Turkish Regional Courts of Appeal Ruled on Adaptation of the Workplace Lease Agreements Due to COVID-19

The COVID-19 outbreak has been recognized as a pandemic by the World Health Organization, and Turkey has taken serious measures in this regard, as in the world. As the latest measure, government has been decided that eating and drinking places such as restaurants, restaurants, patisseries, cafes, cafeterias can only be open between 10.00-20.00 hours to provide “take-away” or "come-and-take" service with the circular issued by the Ministry of Internal Affairs regarding the measures taken within the scope of COVID-19. As a result of this decision and various precautions implemented before, many business owners who suffered serious economic losses became unable to pay their rents. While it is still being debated in the doctrine whether the tenants can ask for the adaptation of the lease agreement due to their payment difficulties, Regional Court of Appeal in Bursa (“the Court”) has made a precedent decision on this issue.

In its decision numbered 2020/1103 E. 2020/1008 K. and dated 28.09.2020, the 4^th Chamber of the Court ruled that the lease agreements can be adapted to new conditions because of COVIDCOVID-19 circumstances and measures taken in this regard.

In the incident subject to the decision, a restaurant operator in Bursa claimed that he became unable to pay the workplace rent, which is a monthly amount of TRY 23,000.00 , due to the serious decrease in his earnings because of the decisions taken within the scope of COVID-19. The plaintiff requested the workplace rent to be adapted through the period the COVID-19 effects continues and requested an interim measure to pay  TRY 11,500.00  per month as the monthly rent starting from the date of 01.05.2020 pursuant to Article 138 of the Turkish Code of Obligations ("TCO") which regulates hardship situations.

As a result of the rejection of this request by the court of the first instance, the plaintiff filed an appeal. The  Court evaluated the hardship conditions which should exist cumulatively and ruled to the adaptation of the contract on the ground that these cumulative criteria are met in the case. The criteria for adaptation to be ruled pursuant to Article 138 are briefly as follows:

–  An extraordinary event, which was not foreseen and not expected to be foreseen by the parties, must occur after the conclusion of the contract.

–  The occurrence of the event must not be caused by the obligor.

–  Performance must have become excessively onerous for the obligor in a way that contradicts with the principle of good faith due to the extraordinary event.

–  The obligor must not perform or perform his obligation by reserving its rights arising out of hardship.

On the other hand, the plaintiff demanded an interim measure for the payment of the rent as TRY 11,500.00 starting from 01.05.2020 and proceeds as long as the COVID-19 effects continue. Regarding this, the Court decided that the condition sought by the Code of Civil Procedure is fulfilled and therefore, an interim measure regarding the reduction of rent amount should be granted by asserting that:

“An interim measure cannot be given to settle the merits of the case and the dispute. However, considering that some workplaces were completely closed during the epidemic period and they could not generate any income, it is obvious that the tenant will not be able to pay his current rent unless an interim measure is given. Besides, it is clear that the landlord will default and evacuate the tenant by making a 30-day warning or 30-day execution proceedings. In that case, if the interim measure is not given, the tenant will have to pay the rent in full until the case is concluded, and it is understood that after the default and evacuation, the rent adjustment will have no meaning. Hence, it should be accepted that the “concerning whether serious damage will occur” condition stated in Article 389/1 of the HMK exists and that an interim measure can be given in order to achieve the expected result from the lawsuit filed regarding the adaptation of the lease agreement.”

The Court also consolidated its judgment with Provisional Article 2 of Law No 7226 which sets forth that the failure to pay the rent of the workplace from 1/3/2020 to 30/6/2020 does not constitute a reason for termination and evacuation of the lease contract. The Court stated that this provision demonstrates that the legislator acts with the same concern and prevents the termination and evacuation of the lease agreements for workplaces within the scope of the COVID-19 conditions and the measures taken. In addition to this, the Court emphasized that the adaptation should cover only the temporary period of COVID-19 and when the COVID-19 effects on the tenant’s business completely disappear, the rent must be reinstated.

Consequently, the court accepted the request as justified and decided to impose an interim measure on the payment of the rents that have not yet been paid as of 01.05.2020 and the rents to be processed as of the date of this decision, with a monthly discount of 50%. According to the decision, the interim measure shall be reviewed by the Court every 6 months and a decision shall be given regarding abolish, increase or decrease the measure pursuant to new conditions.

In conclusion, this decision has significance since it is the first time that a high degree court accepted that the COVID-19 constitutes hardship pursuant to Article 138 of the TCO.  Based on this precedent, the tenants who experience extreme difficulty in paying their workplace rents due to the decisions taken within the scope of COVID-19 measures will be able to request the adaptation of the lease agreement from the landlord. In case an agreement cannot be reached between the parties, this issue can be referred to the jurisdiction, and in line with the precedent decision of the Court,it may be requested to adapt the contract to new conditions and pay the rent at a discount during the COVID-19 measures. The Court will make a judgment by evaluating the effects of the epidemic and the measures taken on the tenant separately for each concrete case. During this period, rents should continue to be paid with reservation to avoid default.

Nihan Ünal