Turkey: Determination Of Rent Amounts In Residential And Workplace Lease Agreements Under Turkish Law

Last Updated: 28 May 2019
Article by Pelin Tirtil and Naz Ergörün

In Turkish legislation, lease agreements are regulated under the Turkish Code of Obligations No. 6098 ("Code") whereby many protective provisions for the tenants are stipulated. Additionally, lease agreements for residences and workplaces are regulated separately from other types of leases by certain special provisions to be observed.

One of the most important subjects is determination of the rent amount. Article 344 of the Code stipulates certain restrictions with regards to this:

  1. The increase rate to be applied to the rent amount shall not exceed a rate equal to the average Consumer Price Index applicable across the twelve months of the previous lease year; any increase exceeding this limit is invalid and the tenant is not obliged to pay any amount exceeding this rate.
  1. Regardless of any agreement between the parties on the increase rate, at the end of the fifth lease year the rent amount to be applied in the following lease year can be re-determined by the court, if requested by either the landlord or tenant, by considering the average Consumer Price Index applicable across the twelve months of the previous lease year, the condition of the leased property and similar rent amounts available in the market.
  1. If the rent amount is determined in foreign currency, the rent amount cannot be changed before expiry of fifth lease year, save for the provisions of Law on Protection of Value of Turkish Currency. After expiry of fifth lease year, the rent amount to be applied in the following lease year can be determined by considering the criteria mentioned in (b).

The above mentioned restrictions have been applicable for residential lease agreements since 01.07.2012, whereas the effective date for workplace lease agreements was postponed until 01.07.2020. Restrictions stipulated in (a) and (b) regarding the increase rate were previously determined as twelve months average of Producer Price Index but this has been changed to reflect twelve month average of Consumer Price Index with the 01.01.2019 amendment to the Code. 

After the 01.01.2019 Code amendments, it has been generally accepted that all of the restrictions stipulated in article 344 of the Code can be deemed to have entered into force for workplace lease agreements as of 01.01.2019. The prevailing opinion is that the above mentioned restrictions for determination of the rent amount are applicable for all residential and workplace lease agreements. It should be noted however that there are opinions claiming that the amendment made on 01.01.2019 has not put the restrictions into force for workplace leases and that those remain suspended until 01.07.2020, but as this is a relatively recent amendment it is yet to be tested in the courts.

Another noteworthy restriction entered into force on 13.09.2018 effecting all immovable lease agreements including those for residences and workplaces. As per the Decision Regarding Amendment to Decision No. 32 Regarding Protection of Value of Turkish Currency ("Decision"), determinations of payment liabililities arising from certain agreements executed by and between persons settled in Turkey, in foreign currency or indexed to foreign currency, have been prohibited.  Nevertheless, by the Decree on Amendment of The Decree Regarding Decision No.32 on The Protection of Value of Turkish Currency ("Decree"), certain exceptions[1] have been stipulated for immovable lease agreements whereby the rent amount and other payment liabilities can be determined in foreign currency or indexed to foreign currency.

Unless exceptions stipulated in the Decree apply, payment liabilities arising from immovable lease agreements executed by and between persons settled in Turkey cannot be determined in foreign currency. Liabilities set in agreements which were already determined in foreign currency before the effective date of the Decision must be converted into Turkish Lira for a period of two years following the re-determination / conversion date. After that two year period finishes, the liabilities may return to being determined in foreign currency. The re-determination / conversion date is generally accepted as 13.10.2018 due to the stipulation in the Decision of a one month grace period starting from 13.09.2018 for conversion of foreign currency rent amounts into Turkish Lira. The conversion method is also set out in the Decree; parties shall first try to come to an agreement determining the exchange rate to be used for conversion and if they cannot agree on the exchange rate, it shall be determined as per the formula[2] provided in the Decree.

The Decree also stipulates a method for increase of rent amounts that have been converted into Turkish Lira. For the two year period following the re-determination / conversion date, the rent amount shall be increased either in accordance with the parties' agreement or the following formula, if the parties cannot come to an agreement:

  1. Rent amount to be applicable at the beginning of the contractual lease year starting after the date of re-determination / conversion shall be calculated as follows: The amounts are re-determined in Turkish Lira as per the above procedure, and then shall be increased based on the sum of the monthly rates of change in the Consumer Price Index between the date of re-determination and the beginning of the relevant lease year term.
  1. Rent amount to be applicable in the following lease year (i.e. from the beginning of the second contractual lease year after the date of re-determination / conversion) shall be calculated as follows: The rent amount applicable for the previous year shall be increased based on the average Consumer Price Index percentage rate across the twelve months of the previous lease year.

The Decision and the Decree entered into force before the amendment of the Code on 01.01.2019 that put article 344 of the Code into force with respect to residential and workplace lease agreements. Due to this, the rate for rent amount increase stated in the Code is now in linewith what is stated in the Decision and in the Decree for both residential and workplace lease agreements.

[1] (i) Immovable lease agreements, to which persons settled in Turkey but  who do not have any citizenship relation with the Republic of Turkey or branches, representative offices, offices, liaison offices, which are located in Turkey, of the persons settled abroad or a company that has 50% or more foreign shareholding or owns common control and/or control, or companies located in free zones within the scope of their activities in the free zones are parties as tenant; (ii) Immovable lease agreements related to the lease of accommodation facilities, which are certified by the Ministry of Culture and Tourism; (iii) Immovable lease agreements related to the lease of duty free shops.

[2] (Effective Indicative Foreign Currency Sales Rate determined by the Central Bank of Republic of Turkey on 02.01.2018) X (Sum of monthly Consumer Price Index change rates announced by Turkish Statistical Institute as of 02.01.2018 until re-determination date).

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.

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