This Legal Alert aims at providing you with an update on a significant amendment as introduced by the Law No. 7161 re. Amendment of Tax Laws as well as Certain Laws and Statutory Decrees, published in the Official Gazette numbered 30659 and dated January 18, 2019 (“Law No. 7161”). Under the Law No. 7161, among others, Article 344 of the Turkish Code of Obligations No. 6098 (“TCO”) which sets out determination of rent amount under the lease contracts for housing and roofed work places has been amended. The Law No. 7161 has not only amended the wording of Article 344 of the TCO but also changed effectiveness of the same which was postponed until July 1, 2020 for work place leases, lessees of which are tradesmen, public and private legal persons (e.g. companies, public authorities).

Please note that this Legal Alert does not cover all amendments by the Law No. 7161 but intended for the purposes of general information on amendment concerning determination of the rent amount. No statement herein contains any opinion or professional legal advice.

In its previous wording, it was set out in Article 344 of the TCO that the producer price index (PPI) be taken into account for increases in the rent amounts. With the Law No. 7161, PPI has been replaced by the consumer price index (CPI). More importantly, application of Article 344 of the TCO was postponed until July 1, 2020 for the lease contracts concluded for work places, under which the lessee is a tradesman as per the Turkish Commercial Code, public or private legal person (e.g. companies, public authorities). The Law No. 7161 abolished such postponement for applicability of Article 344 of the TCO by stating that provision for CPI to be taken into account in Article 344 of the TCO shall apply for the renewal of the above-mentioned lease contracts as well as other lease contracts.

Further, these amendments under the Law No. 7161 has been set out to enter into force as of January 18, 2019 to be applicable from January 1, 2019. Accordingly, CPI restriction under Article 344 of the TCO is now required to be taken into consideration for the new lease contracts to be executed for work places as well as renewal of the ongoing lease contracts.

In light of the foregoing explanations, Article 344 of the TCO, as amended, sets out the following:

“The agreement between the parties relating to rent amount which will apply to the renewed lease period shall be valid on the condition that it does not exceed the change rate as per twelve months’ average in the consumer price index (CPI) within the previous lease year. This provision is applicable also for lease contracts with a term longer than one year.

If no agreement is made between the parties, the rent amount shall be determined by the judge in an equitable manner by taking into account the condition of the leased property, not to exceed the change rate as per twelve months’ average in the consumer price index (CPI) within the previous lease year.

Regardless of whether or not there is an agreement in place between the parties on the matter, the rent amount to be applied in the new lease year in the lease contracts with a term longer than five years or renewed after five years and at the end of each five-year-period following the same shall be determined by the judge in an equitable manner by taking into account the change rate as per twelve months’ average in the consumer price index (CPI), condition of the leased property and arm’s length rent amounts. Rent amount to be determined as such after every five years may vary depending on the principles set out in the previous paragraphs.

If the rent amount is determined in foreign currency, without prejudice to the provisions of Law No. 1567 on Protection of the Value of Turkish Currency, the rent amount cannot be changed unless five years elapse. However, Article 138 of the TCO entitled “Excessive Hardship of Performance” is reserved. After elapsing of five years, in the determination of rent amount, provision of third paragraph shall apply by taking into account changes in the value of foreign currency.”