Lease agreements, perhaps the most commonly encountered type of contract in practice in Türkiye, continue to remain a prominent issue due to the tenant-protective provisions of the Turkish Code of Obligations, particularly the fact that rents paid by long-standing tenants have been eroded by inflation, and the ongoing inability to resolve the issue of lengthy judicial proceedings.
In this article, we aim to provide a general overview of lease agreements, examine their interpretation in light of the decisions of the Court of Cassation, and offer a comprehensive and practical guide to calculating rent increases.
1. Reading the Lease Agreement – Understanding It Within the Framework of Applicable Legal Regulations
For a valid lease agreement to be concluded, it is necessary and sufficient for the parties to reach an agreement on the address of the leased property, the rent, the identities of the tenant and the landlord, and the term of the lease.
For the tenancy relationship established in this manner to be recognized by the court, the foregoing elements must either not be disputed by the opposing party or be substantiated by concrete evidence. Where the amount in dispute exceeds the statutory threshold for proof by written instrument, this evidentiary requirement can only be satisfied through written evidence. Accordingly, in order to avoid any difficulties concerning proof, it is advisable to execute the lease agreement at least in simple written form.
The general provisions governing lease agreements are set out in Part Four of the Turkish Code of Obligations, while Articles 339 et seq. contain specific provisions applicable to residential and roofed commercial premises lease agreements. Two of the fundamental provisions to be considered when examining residential and roofed commercial premises leases are Article 340, entitled “Ancillary Agreements,” and Article 346, entitled “Prohibition of Agreements to the Detriment of the Tenant.” These provisions demonstrate that the legislator has not granted the parties unrestricted freedom of contract and establish the legal boundaries within which the terms of a lease agreement may be determined.
By way of Article 340, the legislator provides that “if the conclusion or continuation of a residential or roofed commercial premises lease is made conditional upon the tenant assuming an obligation that is not directly related to the use of the leased property and does not benefit the tenant, the agreement connected to the lease shall be invalid.” Similarly, Article 346 provides that “the tenant may not be required to make any payment other than the rent and ancillary expenses. In particular, any agreement stipulating that a penalty shall be payable in the event of late payment of the rent or that future rent payments shall become due and payable shall be invalid.” Through these provisions, the legislator seeks to prevent the tenant, who is regarded as the weaker party in relation to the landlord, from being burdened, at the time the lease is concluded, with obligations unrelated to the use of the leased property, as well as to prevent the landlord from obtaining an unjustified benefit through the lease agreement. Moreover, the law expressly emphasizes that even where the parties have agreed upon and executed a provision contrary to these principles, the relevant provisions of the lease agreement shall nevertheless be deemed invalid.
Accordingly, when examining the provisions of a lease agreement, including the respective obligations of the parties toward one another, it would be appropriate to first determine whether any provision exists that would be deemed legally invalid.
Another area in which the legislator does not afford the parties full freedom of contract in respect of lease agreements concerns the rent increase to be applied during renewed lease terms.
2. Legal Provisions to Be Taken into Consideration When Calculating Rent Increases
Lease agreements are, for the most part, concluded for a definite term. Whether a lease is for a definite or indefinite term is relevant when determining the notice periods for termination and the time limits for bringing legal proceedings. This article, however, focuses on the provisions governing rent increases in respect of fixed-term lease agreements.
For fixed-term lease agreements concerning residential and roofed commercial premises, the expiry of the lease term does not automatically result in the termination of the agreement. Unless the tenant duly gives notice upon expiry of the lease term, the lease agreement is automatically renewed. (Turkish Code of Obligations, Article 347) The legislator grants the landlord the right to terminate the lease by way of legal proceedings, subject to the applicable notice periods, only in respect of lease agreements that have been automatically renewed in this manner and have been extended for a period of ten years.
Accordingly, when entering into a lease agreement, it may be said that, in the absence of an intention on the part of the tenant to terminate the lease, the landlord may remain bound by the agreement for at least twelve years. Given that this is a considerably long period, it is of particular importance, in order to maintain a fair balance of interests, that lease agreements protect the rights of the landlord as well as those of the tenant, within the limits permitted by law.
