With Article 56 of the Omnibus Bill with no. 7161 which is announced in the Official Gazette dated 18.01.2019 and numbered 30659 (“Law”), the phrase of “increase in the producer price index”, stipulated under Article 344/1,2 and 3 of Turkish Code of Obligations with no. 6098 (“TCO”), is amended as “consumer price index’s rate of change in twelve months moving averages”.
In the light of the above, upon renewal of residential lease agreements within the scope of Article 347/1 and 2 after 01.01.2019, rent increase ratio to be applied at renewal periods will not be more than consumer price index’s (“CPI”) rate of change in twelve months moving averages.
However, in the workplace leases where the tenant is a merchant as per Turkish Commercial Law or a private and public legal entity (“workplace leases”), enforcement of Article 344 of the TCO governing lease increases has been suspended until 1.7.2020 and thereby, existing agreement provisions have been applied in terms of rental increases until today, according to freedom of contract principle.
By the addition made by Article 59 of the Law into Temporary Article 2 of the Law numbered 6217 (“Law numbered 6217”), it is ruled that the recently introduced CPI restriction will also be applied for workplace leases.
However, there is no clear provision at the Law that sheds light on whether CPI restriction will be applied as of 01.01.2019 or 1.7.2020. In this context, this matter of controversy should be resolved by considering particular workplace lease agreement’s main lease term and whether its annual rental amounts have been determined specifically year by year as step rent or not.
Assuming that workplace lease agreement’s main lease term has expired on or after 01.01.2019 and it has entered into 1 (one) year automatic renewal periods as per Article 347/1 of the TCO, CPI restriction will be applied directly within renewal periods without waiting for 1.7.2020.
Besides, if the lease agreement’s rental amounts have been determined specifically year by year as step rent but, where on the other hand, its main lease term has not expired yet (in other words, it has not entered into 1 (one) year automatic renewal periods), rental amounts determined under the lease agreement shall be applied until 01.07.2020 within the scope of freedom of contract principle prescribed under Temporary Article 2/1 of Law numbered 6217. While applying existing lease agreement articles in these leases, provisions of the Law on Protection of Value of Turkish Currency dated 20/2/1930 and numbered 1567 will be preserved.
It is a matter of debate whether until 1.7.2020 CPI restriction will apply to lease agreements, of which main lease term has not expired yet and within which only first lease year’s rental is explicitly determined and where subsequent lease year’s rental increase ratio is defined as a ratio more than CPI (e.g. a lease agreement having a 5 years main lease term, under which first lease year’s rental is determined to TRY 100/sqm, where the following 2nd, 3rd, 4th and 5th lease years’ rental will be increased by PPI or 5 points + average of CPI and PPI). In terms of those agreements, the decision to apply CPI restriction or not will be made by evaluating public order principle defined under Article 2 of the Law on Enforcement and Application of TCO with no. 6101 along with the provision of Temporary Article 2/2 of Law numbered 6217.
We anticipate that said amendments will have commercial consequences on both landlords and tenants, especially within the shopping centre, standalone store and other commercial leases.
Please let us know if you have any queries.
Contributing Advisors
