Agreement Duration and Termination Right in Residence and Office Lease Agreements
Although the Turkish Code of Obligations No.6098 is in effect for more than a year, since July 1, 2012, there are still points of hesitance in practice, in the phase of seeking legal remedies in agreements. Especially the legal arrangements regarding lease agreements, annulment of the Law No.6570 on Real Estate Leases, and the amendments made after the effective date of the Law via omnibus bills may cause significant losses of rights if not handled cautiously. Agreements defined by the law as residence and roofed office leases concern both individuals in daily life and institutions and especially merchants in commercial life, being one of the topics that most frequently gives way to disputes. Legislations reinforced by the law maker through dynamic arrangements face a new update almost every single day. With regard to the arrangements focusing on the protection of the lessee, it is essential that both Lessees and Lessors are well aware of their respective rights and liabilities. How long can a Lessee legally hold the possession of a Leased Property under a lease agreement? Article 347 of the Law No.6098 introduces a gradual arrangement with respect to the expiry periods of residence and office lease agreements with definite and indefinite periods. It should first be mentioned that the Law No.6101 on the Effect and Practice Method of the Turkish Code of Obligations is not effective retrospectively. Thus, the provisions of the annulled Code of Obligations No.818 will apply for lease agreements entered into before July 01, 2012, in order to prevent loss of rights. However, while the Law No.6098 deviates from the general rule with respect to expiry in residence and office leases, Article 1 of the Law No.6101 includes lease agreements that were entered into before July 01, 2012 and are still effective into the scope of expiry practice, whereas Provisional Article 2 introduces amendments to the effect of Article 347 regulating expiry practices. According to Article 347 of the Turkish Code of Obligations, the Lessee always has the chance to terminate a lease agreement entered into after July 1, 2012 with indefinite period, while the Lessor may only terminate such an agreement after the end of the tenth year following the signing of the agreement. On the other hand, in agreements with definite duration, only the Lessee is granted the right to terminate the agreement with a 15-day prior notice, while the Lessor does not have the right to have the Leased Property evacuated due to the expiry of the contractual lease period. Thus, the agreement will automatically extend for additional terms of one year, unless the Lessee intends otherwise. However, the Lessee's right to utilize the Leased property is limited to a period of ten years, after which the owner's ownership rights are prioritized, an effort to preserve the balance of interests. Such right of the Lessee, whose intention to extend the agreement for additional one-year terms following the end of the contractual lease period is prioritized, shall end as of the lease term following the end of the ten-year extension period, with the non-intention of the Lessor to extend the agreement and a prior notification of such fact at least three months in advance. For instance, for a 5-year agreement signed on July 1, 2012, the Lessee has the right to terminate the agreement on June 15, 2017. The Lessee, if intends to do so, would have the right to utilize the Leased Property until July 1, 2027, without any declaration of intention. Whereas, the Lessor would be entitled to declare his/her intention to terminate on April 1, 2027, and be able to redeem the principal and indirect ownership of the Leased Property. However, it should be noted that the Provisional Article 2 of the Law No.6101 should be considered in conjunction with Article 347 of the Turkish Code of Obligations. As per the said Provisional Article 2, "...With regard to lease agreements entered into prior to the effecting of this Law herein, the ten-year extension period (as defined in the last sentence of the first paragraph of Article 347 of the Turkish Code of Obligations) of which has not expired; this Law shall become effective five years after its actual effective date for agreements with a remaining extension period of less than five years, whereas it shall become effective two years after its actual effective date for agreements the extension periods of which have already expired." When such regulation is considered in conjunction with Article 347, confusion would be inevitable in practice, with respect to time periods. Thus, the Turkish Code of Obligations imposes a transitional provision between expiry circumstances and the principle of no retrospective effect. Then, under what conditions will expiry be legal for agreements entered into before July 1, 2012 and the ten-year extension period of which has not yet expired? Here, the expiry date of the agreement entered into before July 1, 2012, contractual period of which has expired, as well as the period of extension upon the Lessee's intention are of particular importance. For instance, a five-year agreement entered into on July 1, 2000 will expire on July 1, 2005, on which date the Lessee did not declare his/her intention for expiry on June 15, 2005 as per Article 11 of the Law No.6570 (then corresponding to Article 347 of the Law No.6098), and thus the extension period of the agreement commenced. As per Article 347 of the Turkish Code of Obligations, seven years have passed from July 2005, the expiry date of the agreement, to July 2012, and the remaining extension period is three years, i.e. "less than five years", as defined in the said Law. Therefore, the agreement would expire on July 1, 2015 with the declaration by the Lessor of his/her intention to terminate in April 2014, i.e. three months prior to the end of the extension period. However, here we face another significant issue. Since the extension period in the circumstances defined in the Provisional Article 2 of the Law No.6101 is 3 years, Article 347 will not be effective until July 2017, and the Lessor will not be able to eject the Lessee based on the contractual lease period, because the said article provides that Article 347 of the Turkish Code of Obligations would become effective as of July 1, 2017 for agreements that are still in effect and the remaining extension periods of which are less than five years as of July 1, 2012. On the other hand, with respect to agreements the ten-year extension periods of which have expired as of July 1, 2012, the effective date is postponed for two years, and it will not be possible to eject the Lessee from the Leased Property until July 1, 2014. As per the provisions of the Law; agreements entered into prior to July 1, 2012, contractual lease term of which has expired, are still effective within the extension period in accordance with Article 11 of the Law No.6570 and with a remaining extension period of more than 5 years, as well as agreements the contractual duration of which has not yet expired are subject to the provisions of Article 347 of the Law No.6098 with respect to expiry. Finally, it is essential for the parties to lease agreements to write the agreement texts paying special attention to Article 347 of the Law No.6098, because conditions of legal expiry include the risk of economic devastation for the parties, especially in agreements including high rental amounts and severe indemnity and penal clauses. It should also be noted that Art.327 of the Turkish Code of Obligations, replacing Art.263 of the Code of Obligations No.818, includes a fundamental amendment pursuant to which the extension of an agreement will not be considered as a renewal as was defined in the previous Law, and therefore the effect of the security provisions will persist until the date of actual termination.