In order for the landlord to demand an increase in the rent in subsequent years, the parties must first have agreed, at the time the lease agreement was concluded, that the rent would be increased in the subsequent lease terms. For a rent increase provision to be valid, the amount or rate of the proposed increase must be “certain or determinable.” If the parties have not included a valid rent increase provision applicable to the renewed lease terms and have not reached an agreement on this matter when concluding the lease agreement, the landlord may seek an increase in rent only by bringing legal proceedings. (Turkish Code of Obligations, Article 344)
In fixed-term lease agreements concerning residential and roofed commercial premises, where the rent increase rate applicable upon the extension of the lease term has been agreed upon, such rate shall apply subject to the statutory limits. Accordingly, it is necessary to determine the statutory limits applicable to the relevant period and assess them together with the rate stipulated in the lease agreement.
Period Prior to 1 July 2012 – The Former Code of Obligations (Law No. 818)
The principle of freedom of contract applied regardless of whether the leased property was a residential premises or a roofed commercial premises. Until the entry into force of the Turkish Code of Obligations No. 6098, the matter remained largely unregulated by statute and was instead shaped through the decisions of the Court of Cassation.
Period Following the Entry into Force of the Turkish Code of Obligations on 1 July 2012
The statutory ceiling applicable to rent increases during renewed lease terms is set forth in Article 344 of the Turkish Code of Obligations. Given the effective date of this provision and the amendments subsequently introduced thereto, it is appropriate to explain its application in light of these changes.
ARTICLE 344 OF THE TURKISH CODE OF OBLIGATIONS – Any agreement between the parties concerning the rent to be applicable during renewed lease terms shall be valid provided that it does not exceed the rate of increase in the Producer Price Index (PPI) in the preceding lease year. This rule shall also apply to lease agreements concluded for a term longer than one year.
Provisional Article 2 of Law No. 6217:** *“In leases of commercial premises where the tenant is a person deemed to be a merchant under the Turkish Commercial Code, or a legal entity governed by private or public law, Article 344 shall not apply for a period of eight years as of 1 July 2012.”
By Article 56 of Law No. 7161, the phrases “increase in the Producer Price Index” appearing in the first and second paragraphs of Article 344 were replaced with “the change in the Consumer Price Index based on the twelve-month averages.” This amendment entered into force on the date of its publication, effective as of 1 January 2019.
(The replacement of the PPI criterion with the CPI-based increase may be regarded as reflecting the legislative objective of protecting tenants. When the provision was initially enacted, the Producer Price Index was preferred as the reference index because it was lower than the Consumer Price Index. Looking at 2018, immediately before the amendment, it can be observed that significant fluctuations occurred in economic indicators due to exchange-rate volatility and other factors, and that the PPI increase rate to be taken into account by the parties to lease agreements approached nearly 30%. This rate was considered high under the economic conditions prevailing at the time.)
By Article 4 of Law No. 7409, published in the Official Gazette dated 11 June 2022 and numbered 31863, a temporary statutory ceiling was introduced for rent increases applicable to renewed residential leases between 11 June 2022 and 1 July 2023. Accordingly, the maximum rent increase rate was set at 25%, instead of the average rate of change in the Consumer Price Index over the preceding twelve months. This provision was subsequently extended and remained in force until 1 July 2024.
When all of these provisions are considered together, the statutory ceiling applicable to rent increases can be summarized as set out in the table below.
| LEASE TERM | ………. – 01/07/2012 | 01/07/2012 – 01/01/2019 | 01/01/2019 – 11/06/2022 | 11/06/2022 – 01/07/2024 | 01/07/2024 – ……… |
| RESIDENTIAL PREMISES | Sözleşme serbestisi | Üfe 12 aylık ortalama | Tüfe 12 aylık ortalama | %25 | Tüfe 12 aylık ortalama |
| ROOFED COMMERCIAL PREMISES | Sözleşme serbestisi | Sözleşme serbestisi | Tüfe 12 aylık ortalama | Tüfe 12 aylık ortalama | Tüfe 12 aylık ortalama |
As for the parties’ agreements concerning rent increases;
The parties may determine the rent increase applicable to renewed lease terms as a percentage, based on the Consumer Price Index (CPI), the Producer Price Index (PPI), an average of the CPI and PPI, or any other “certain or determinable” criterion.
