Leasing of Commercial Property

Leasing of Commercial Premises (Business Lease): Rights and Risks of the Lessor and Lessee Merchant

1. Introduction: What is Business Rent and Why is it Important?

Commercial leasing is a common but often overlooked legal process, frequently dismissed as simply "I've rented a shop," but in reality, it's a highly technical and risky legal transaction. Especially in established businesses with a long-standing customer base, brand, reputation, inventory, machinery, fixtures, and personnel structure, the tenant essentially takes over not just four walls, but an entire commercial organization

Therefore, business rent:

a simple lease agreement , but often a complex contract involving multiple intertwined legal relationships (lease + license + service + know-how transfer, etc.).
From the lessor's perspective, it's a matter of protecting and, if necessary, reclaiming commercial reputation, brand, customer base, inventory, and machinery.
From the tenant's perspective, the issues are: business continuity, maintaining the inherited customer base, ensuring inventory and fixtures are defect-free and functional, sustainability of the rent, and avoiding financial loss in the event of contract termination.

Below, we will examine in detail the rights and obligations of both the landlord and the lessee (business lease), the critical points to consider in the contract, and the most common risks within the scope of leasing a commercial property (business lease)

2. Legal Nature of Commercial Leases

2.1. The concept of commercial enterprise and the leasing relationship

A commercial enterprise refers to an independently run, continuous organization that aims to generate income and goes beyond the scope of a simple tradesman's activity. In practice:

Restaurants, cafes, markets, factories,
Beauty salons, auto repair shops, logistics warehouses,
Hotels and
other accommodation establishments are considered commercial businesses.

Granting the right to use all or part of a business to another party for a specific period is generally referred to as a business lease.

2.2. Differences between business lease – simple lease – lease certificates – franchising

It is important to distinguish business lease from similar concepts:

Simple lease (real estate lease): Only the use of the property (shop, office, warehouse) is transferred. The business's customer base, brand, inventory, and machinery may be outside the scope of this agreement.
Business lease: Along with the shop/property, this may include the use of signage, trade name, customer base, inventory, fixtures, machinery, and sometimes even the transfer of personnel.
Franchising: This is a much more regulated, systematic, and brand-focused type of contract. The franchisor provides know-how, brand, and operating system; the franchisee manages the business according to this model. Business lease, however, is not always a form of franchising; it is often a simpler, local arrangement.
Lease certificates, financial leasing: Financial markets or financial leasing contracts are a completely different field; here, it's primarily about access to financing and the ownership of the asset by the leasing company.

Therefore, business leases often appear as mixed-type contracts in most cases: they may include elements such as lease, license, work/service, and know-how transfer

3. Parties in a Business Lease Agreement: Who is the Lessor and Who is the Lessee (Merchant)?

3.1. Lessor merchant

The landlord;

The owner of the commercial enterprise,
The person who actually operates the business,
The company that owns the commercial enterprise (for example, a limited liability or joint-stock company),
Sometimes, the tenant or sub-lessee may be the one who actually operates the business but has control over some of its elements.

The landlord, through the contract, the business to the tenant as a revenue-generating whole . This transfer:

It can encompass all elements (signage, branding, inventory, fixtures, machinery, personnel, customer base),
Or it could be partial (like just the brand + customer base + specific assets).

3.2. Tenant merchant

Tenant;

They may already be a trader (for example, a company that also operates another business),
With the leasing transaction, one can acquire the status of a merchant for the first time (with registration in the commercial registry).

The tenant, at the moment the contract is signed:

It takes over the rights under the contract,
He agrees to assume certain debts,
He starts operating the business in his own name and on his own behalf.

Therefore, it is important for tenants, especially entrepreneurial characteristics, to conduct legal and financial due diligence before signing the contract, i.e., to have the business examined from a legal, financial, and factual perspective.

4. Subject of Business Lease: What is being leased?

4.1. Material elements

In the leasing of a commercial property, the following material elements are generally the subject of the contract:

Real estate (shop, store, warehouse, factory building, etc.)
Machinery and equipment
Fixtures and fittings (table, chair, cabinet, shelf, safe, etc.)
Stocks (products, materials, semi-finished products, finished products)
Vehicles (service vehicles, delivery vehicles, etc.)

For each of these elements:

Detailed inventory list,
Serial number, model information,
Wear and tear and usage condition,
Identifying missing/damaged/defective equipment
is extremely important. Otherwise, the tenant may later claim "I was given faulty equipment," while the landlord may argue "these machines were working fine, the tenant broke them," leading to a dispute.

