relevant laws and the relevant court rulings are taken into account for the implementation of force majeure. According to Article 136 of the Turkish Code of Obligations ("TCO"), the obligation is terminated if the performance of the obligation becomes impossible for reasons beyond the control of the debtor. The following conditions must exist in order to have a legitimate reason for the implementation of force majeure: (i) an external event causing the breach of the obligation, (ii) a causal link between the external event and the breach, (iii) an unavoidable breach of obligation due to the force majeure, and (iv) the external event being unavoidable despite the taking of sufficient measures.

The Turkish Court of Appeal's approach to the application of force majeure and its relationship to leases can be interpreted on the basis of its previous judgments. Accordingly, the General Assembly of the Civil Chambers of the Turkish Court of Appeal (Case No: 2017/90 and Decision No: 2018/1259) interpreted force majeure as "an unforeseeable and unavoidable extraordinary event that leads to the breach of an obligation, a debt or a general norm of conduct in a compelling manner. Earthquakes, floods, fires, pandemics and similar natural disasters would be considered force majeure events." In addition, the 9th Civil Chamber of the Turkish Court of Appeal (Case No. 2002/4558 and Decision No. 2002/6953) has ruled that "Force majeure is either a natural, social or legally unforeseeable event. Import and export restrictions and border closures related to such restrictions would qualify as force majeure in law." Therefore, in order to determine whether COVID-19 qualifies as a force majeure event, a case-by-case assessment must be made based on the specific impact of COVID-19 on the agreements in question. Ultimately, direct or indirect effects such as business disruption, loss of labour, import and export restrictions caused by COVID-19 could be considered as a basis for the application of force majeure.

2. Default by the debtors and/or granting of an extension on grounds of temporary impossibility

If the impossibility of fulfilling the obligation is only temporary, the debtors are granted a deferment for the debt in question. If the reason preventing enforcement does not cease to exist, this means that there is a permanent state of impossibility. For such cases, Article 136 of TCO essentially regulates permanent impossibility and therefore grants the right to terminate the obligation. However, the measures related to COVID-19 which complicate the rent payments are likely to cause a temporary impossibility for leases where the parties' obligations are not terminated. In the event of a debtor's default due to late performance, the effects of temporary impossibility must be assessed and implemented taking into account the purpose of the contract and the interests of the parties.

In the decision of the 3rd Civil Chamber of the Turkish Court of Appeal (Case No. 2021/3452 and Decision No. 2021/6001), the court stated that in the case of temporary impossibility, the contract is no longer binding after the expiry of the extension granted. The duration of the time limit is determined according to the circumstances of each case.

3. Harshness of the contract

Pursuant to Article 138 of the TCO, the judge may adapt the contract to the new conditions if the parties can no longer reasonably be expected to perform the contract due to an event that they cannot foresee. For a contract to be adjusted for harshness, the following conditions of Article 138 of the TCO on the hardship of obligations must be met; (i) at the time of the conclusion of the contract, an extraordinary situation must have arisen which could not have been foreseen and expected by the parties; (ii) this situation did not originate with the debtor; (iii) the situation in question changed the facts existing at the time of the conclusion of the contract to the detriment of the debtor in such a way that performance could not be expected from the debtor; and (iv) the debtor must not yet have performed the debt or it must have been performed while preserving the rights arising from the excessive difficulty of performance.

If such conditions exist, the judge may be asked to adjust the contract. If an adjustment is not possible, the option to terminate the contract may be used.

In the decision of the 4th Civil Chamber of the Bursa Regional Court, the above arguments were put forward and analysed. Accordingly, it was decided that there are legitimate grounds for adjusting the lease due to the impact of COVID-19 and the amount of rent should be re-determined by the court as a provisional measure; however, such provisional measure needs to be re-evaluated periodically. On the other hand, it should be noted that each case should be evaluated separately; it is not possible to (i) generalize the impact of COVID-19 on tenancies and (ii) argue that COVID-19 should be considered as force majeure based on such precedent.