The aforementioned CPI (Consumer Price Index) and PPI (Producer Price Index) are data published on a monthly basis by the Turkish Statistical Institute (TURKSTAT). These data are presented under various categories, including the “12-month average” and “average compared to the same month of the previous year.” Since the rent increase must be “certain or determinable,” the rent increase provision in the lease agreement should expressly specify which particular figure or category is to be used as the applicable increase rate (e.g., the CPI 12-month average or the PPI average compared to the same month of the previous year).
The established case law of the Court of Cassation indicates that, where the parties have not specified in the lease agreement which published CPI or PPI figure is to be used for calculating the rent increase, the calculation is to be made based on the “12-month average.”
REPUBLIC OF TÜRKİYE – COURT OF CASSATION, 6th Civil Chamber File No.: 2005/9613 Decision No.: 2005/9258 Date of Decision: 11 October 2005 “Although the parties agreed in the lease agreement that the rent would be increased at the rate of the Wholesale Price Index (TEFE), the agreement did not specify how this rate was to be applied. The agreement contains no provision stipulating that the increase would be calculated based on the rate corresponding to the same month of the preceding year, as argued by the defendant. Accordingly, the average rate of change over twelve months must be applied.”
Historical data published by the Turkish Statistical Institute (TURKSTAT) can be accessed through its official website to determine rent increase rates based on the CPI, PPI, or the average of the CPI and PPI as stipulated in lease agreements. As a general principle, since rent is paid for the relevant month and the use of the leased property takes place during that month, the increased rent should be paid from the commencement of the new lease term, with the applicable rent increase duly reflected in the payment. In practice, uncertainty may arise as to whether the data to be published in the month in which the rent increase takes effect or the data announced in the preceding month should be used for the calculation. Such uncertainty may result in disputes over rent differences and, ultimately, expose the tenant to the risk of legal proceedings being initiated against them.
By way of example, if a lease agreement due for renewal on 1 October 2024 provides for a rent increase based on the “CPI 12-Month Average,” the parties, when referring to the latest data published under the heading “CPI 12-Month Average” on the official website of TURKSTAT as of that date, will find the data that was announced during the first three or four days of the preceding month. Accordingly, the data published in the preceding month will ultimately be taken into account when calculating the rent increase. At this point, obtaining assistance from a professional in performing the calculation may be advisable.
Assessment of Statutory Limits and Contractual Rent Increase Rates
Pursuant to the aforementioned legal provisions, if the rent increase rate agreed upon by the parties in the lease agreement exceeds the statutory ceiling applicable to the relevant period, the rent increase shall be limited to the applicable statutory ceiling. If, on the other hand, the rent increase rate agreed upon by the parties is lower than the statutory ceiling applicable to the relevant period, the contractual rate shall apply.
3. Statute of Limitations Applicable to Rent Claims
A five-year statute of limitations applies to claims arising from unpaid rent. Where the tenant makes rent payments without clearly and expressly specifying the month to which each payment relates, such payments may be set off against any outstanding rent arrears from previous periods.
Court of Cassation, 6th Civil Chamber, Decision dated 20 October 2016, File No. 8655, Decision No. 6047: “Although the payments made by the defendant tenant did not contain any explanation, the court should have obtained the complete account statements from the commencement of the lease agreement and determined the outstanding rent receivables. It was erroneous, however, to calculate the outstanding amount by deducting the payments made by the tenant to the bank without any explanation from the rent receivable claimed in the proceedings.”
4. Interest on Rent Claims
Lease agreements are continuing-performance contracts, and the rent receivables become due and payable on the dates specified in the lease agreement without the need for any separate notice or demand. If the rent is not paid, or is only partially paid, on the relevant due date, statutory interest shall accrue on unpaid or underpaid rent in the case of residential leases, whereas commercial interest shall apply to leases entered into in connection with a commercial transaction.
