Turkey: Examination On Various Supreme Court Precedents Regarding Rental Agreements To Study The Burden Of Merchants' Obligation To Act Prudent In Their Dealings

In business life, the terms of rental agreements are often challenged by parties upon unexpected developments and discoveries that take place after execution of an agreement. But such challenges are less likely to succeed when the challenging party is a merchant. This comes from the burden imposed by the notion of "prudent merchant in commercial law. Below a few Supreme Court precedents show the reflection of that burden onto legitimacy of merchants' claims concerning rental agreements.

(i) A tenant requests for annulment of the rental agreement with the claim that the agreement was formed based on promises that did not later eventuate. The claim is that the leaser promised that the mall in which the rental resides would reach an operating capacity of 80% and various brands would

have stores there, none of which were realized. The Supreme Court[1] rules that, as a merchant, the tenant should have evaluated the circumstances both at the time of signing and in the future in a realistic and reasonable way and since the agreement stipulates that half of the rent shall be paid if the operating store capacity goes below 50%, the tenant cannot claim to be deceived into entering into this agreement. - This decision shows that the merchants are expected to have foresight about future commercial circumstances and should not make claims due to their expectations not being realized, especially in case where a pending project (such as construction of a mall) is concerned.

(ii) A tenant unilaterally terminates the rental agreement with the claim that the mall, in which the rental resides, has not opened more than one year after signing of the rental agreement and that the leaser abuses its rights home from the agreement since all provisions therein unreasonably favor the leaser. The leaser argues that according to the agreement it has discretion over determining the opening date of the mall including to change this date if need be, and the tenant cannot make any claims due to the date change. The Supreme Court[2] rules that the tenant, as a merchant, should have shown care and diligence with regards to future investments and projects, and since the tenancy agreement does not stipulate an exact opening date for the mall, late opening cannot be presented as just cause for termination of the rental agreement. - This decision shows that the merchants are not allowed to rely on the defense that the terms of rental agreements are too one-sided and must be bound with the terms nevertheless.

(iii) A tenant unilaterally terminates the rental agreement and requests reimbursement of paid rent with the claim that the municipality did not grant license for storage field operation due to the relevant development plan not allowing construction of a storage field. The leaser argues that the agreement explicitly stipulates that the rented place is a commercial area and not being able to secure a license cannot be cause for termination. The Supreme Court[3] rules that the agreement has no term stipulating that the place will be used as storage field and the tenant, as a merchant, should have made sure that the rented place is eligible for the contemplated purpose of use. - This decision shows that the merchants are obliged to investigate whether the rented place is fit for their operational purposes or at least include stipulations in the tenancy agreement to secure their rights if the legal conditions necessary for their operations are not achieved.

(iv) A tenant request for re-determination of the rent amount in line with reason and equity. The Supreme Court[4] rules that merchants committing to short-termed rental agreements (one-year agreements, in this case) cannot ask for re-determination since the agreement can always be renewed under changing circumstances or terminated at the end of that short term. - This decision shows that the merchants are bound by the rent amount if an agreement is short-term, regardless of it being excessive or not.

(v) The Supreme Court[5] rules that the stipulation regarding the annual rent increase must be deemed to be binding on the tenant due to being a merchant. - This decision shows that the merchants are bound by the annual rent increase, regardless of it being excessive or not.

These precedents are merely a few striking examples of how diligent the merchants must be in their dealings regarding rental agreements. Merchants are expected to show a high standard of care and foresight when entering into rental agreements and are not able to be rid of their obligations simply because the future turned out to be different than what they had foreseen.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in June 2019. A link to the full Legal Insight Quarterly may be found here