A Recent Court of Cassation Decision Regarding Which Provision Will Be Applied in Adaptation of the Lease Agreements
Introduction
Adaptation of the lease agreement cases is among the most frequently encountered legal disputes, especially in the event of economic fluctuations and changes in market conditions. In these cases, it is requested that the rental price be adapted according to the current conditions. Article 138 of the Turkish Code of Obligations No. 6098 (“TCO”), titled “excessive hardship of performance”, regulates a type of impossibility of performance within the scope of general debt relations, and provides the possibility of adaptation of the agreement in cases where it becomes unbearable for the debtor to perform its performance. However, the applicability of this provision, which is regulated within the scope of general debt relations, in rent adjustment cases under Article 344 of the TCO, which regulates the determination of the rental price, has come to the agenda more frequently, especially in recent times, and has increasingly found its place in the decisions of the Court of Cassation and the Regional Court of Appeal.
In this article, the place and importance of Article 344 of the TCO in adaptation of lease agreement cases will be examined, and in particular, based on the decision of the 3rd Civil Chamber of the Court of Cassation dated 27.02.2024, which provisions of law should be applied in adaptation pf lease agreements cases will be emphasized.
Adaptation of Lease Agreements Cases in General
Article 344 of the TCO regulates the determination and adaptation of the rental price in lease agreements. According to this article, as a rule, the rental price is determined according to the conditions agreed between the parties during the agreement. However, unforeseen circumstances such as changes in economic conditions, increases in inflation rates, and fluctuations in foreign exchange rates may require the redetermination of the rental price. This provision regulated by Article 344 of the TCO is of great importance, especially if the lease agreements are long-term and affected by economic fluctuations. This is because in such agreements, the rights and interests of the parties may be damaged over time and the terms initially agreed upon may become excessively burdensome for one of the parties. Therefore, this article allows the parties to renegotiate the rent and update the terms of the agreement in parallel with the changes in economic conditions. Thus, the parties to the lease agreement can maintain the balance at the beginning of the agreement and continue their relationship at a fair rental price.
Article 138 of the TCO provides for the adaptation of the contract in case of excessive hardship of performance. This provision comes into effect in cases where an unexpected and unforeseeable situation makes it extremely difficult for one of the parties to fulfill the contract. However, it is debatable to what extent this provision is applicable in the adaptation of the lease agreement cases. This is because, although Article 138 of the TCO applies to all contracts in general, the parties’ assumption of economic risks should be evaluated differently in continuous debt relations such as lease agreements. Lease agreements are generally long-term and the parties are expected to assess the economic risks in advance.
In recent years, with the increase in the number of lawsuits related to lease disputes, it is observed that in cases of adaptation of the lease agreements, requests are made based on the excessive hardship of performance stipulated in Article 138 of the TCO.
Regional Court of Appeal’s Decision on Art. 138 of TCO
Before examining the current Court of Cassation decision, it is of great importance to refer to the decision of the 54th Civil Chamber of the Istanbul Regional Court of Appeals dated 15.03.2023. In this decision, the Regional Court of Appeal has made a decision that may mean that in the event of excessive deterioration of the balance between the parties in long-term lease agreements and the agreement becomes unbearable for the parties, an “adaptation” lawsuit can always be filed to adapt the rental price to the economic conditions of the day.
In the case in question, although the lease agreement between the parties was dated 01.04.2019 and had a one-year term, the plaintiff requested the adaptation of the rental price as of 01.04.2022. The court of first instance rejected the adaptation request based on the short-term nature of the lease agreement. However, upon the plaintiff’s appeal, the 54th Civil Chamber of the Istanbul Regional Court of Appeals ruled that there is no regulation or limitation in the law regarding the time of filing the adaptation lawsuit and that the rejection of Article 138 of the TCO without examining the conditions and without entering the merits of the lawsuit is against the law. In this decision, it is stated that the debtor may request the adaptation of the agreement to the new conditions in case the conditions of the agreement change by Article 138 of the TCO. In this proceeding where the lease agreement was examined, the Regional Court of Appeal ruled that when the balance between the parties in long-term lease agreements is disrupted, the lease price can be adapted according to Article 138 of the TCO.
Decision of the 3rd Civil Chamber of the Court of Cassation
The decision of the 3rd Civil Chamber of the Court of Cassation dated 27.02.2024 discusses the applicability of Article 344 of the TCO in a case requesting the adaptation of a lease agreement. In the decision, a lease agreement between the parties with an initial date of approximately 50 years ago was analyzed. The plaintiff claimed the adaptation of the rental price based on the excessive hardship of performance under Article 138 of the TCO, citing justifiable reasons such as the economic crises that shook the country in the 50 years following the conclusion of the lease agreement, excessive increases in the inflation graph, shock devaluation, and significant decrease in the value of money.
The Court of Cassation first explained the system applied for adaptation cases in the pre-TCO period and then examined the conditions required under the TCO. Accordingly, the Court of Cassation distinguished the adaptation of the rental price in lease agreements from the excessive hardship of performance under Article 138 of the TCO, which would be applied in the event of a breach of the balance between the parties in an ordinary agreement. While making this distinction, it is clearly stated that Article 344 of the TCO is a special adaptation provision. In the new period, it has been ruled that in the event of situations such as changes in price increases, and changes in the value and purchasing power of money, if the agreement requested to be adapted is a lease agreement, it is necessary to apply the special article 344 of the TCO, not the general article 138 of the TCO.
With this decision, the Court of Cassation has put an end to the confusion that may arise in practice by clearly stating that Article 138 of the TCO should not be evaluated in lease agreements in line with the decision of the 54th Civil Chamber of the Istanbul Regional Court of Appeals above, and that Article 344 of the TCO, which is a special provision, will be applied.
Conclusion
This decision of the Court of Cassation indicates that Article 344 of the TCO, which is special, should be applied in the adaptation of lease agreement cases. Especially in recent years, the rapid change in economic conditions disrupts the balance between the parties in lease agreements and increases the number of such adaptation cases. As a result, the Court of Cassation considers the application of Art. 344 of the TCO instead of Art. 138 of the TCO in adaptation requests in lease agreements as necessary and mandatory for the fair reorganization of lease agreements.
- Decision of the 3rd Civil Chamber of the Court of Cassation dated 2023/2580 E., 2024/792 K. and dated 27.02.2024
- Decision of the 54th Civil Chamber of the Istanbul Regional Court of Appeals dated 2023/845 E., 2023/536 K. and dated 15.03.2023
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