4.2. Intangible elements

In business leases, there are intangible elements that are just as important as the tangible elements:

Right to use trade name and business name
Right to use the brand and logo (with a license agreement if necessary)
Domain name, social media accounts, email addresses
Customer base and customer data
Company-specific know-how, recipes, production secrets
Business decoration, concept, interior architectural design model

Many of these elements intellectual and industrial property law . Therefore, much more detailed and protective provisions are needed, unlike those in a typical lease agreement.

5. Rights, Obligations, and Risks of the Lessor Merchant

5.1. Lessor's primary obligations

The landlord's main obligations are:

Obligation to deliver the business in accordance with the contract
- All tangible and intangible elements listed in the contract must be delivered to the tenant in complete and functional condition.
- A damage assessment report must be prepared upon delivery, and the event must be documented with photographs and videos.
liability for defects
- If there are hidden and serious defects in the elements of the leased business, the lessor may be held liable for them.
- If these defects make it difficult or impossible for the tenant to continue operating the business, a rent reduction, termination of the contract, or compensation may be considered.
The obligation to transfer possession
- The actual use of the business should be left to the tenant; the landlord should not interfere with the business through simple, arbitrary interventions.
Duty of care regarding customer base and brand reputation
- Especially when a specific customer base and brand reputation have been transferred to the tenant, the landlord is expected to refrain from behaviors that could damage this reputation (such as opening a new business with the exact same concept in the same area, misusing the transferred brand, etc.).

5.2. The landlord's main rights

Landlord's rights:

Right to demand rent: The right to demand timely and full payment of the rent agreed upon in the contract.
Right to obtain security (deposit, bank guarantee letter): The right to obtain security to protect against the tenant's potential debts.
Right of inspection: The right to reasonably inspect (with prior notice) whether the business is being operated in accordance with the contract.
Right to terminate and demand eviction: The right to terminate the contract and reclaim the business in cases of serious breaches by the tenant, such as non-payment of rent or use of the business for illicit purposes.

5.3. Risks for the landlord

The risks that landlords should be aware of are as follows:

The tenant mismanages the business and damages the brand
- Poor service, lack of hygiene, illegal activities, and customer complaints can damage a brand's value.
Tenant's debt and third parties' seizure of business assets
- Despite the contract, there may be attempts to seize business assets; therefore, inventory and contractual provisions clearly showing that ownership remains with the lessor are essential.
Tax risk
- If rental income declarations, invoicing procedures, and withholding tax obligations are not managed correctly, problems can arise with the tax authorities.
Occupational health and safety / administrative sanctions
- The contract should clearly specify who will be responsible for any administrative fines incurred when the business is managed by the tenant.

6. Rights, Obligations, and Risks of the Tenant Merchant

6.1. Tenant's basic rights

For tenant businesses, business leases offer significant opportunities:

Opportunity to start a business with a ready-made customer base and brand
- Instead of acquiring customers from scratch, the focus is on starting with the existing customer portfolio.
Possibility of using readily available equipment and fixtures
- The business can be taken over without making high-cost investments in machinery and equipment.
The right to receive economic benefits from a business for a specific period of time
- During the lease term, the profits of the business belong to the tenant; the landlord is only obligated to receive rental income.
The right to claim protection of the business
- Regarding the business taken over by the tenant, non-compete clauses may be stipulated to prevent the landlord from opening a similar business with a similar concept in the same area, which would lead to unfair competition.

6.2. Tenant's basic obligations

The tenant merchant's main obligations:

obligation to pay rent on time and in full
The obligation to operate the business in accordance with the contract
The company's duty of care and maintenance
- The obligation is not to cause serious damage, other than wear and tear from normal use.
The obligation to comply with tax and social security requirements
- Employee insurance, invoicing, VAT, income/corporate tax, withholding tax, etc. obligations.
The obligation not to transfer or sublease the business to third parties (unless otherwise agreed)
obligation to return the business at the end of the contract
- Returned in accordance with the inventory list, with excessive wear and tear and missing parts rectified.

6.3. Key risks for the tenant

The most significant risks for a tenant merchant when renting a business premises:

The acquired business was actually less profitable than expected
- The turnover reports provided by the landlord may not reflect the actual situation.
Hidden debts, tax and social security risks
- Outstanding debts from a previous landlord's tenure may indirectly affect the tenant's business (e.g., foreclosure, debt collection, bad reputation).
No return on investment in short-term contracts
- High costs associated with decoration, advertising, staff training, etc., may not be recouped in the short term.
Situations where the business has not been physically transferred, and only the use of the signage is permitted
- While the tenant assumes all the risk, they may not have full legal protection in the form of a "business transfer" or a strong "business lease" guarantee.

