MARKET RENTAL RATE

A lease agreement is a contractual arrangement where the lessor accepts to leave the use of an asset or benefit of such asset to the Lessee and the Lessee, in return, accepts to pay the agreed rental fee. It should be noted that the rental fee is one of the essential elements of the lease agreement and accordingly, its determination because of its significant aspect for both parties of the lease agreement has been regulated under article 344 of Turkish Code of Obligations (“TCO”).

As a rule, the parties may freely determine the rental fee in lease agreements. Accordingly, it is possible to make amendments to this rental fee in the renewed lease periods in terms of residential or commercial properties. However, such amendments have certain legal limitations. The rental fee’s determination lawsuit is a type of lawsuit that can be filed by anyone who has legal interest for the determination or the increase of the rental fee in certain circumstances.

Article 344 of the TCO foresees detailed provisions regarding the determination of rental fee and lawsuit on the rental fee’s determination. Within this respect, Article 344 of TCO envisages;

• In the case of a lease agreement for a term of one year or more, both parties may mutually agree on the rental fee to be applied in the renewed lease periods. However, there is an upper limit for the increase rate and it shall not exceed the rate of change in the “consumer price index” for the previous lease year based on twelve-month averages (in Turkish: “bir önceki kira yılının tüketici fiyat endeksindeki on iki aylık ortalamalara göre değişim oranı”, “TÜFE”, “CPI”) (Article 344/1).
• If there is no agreement between the parties concerning the rental fee’s increase, a rental fee’s determination lawsuit may be initiated. In this respect, the judge shall decide on an equitable increase rate judge not exceeding the CPI rate and taking into account the principle of equity and the conditions of the leased property (Article 344/2).
• For the lease agreements longer than five (5) years or renewed after five (5) years, it is no longer important whether there is an agreement on the rental fee’s increase between the parties or not, and a rental fee’s determination lawsuit can be filed. In such case, the judge shall determine the rental fee by considering (i) the 12-month average of the CPI rate changes of the previous rental year, (ii) the conditions of the leased property, (iii) the market rental rate and (iv) the principle of equity (Article 344/3).
• In case of a lease agreement where the rental fee is determined in foreign currency i.e. any currency other that Turkish Lira, as a rule, the rental fee shall not be increased unless five (5) years have passed since the date of the lease agreement (Article 344/4). However, TCO also sets some exemptions and
  • refers to the Article 138 of TCO where it is envisaged provisions in relation to the hardship (in Turkish “aşırı ifa güçlüğü”). In this regard, the judge shall be entitled to adapt the lease agreement when hardship occurs in payment obligations.
  • Another exemption to this rule is also regulated under certain provisions of the Protection of the Value of Turkish Currency Law numbered 1567 (in Turkish, “Türk Parasının Kıymetini Koruma Hakkında Kanun”) and the Communique on the Degree numbered 32 as it should be certainly taken into account since it has been prohibited to determine the rental fee in or indexed to foreign currency subject to specific conditions stipulated in the Decree.

After the first five-year period, the increases to be made in the amount shall be determined according to criteria as per the above-mentioned Article 344/3 of TCO and by taking into account the change in the value of the relevant foreign currency.

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