COURT OF CASSATION RULED ON ADAPTATION OF LEASE CONTRACTS DUE TO THE COVID-19
In our previous Newsletter on adaptation of lease contracts due to the Covid-19, we informed you that the 4thChamber of the Bursa Regional Court of Justice with its docket numbered 2020/1103 decision numbered 2020/1008 and dated 28 September 2020 has rendered a decision (the “First Bursa RCJ Decision”) which was largely viewed by scholars as a precedent on the issue. The outcome of which was that the Court ruled that lease contracts can be adapted to new conditions because of Covid-19 circumstances and interim measures may be granted in that respect.
In a different lawsuit which involved a tenant who was running a nursery school, has requested the court for adaptation of the lease contract at the 4th Chamber of the Bursa Regional Court. The Court considered the claim and decided in favor of the claimant, namely, it allowed the lease to be adapted to the new conditions (the “Second Bursa RCJ Decision”) and the Court also granted an interim measure in that respect.
Subsequent to the above, in another lawsuit concerning a business which was running a wedding venue through a lease contract with the municipality in Ankara, the claimant (tenant) claimed that it has lost the majority of its customers due to pandemic and consequently has suffered loss which caused default of payment of rent and requested the court for an adaptation to new situation as of 3 June 2020 and grant an interim measure in that respect which may be reviewed by the court every 6 months and the new circumstances will be considered as to whether set a side, increase, or decrease the measure. The 15th Chamber of the Ankara Regional Court of Justice with its docket numbered 2020/2164 and decision numbered 2021/50 and dated 1 February 2021 (the “Ankara RCJ Decision”) dismissed the interim measure request of the claimant stating that the characteristics of the dispute require a substantial examination on the merits of the case. The claim was therefore rejected.
The legal basis for all cases based on was the Article 138 of the Turkish Code of Obligations (“TCO”) (in Turkish, “Türk Borçlar Kanunu”) which states that in case of an extraordinary situation which is not foreseen by the parties at the time of the contract and arises from a reason not due to the debtor and changes the existing facts at the time of conclusion against the debtor in such a way that contradicts with good faith, if the debtor has not yet fulfilled his/her obligations arising from the excessive difficulty of the performance, the debtor shall have the right to request from the judge the adaptation of the contract to the new conditions.
According to Article 35 of Law numbered 5235 on the Establishment, Duties, and Jurisdiction of the Courts of First Instance and the Regional Courts of Appeal (in Turkish, “5235 sayılı Adli Yargı İlk Derece Mahkemeleri ile Bölge Adliye Mahkemelerinin Kuruluş, Görev ve Yetkileri Hakkında Kanun”) , which regulates the duties of the Board of Presidents, the case was submitted to the Court of Cassation upon the application of Bursa Court’s Board of Presidents requesting to resolve the disagreement herein between the Bursa RCJ Decisions and the Ankara RCJ Decision.
As a result, the 3rd Court of Cassation (in Turkish, “Yargıtay 3. Hukuk Dairesi”) ruled that an interim measure may be granted in lawsuits for adaptation of the contract due to the pandemic provided that the conditions listed in Article 389 of the Code of Civil Procedure (the “CCP”) (in Turkish, “Hukuk Muhakemeleri Kanunu”) are fulfilled.According to Article 389, courts may grant an interim measure if:
- Serious damage might occur to the applicant because of a delay; or
- It would be impossible or difficult to obtain rights due to changes in the current situation.
The Court of Cassation took the view that the purpose of interim measure was not to penalize one party, it was merely for the purpose of protection of a right which otherwise for the other party can result in irreparable damages due to the prolonged litigation processes. It was stated that if the interim measure protection is denied from an applicant, even if the case is successful at the end of the litigation, the expected benefit may not be obtained and therefore an interim measure provides such protection in order to avoid any aggrievement of the concerning party.
The Court of Cassation grounded its decision on the lease contracts during the pandemic on the following legal matters:
- As a rule, an agreement must remain in full force with its contents as it was originally executed even if the conditions become harder for the debtor;
- However, as an exception to the rule, the Court of Cassation’s established case law provides that an agreement might be adapted if the conditions change to the extent that the basis of the transaction collapses.
- This exception has been mainly based on the good faith rules set forth in Article 2 and 4 of the Turkish Civil Code numbered 4721 which is adopted under Article 138 of the TCO as “Hardship” (in Turkish, “Aşırı İfa Güçlüğü”).
- According to the Court of Cassation, “interim measure” may be granted in order to prevent irreparable damages to a party during a lawsuit;
- Despite the doctrinal opinion and established case law of the Court of Cassation stipulating that an interim measure that would settle the main dispute (specifics of the case) may not be granted, the “not settling the main dispute” requirement was removed from the draft text of the CCP during its legislation process in order to prevent a strict interpretation of such requirement;
- Accordingly, the purpose of lawsuits for adaptation of the rent to the interim measures arising from pandemic is to sustain the continuation of the lease contracts and prevent the performance of an obligation from being unbearable which may in the end result in termination of the agreement.
- In the event that an interim measure is not given during a lawsuit, a claimant might default in the payment of the rent and termination of the agreement would come into question by the concerned parties.
- Hence, an interim measure may be granted provided that it will be effective until finalization of the case on the merits in order to ensure temporary protection by removing suffering stemming from a long litigation process.
- Lastly the Court of Cassation was of the view that the expected benefit of the adaptation could be frustrated and the tenants could face the threat of eviction as a consequence of the direct effects of pandemic on businesses which may jeopardize the continuity of the lease contract even if the court rules for adaptation at the end of the lawsuit.
Considering the content of the decision of the Court of Cassation, if the necessary conditions arise, an interim measure decision can be granted in the court of first instance. An interim measure is requested from the court in order to preserve changes in existing circumstances that will result in severe difficulty or impossibility to exercise the right, or if a delay would cause an inconvenience or serious damage.
In the case at hand, interim measure is put in place in order to secure the continuity of the lease contract, protect the tenant from the threat of eviction and is a safeguard for the protection of rights at the end of the completion of the lawsuit. The Court of Cassation therefore decided in favor of the grant of the interim measure for the claims related with adaptation of lease contracts to the new situation due to the pandemic.
Our Law Firm remains at your disposal for any further clarifications you may need about the subject matter.