1. Tenancy Relationship in Residential and Roofed Workplace Leases

A lease agreement, as regulated under Article 299 of the Turkish Code of Obligations numbered 6098 (“TCO”), is a synallagmatic and continuous contractual relationship whereby the lessor undertakes to grant the use of the leased property to the lessee and the lessee undertakes to pay the rent in return. The provisions governing residential and roofed workplace leases contain mandatory rules aimed at protecting the lessee (Articles 339–356 of TCO), particularly concerning the determination of the rent and the termination of the agreement.

As a rule, fixed-term lease agreements automatically terminate upon expiry of the term. However, Article 347 of the TCO introduces an exception for residential and roofed workplace leases; unless the lessee serves a written notice of termination at least fifteen (15) days before the end of the term, the agreement is deemed extended for an additional one (1) year. This extension is referred to in doctrine as “automatic renewal” and does not convert the agreement into an indefinite-term lease; rather, the agreement continues as fixed-term for each renewed period. In indefinite-term leases, the notice periods for termination set out in Articles 328 et seq. of the TCO apply.

2. Determination of the Rent and Limitations on Increases

2.1. Mandatory Limits under Article 344 of the TCO

Although the principle of freedom of contract generally allows parties to freely determine the terms and rent of a lease agreement, the rules governing the permissible rent increase for renewed lease periods are mandatory in nature and cannot be overridden by party autonomy.

Under Article 344 of the TCO:

• The parties’ agreement on the rent increase rate applicable to renewed lease periods is valid only if it does not exceed the twelve-month average rate of the Consumer Price Index (“CPI”) of the previous lease year.

• Any contractual increase exceeding CPI is  invalid for the exceeding portion; the rent increase is reduced to and applied at the statutory limit.

This framework aims to limit rent escalation clauses in favor of the lessee and to ensure predictability in lease relationships.

Regarding rent payments denominated in foreign currency, the theoretical rule under Article 344 of the TCO, providing that no change can be made to the foreign-currency rent for five (5) years, formally remains in place. However, given the prohibition on determining rent in foreign currency in residential and roofed workplace leases pursuant to Decree No. 32 on the Protection of the Value of Turkish Currency and related regulations, this provision has very limited practical relevance today.

Accordingly, the primary mandatory limitation applicable to all residential and roofed workplace leases continues to be the twelve-month CPI average; any contractual increase exceeding this threshold is legally invalid.

2.2. Rent Determination Lawsuits in the Absence of an Increase Clause or Where Rent Becomes Unfair

In lease agreements where no rent increase clause exists, or where the rent becomes disproportionately low compared to market value after five (5) years, the lessor or the lessee may initiate a rent determination lawsuit. In such cases, the court determines the new rent by evaluating the following criteria:

• The physical condition and characteristics of the leased property,
• Comparable rent values (courts primarily consider comparable lease agreements, while also relying on similar property sale listings as auxiliary data),
• The twelve-month average CPI increase rate,
• Equity adjustments based on the lessee’s long-term tenancy,
• Environmental changes that significantly increase or decrease the value of the leased property.

By considering all these factors collectively, the court determines a rent that is equitable under the circumstances.

2.3. Prohibition of Acceleration and Penalty Clauses under Article 346 of the TCO

Any contractual provisions requiring the lessee to pay a penalty for late payment of rent or stipulating that future rent payments will become automatically due and payable are strictly invalid under TCO Article 346 and do not bind the lessee.

2.4. Law Numbered 7409 and Provisional Article 1: 25% Cap for Rent Increases

Provisional Article 1, introduced into the TCO by the Law numbered 7409, which entered into force on 11.06.2022, has brought a special rent increase cap applicable exclusively to residential leases for a limited period. Accordingly:

• For the periods between 11.06.2022 and 01.07.2023, rent increases in renewed residential lease periods may not exceed 25%.
• Where the twelve-month average CPI increase remains below 25%, the lower CPI rate applies.
• Any agreement exceeding this statutory limit is invalid for the exceeding portion.

This temporary regulation applied solely  to residential leases and only for the specified period. During this time, roofed workplace leases remained subject to the general rule under Article 344 of the TCO, whereby the increase could not exceed the twelve-month CPI average.

Since the expiry of Provisional Article 1, the 25% cap is no longer in force; therefore, residential leases are once again subject to the general regime of Article 344 of the TCO.

2.5. Consequences of Provisional Article 2 of Law Numbered 6217 Regarding Commercial Tenants

Provisional Article 2 of the Law numbered 6217, which entered into force on 14.04.2011, postponed the application of several tenant-protective provisions of the TCO (Articles 323, 325, 331, 340, 342, 343, 344, 346, 354) to commercial and legal-entity tenants for eight (8) years. Therefore, between 01.07.2012 and 01.07.2020, in workplace leases where the tenant was a merchant, the parties operated entirely within the framework of freedom of contract, and the provisions of the repealed Code of Obligations were applicable. ease agreements where the tenant was a merchant and the lease was for a workplace fell outside the scope of these protective provisions, and the repealed Code of Obligations applied.