Therefore, it is essential for the tenant to conduct a thorough legal and financial review before signing the contract, carefully evaluating the business's profitability, debts, tax status, lease term, and termination terms.

7. Essential Sections to Include in a Business Lease Agreement

Including at least the following points in a business lease agreement significantly reduces disputes:

7.1. Parties to the contract and their roles

The parties' titles, trade registry numbers, and addresses.
Designation of the parties' authorized representatives to sign the contract.
Whether the business owner is the same person as the property owner; if not, the legal relationship between the property owner and the lessor.

7.2. Detailed description of the business that is the subject of the contract

The company's trade name and trademark, if any.
The property's full address, including plot number and individual unit details.
List of machinery, fixtures, equipment, and inventory (preferably in tabular form with photographs).
Domains, social media accounts, phone numbers, email addresses.

7.3. Lease term and extension conditions

Start and end dates of the lease agreement.
Whether there will be a spontaneous extension at the end of the period, and if so, how many years the extension will be.
How the rent will be increased in case of extension.

7.4. Rent amount, payment method and increase rate

Monthly/annual rental fee,
Payment date and payment method (bank account, foreign currency, Turkish Lira, etc.),
Rent increase rate (taking legal limits into account),
If rent is calculated based on turnover, the turnover reporting method should be used.

7.5. Guarantee and security provisions

Deposit amount and payment method.
If a bank guarantee letter is required, what are the terms and duration?.
The conditions under which the security deposit can be used by the landlord and the terms of its return.

7.6. Scope of business transfer and sharing of responsibilities

Whether existing employees will be taken over, and responsibility for their wages.
The responsibilities of the parties with regard to existing debts and receivables.
Inventory transfer fee and payment schedule.
Procedures to be followed in case of defects, shortages, or damage to inventory, fixtures, and machinery.

7.7. Use of advertising, signage, trademarks and titles

Will the tenant use the business name and signage as is?
Can the tenant use their own brand, and if so, what will happen to the old brand?
Can the landlord open a new business in the vicinity with the same brand or a similar concept (non-competition clause)?

7.8. Subleasing, transfer and handing over of operations to third parties

Can the tenant transfer the business to a third party?
Will subleasing be possible?
Whether the lessor's approval is required when there is a change in the company's ownership structure.

7.9. Maintenance, repair and investment expenses

Who is responsible for the periodic maintenance of fixed assets and machinery?
Who is responsible for the major repairs and investment costs?
Will any investments made by the tenant (decoration, renovations, etc.) be removed at the end of the contract, or will they be left in the business premises?

7.10. Insurance, tax and administrative liabilities

Who will take out the business insurance (fire, earthquake, business interruption, etc.)?.
Which party is responsible for tax and social security obligations.
Administrative permits such as municipal licenses, health permits, and the appointment of a responsible manager will be handled in whose name and how.

7.11. Termination, eviction and penalty conditions

Grounds for justified termination (non-payment of rent, revocation of license, serious defect, serious breach of contract, etc.).
Form of termination notice (written, notarized, registered electronic mail, etc.).
Penalties applicable in case of early termination.
Detailed provisions regarding the eviction procedure and the return of the business.

For detailed information, see: https://ferhatkule.av.tr/ticari-isletme-kira-sozlesmesi-ornegi/

8. Tax and Social Security Aspects of Business Leases

The leasing of a commercial property should be evaluated not only from a contractual perspective, but also from tax and social security perspectives.

8.1. Tax liabilities of the landlord

Landlords are required to declare the rental income they receive for income/corporate tax purposes.
The landlord's tax status (sole proprietorship or corporation) affects tax rates and declaration procedures.
In some cases, withholding tax may be applicable to rental income; in this situation, the tenant usually makes the withholding payment, but the roles of both parties should be clarified with the assistance of a financial advisor.

8.2. Tenant's tax liabilities

The tenant declares the commercial profit arising from the operation of the business.
Issuing invoices and paying obligations such as VAT, provisional tax, income/corporate tax, and stamp duty are the responsibility of the tenant.
If the tenant assumes the role of employer, then responsibilities related to employees, such as social security contributions, unemployment insurance, and income tax withholding, also belong to the tenant.

8.3. Responsibility for Social Security and employee receivables

The status of existing personnel is a critical issue during the business leasing process

Will the current employees' contracts be taken over by the tenant?
If it is taken over, who will be responsible for past due labor claims, and to what extent?
Will the workers view the tenant or the landlord as their new employer?