YARGITAY 8. HD 13.02.2017 T. 580/1615; “Dava, kira alacağının tahsili için başlatılan takibe itirazın kaldırılması ve kiralananın tahliyesi istemlerine ilişkindir. .. Davalı tacir olup, işin de ticari olması nedeniyle davacının, 3095 sayılı Kanun’un 2/2 maddesi gereğince avans faiz oranında faiz talep edebileceği, davacı tarafça sözleşmede kararlaştırılan ve talep edilen faiz, TBK’nın 120. maddesindeki temerrüt faizinin üst sınırını aştığı durumlarda, TBK’nın 120/2. maddesi gereğince tacirler için avans faizi, tacir olmayanlar için yasal faizin yüzde yüz fazlası olarak uygulanarak faizin hesaplanması ve hükmedilmesi gerekeceği, bu durumda TBK’nun 120. maddesi uyarınca tacirler için mevzuat hükümlerine göre belirlenen avans faizinin yüzde yüz fazlası olarak uygulanarak bu miktar üzerinden faize hükmedilmesi gerekirken, tacir olmayanlar için geçerli olan yasal faizin yüzde yüz fazlası üzerinden faize karar verilmesinin doğru olmadığı”
5. Calculation of VAT on Rent Claims
Particularly over the past four years, a number of changes have been introduced in relation to taxes that the parties may be required to pay under certain circumstances, such as VAT and withholding tax. Accordingly, when determining the rent payable during renewed lease terms, the applicable VAT and withholding tax rates for the relevant period should also be examined.
Between 1 August 2020 and 31 December 2020, the withholding tax rate applicable to commercial leases was reduced from 20% to 10%, while the VAT rate applicable to commercial leases was reduced from 18% to 8%. The application of the reduced VAT rate and the reduced withholding tax rate deducted from rent payments ended as of 30 September 2021. Accordingly, the previous rates continued to apply as of 1 October 2021.
By the Presidential Decision No. 7346, titled “Decision Amending the Decision on the Determination of Value Added Tax Rates Applicable to Goods and Services,” published in the Official Gazette dated 7 July 2023, the Value Added Tax (VAT) rate applicable to goods and services subject to the standard 18% rate was increased to 20%.
In light of all the foregoing explanations, the VAT rates applicable by year are as follows:
| LEASE TERM | …….- 01/08/2020 | 01/08/2020- 30/09/2021 | 01/10/2021- 07.07.2023 | 07.07.2023- …………. |
| VAT RATE | %18 | %8 | %18 | %20 |
6. Jurisdiction in Lease Agreements
The rules governing the determination of the court having jurisdiction are set out in the Code of Civil Procedure (CCP), Law No. 6100, which entered into force on 1 October 2011. Accordingly:
For lease agreements executed before 1 October 2012, Article 22 of the former Code of Civil Procedure No. 1086 provided that the parties could, by entering into a jurisdiction agreement, confer jurisdiction upon a court that would not otherwise have jurisdiction. Accordingly, both legal entities and natural persons were permitted to enter into jurisdiction agreements.
For lease agreements executed on or after 1 October 2012, Article 17 of the Code of Civil Procedure No. 6100, which governs jurisdiction agreements, provides as follows:
It provides as follows: “Merchants or public legal entities may, by agreement, designate one or more courts as having jurisdiction over disputes that have arisen or may arise between them. Unless otherwise agreed by the parties, an action may be brought only before the courts designated in the agreement.” As can be seen, the persons who may enter into a jurisdiction agreement are limited to merchants and public legal entities.
Conclusion
The foregoing sections have provided an overview of the method for calculating rent increase rates applicable to residential and roofed commercial premises lease agreements, together with certain fundamental points under the applicable legislation that are closely related to rent claims. Particularly where a landlord–tenant dispute has arisen or is likely to arise, obtaining legal advice on the application of the relevant legal provisions in light of the specific circumstances of the case is of significant importance.