Legal Risks for Corporate Parties in Lease Agreements

The main legal risks in corporate lease agreements in Turkey arise from rent increase clauses that exceed statutory limits, deposit and eviction arrangements drafted in an invalid form, vague provisions on alterations and assignment, and skipped formalities such as land registry annotation and stamp duty. Most of these risks can be managed through a careful review before the contract is signed.

In this article, we summarise the key points that corporate tenants and landlords should consider at the contract stage, within the framework of the rules on residential and roofed commercial premises in the Turkish Code of Obligations No. 6098.

Why do corporate leases require particular attention?

Leases for offices, retail stores, warehouses or branches are usually long-term, involve significant investment and directly affect a company’s operational continuity. For the tenant, relocation costs, interior fit-out investment and customer access are critical; for the landlord, the predictability of rental income and the preservation of the property’s value come first.

The Turkish Code of Obligations contains many mandatory provisions for residential and roofed commercial premises that protect the tenant and cannot be changed to the tenant’s detriment by contract. The assumption that “whatever the parties agree is valid” therefore does not always hold in lease agreements: a clause that conflicts with the law may turn out to be void exactly when it is needed most.

Rent increase clauses and the CPI cap

How rent is updated each year is the most common source of disputes in long-term relationships. The law sets a general cap: the increase applied in renewed lease periods may not exceed the change in the twelve-month average of the consumer price index (CPI) for the previous lease year. Any agreed increase above this cap does not bind the tenant as to the excess portion.

What to watch for in the increase clause

• Draft the clause clearly and unambiguously in terms of the index, effective date and calculation method.
• Check the current status of restrictions on setting rent in foreign currency before signing; the rules in this area have changed over time.
• In long-term relationships, factor into your budget the possibility that, after a certain period, the court may redetermine the rent based on comparable market rents (rent determination).
• Keep in mind that temporary legislation may introduce different increase caps, and always confirm the rules in force on the contract date.

Deposits and security arrangements

For residential and roofed commercial premises, the law expressly provides that the security taken from the tenant may not exceed three months’ rent. Cash security is to be deposited in a time deposit account at a bank that cannot be withdrawn without the landlord’s consent, and security in the form of negotiable instruments is to be deposited with a bank. Although paying the deposit directly to the landlord is common in practice, it can lead to evidentiary and collection problems when the deposit is to be returned.

Instruments such as bank letters of guarantee are also widely used in corporate leases. Whichever form of security is chosen, the contract should clearly define when it may be called, the conditions for its return and its period of validity.

Eviction undertakings and their validity

An eviction undertaking is a written commitment by the tenant to vacate the premises on a specific date, and it is a powerful tool for the landlord. To be valid, however, it must be given after the premises have been handed over to the tenant; undertakings signed together with the lease or obtained before handover are, as a rule, invalid. Undated undertakings, which are frequently seen in practice, also give rise to serious disputes over evidence and validity.

If the tenant does not vacate on the undertaken date, the statutory time limits for the landlord to take action are short, and missing them may render the undertaking ineffective. Tenants, for their part, should carefully assess the conditions and the date to which the undertaking is tied.

Statutory periods, renewal and termination notice

For residential and roofed commercial premises, a fixed-term lease is deemed renewed for one year on the same terms unless the tenant gives notice at least fifteen days before the end of the term. The landlord, by contrast, cannot easily terminate the lease solely because the term has expired; this becomes possible only after the long statutory extension periods have elapsed, or where statutory grounds for eviction exist, such as genuine need, reconstruction or tenant default.

Early exit rights for corporate tenants, and the basis of compensation for landlords in case of early termination, should be expressly regulated in the contract. At the same time, for residential and roofed commercial premises, the law treats as invalid clauses providing that a penalty is payable, or that all future rents become due, if rent is not paid on time. Relying on such clauses in risk planning can be misleading.

Alterations, improvements and costs

Corporate tenants often adapt the premises to their corporate identity and operational needs. The tenant must obtain the landlord’s written consent to make alterations or improvements to the premises. Clarifying the following points in the contract significantly reduces disputes:

1. Which works require approval and how approval is to be given,
2. Whether there is an obligation to restore the premises to their original condition on exit,
3. Whether compensation can be claimed for improvements that increase the value of the premises,
4. Which party bears routine maintenance, major repairs and ancillary costs,
5. Who is responsible for obtaining permits, project approvals and building management consents.

For works involving structural intervention, permit processes under the Zoning Law No. 3194 and, in buildings subject to condominium ownership, the Condominium Law No. 634 should also be taken into account.

Subleasing, assignment, land registry annotation and stamp duty

Subleasing and transfer of use

For residential and roofed commercial premises, the tenant may not sublet the premises or transfer the right of use without the landlord’s written consent. For commercial premises, however, the landlord may not refuse consent to the transfer of the lease without just cause, while the transferring tenant may remain liable to the landlord for a certain period after the transfer. Companies planning intra-group restructuring, mergers or branch transfers would benefit from addressing this in the contract in advance.

Land registry annotation

A lease agreement may be annotated in the land registry. An annotated lease can also be enforced against persons who later acquire rights over the property, such as new owners. For long-term, high-investment leases, annotation is an important safeguard for the tenant.

Stamp duty

Lease agreements are among the documents subject to stamp duty. The basis of calculation and which party will pay should be stated clearly in the contract, and tax obligations should be assessed together with a financial adviser.

Mandatory mediation in commercial leases

For a significant share of disputes arising from lease relationships, applying to a mediator before filing a lawsuit has become a mandatory precondition. Rent determination, monetary claims and many eviction disputes fall within this scope, while certain eviction proceedings through enforcement offices may be subject to different rules. When drafting dispute resolution clauses, the current legislation should therefore be checked and the competent courts and enforcement offices clearly specified.

How Yeşilyurt Group can help

Operating in real estate in Istanbul since 1995, Yeşilyurt Group supports corporate tenants and landlords, including foreign companies doing business in Turkey, with pre-signing contract review, clause-by-clause risk analysis, assessment of security and eviction arrangements, and defining the legal framework for fit-out works. To learn more about our real estate legal advisory service or to have your existing lease reviewed, please get in touch with us.

Conclusion

Most risks in corporate lease agreements can be prevented with well-structured clauses at the signing stage. Ensuring that the increase, security, eviction, alteration, assignment and dispute resolution clauses comply with mandatory rules allows a long-term lease relationship to proceed predictably.

Note: This article is for general information purposes only and does not constitute legal advice. You should consult a legal professional about your specific situation.