It should be emphasized that the provision applied only where (i) the tenant was a merchant and (ii) the lease related to a workplace. Both conditions had to be present.

With the expiry of the postponement period as of 1 July 2020, the tenant-protective provisions of the TCO became applicable to workplace leases of merchants and legal entities as well. Consequently, Article 344 of the TCO now applies equally to commercial tenants.

As noted earlier, the 25% cap introduced by Law No. 7409 applied only to residential leases. Therefore, workplace leases continue to be governed by TCO Article 344, meaning that even if the rent increase rate agreed by the parties exceeds 25%, it remains valid so long as it does not surpass the twelve-month average CPI rate of the previous lease year.

In practice, disputes frequently arise when a property registered as “residential” in the land registry is leased to a legal-entity company. This distinction is not merely theoretical; it directly affects the applicable rent increase regime and the parties’ rights and obligations.

Particularly in periods of high inflation, the discrepancy between the 25% cap (applicable only during its temporary period) and the significantly higher twelve-month CPI average applicable to workplace leases can lead to substantial losses for lessors if the lease is misclassified.

For this reason, the actual use of the leased premises is assessed considering the totality of circumstances rather than relying solely on the land registry designation.

Courts evaluate a range of objective indicators that demonstrate the premises is used as a workplace rather than a residence. These include:

• The tenant being a legal entity and having the status of merchant,
• The express indication in the lease agreement that the leased property shall be used as a workplace,
• The tenant’s withholding tax deductions on rent payments,
• The rent expenses being recorded in the company accounts as commercial expenses,
• The leased property being actually used for business activities,
• The field of activity and business scope of the lessor or the lessee company.

Courts assess these elements collectively to determine the true nature of the lease and, consequently, which rent increase rule applies. Accordingly, the mere fact that the property is registered as “residential” in the land registry does not by itself prove that it is being used as a residence.

3. Non-Application of the Contractually Agreed Rent Increase Rate and the Debate on Implied Consent

The TCO contains no explicit provision regarding whether a lessor shall be deemed to have implicitly (tacitly) consented to the non-application of the contractually agreed rent increase rate where the lease relationship continues without such increase being applied. Therefore, the issue has been shaped entirely  Court of Cassation precedents.

3.1. Decision of the 3^rd Civil Chamber of the Court of Cassation, dated 26.12.2018 and numbered E.2017/4763, K.2018/13351

The Court held the payment of rent without applying the increase rate agreed in the lease agreement, and the lessor’s acceptance of such payments without reservation:

• Does not constitute a waiver of the contractual increase clause, or
• Does not establish a new agreement between the parties.

In the decision, the Court held that:

“The lessor’s acceptance of rent payments made without applying the increase clause, without raising any reservation, does not indicate the existence of an agreement that the rent is determined at the amount paid by the lessee, nor does it prevent the lessor from claiming the rent difference arising from the contractual increase clause.”

3.2. Decision of the 6^th Civil Chamber of the Court of Cassation, dated 08.05.2014 and numbered E.2014/4257, K.2014/5925

In the case at hand, the first-instance court had found that the lessor’s acceptance of rent payments without applying the increase clause constituted tacit approval and that seeking rent differences retrospectively amounted to an abuse of right.

However, the Court of Cassation overturned this reasoning and emphasized:

• A valid and written lease agreement existed between the parties, containing a specific, ascertainable annual rent increase clause.
• Acceptance of rent payments without the increase did not mean that the lessor waived the clause or that a new (tacit) agreement was formed.
• The contractual increase clause remained applicable in renewed terms unless modified by law or by a subsequent written agreement between the parties.
• Rent differences could be claimed retrospectively, subject only to the statute of limitations.

The Court also highlighted, in line with the Turkish Code of Civil Procedure (“CCP”), that where the lease agreement is in written form, any amendment to such written contract must likewise be proven through written evidence. Tacit behavior is insufficient to prove the existence of a second agreement that would derogate from a written contract.

4. Statute of Limitations

Pursuant to Article 147/6 of the TCO, claims relating to rent receivables are subject to a statute of limitations of five (5) years. Therefore, the lessor may only recover rent differences for the preceding five (5) years.

The 23^rd Civil Chamber of the Court of Cassation, in its decision dated 04.12.2014 (E.2014/2068, K.2014/7833), also confirmed that rent difference claims are subject to the five-year statute of limitations.

Best Regards,

DT Law