These issues should be clearly regulated in the contract, and if possible, tripartite protocols . Otherwise, unexpected risks may arise in future labor lawsuits.

9. Common Disputes in Business Leases

In practice, disputes arising from business leases generally focus on the following areas:

Non-payment or late payment of rent
- Eviction requests, enforcement proceedings, default interest.
Defects and deficiencies in the handover of the business
- Broken machinery, missing equipment, unusable inventory, expired products.
Disputes regarding the use of trademarks and names
- The landlord continuing to use the same brand in the same area,
- The tenant is using the brand for purposes other than those specified in the contract.
Non-compete clause violations
- One of the parties competing in the same area despite specific distance and time restrictions.
Early termination of the contract
- Legal validity of terminations due to reasons such as economic crisis, decrease in turnover, and license revocation.
Return of the business after the contract ends
- Inventory discrepancies, missing or damaged fixtures, removed or taken decorative elements.

Most of these disputes the lack of a clear and detailed contract , or from the contract not being structured in a way that is practical and applicable.

10. Practical Tips for Landlords and Tenants

10.1. Checklist from the landlord's perspective

Landlords should consider the following points when renting out business premises:

Prepare a detailed inventory of all elements of the business, and document it with photos and videos.
Determine the lease term, extension terms, and rent increase rate in a reasonable and sustainable manner.
Conduct a business reference check on the tenant; evaluate their financial strength and industry experience.
Write detailed terms of use for intangible rights such as trademarks, titles, domains, and social media accounts.
Clearly define the permission mechanisms for matters such as subleasing, transfers, and partnership changes.
Clarify the terms of termination, eviction, and penalties; specify in the contract what type of sanction will be applied for each breach.
Do not sign a business lease agreement without the support of a financial advisor and a lawyer.

10.2. Checklist from the tenant's perspective

For tenant merchants, the following points stand out:

Request the company's revenue and profitability data for at least the last 2-3 years , and if possible, conduct independent verification
Request written information and documents regarding items such as tax debt, social security debt, and municipal debt.
Obtain clear information regarding the status of legal permits such as municipal licenses, health permits, and responsible manager certifications.
Review the inventory list meticulously, conduct an on-site count; identify any broken, missing, or scrap equipment.
Design the lease term to align with the return on investment period; don't make a five-year investment with a one-year contract.
Pay close attention to the terms regarding early termination, penalty clauses, and non-compete agreements.
Make sure you have the contract reviewed by a lawyer experienced in commercial law and lease agreements.

11. Frequently Asked Questions (FAQ)

Question 1: Is a notarized contract absolutely necessary when renting a commercial property?

While notarization isn't legally required in every case, business leases are often high-value and multi-faceted contracts, written form essential; in practice, notarization is frequently preferred. Especially in long-term and complex business leases, a notarized contract eases the burden of proof for both parties.

Question 2: Can the tenant transfer the leased business to someone else?

This depends entirely on the terms of the contract. If the contract permits a transfer, it can be assumed that a transfer is possible with the written consent of the lessor. However, if it is explicitly prohibited in the contract, the lessee's transfer of the business to a third party or subleasing constitutes a breach of contract and may be grounds for termination.

Question 3: What is the maximum amount of security deposit (security deposit) allowed for business leases?

The security deposit amount can be freely determined by the parties; typically, a deposit equivalent to several months' rent is taken. However, disproportionately high security depositsmay become a subject of dispute in court later on. Therefore, a reasonable and justifiable security deposit level should be preferred.

Question 4: Is it possible to implement a revenue-based rent system for business leases?

Yes, especially in store rentals within shopping malls or in businesses like restaurants and cafes, a revenue-based rent model is frequently used. In this case:

Minimum guaranteed rental fee,
Additional rental percentage to be collected based on turnover,
which document the sales reports are based on and the reporting periods
.

Question 5: Can the tenant remove the decorations and investments they made in the business at the end of the contract?

The answer to this question depends on the contract. If the contract states that "decorations and renovations made by the tenant shall be transferred to the landlord free of charge upon termination of the contract," the tenant may not be able to remove them. If there is a contrary provision or no provision at all, an assessment will be made according to the specific circumstances of the case; generally, items that can be removed without causing damage are considered to belong to the tenant.

Question 6: What can the landlord do if the tenant mismanages the business and damages the brand reputation?

If the contract includes a clause stating that "the business shall be operated in accordance with the contract and the reputation of the brand," and the tenant is clearly acting in violation of this clause:

The landlord can first send a written notice,
If the breach continues, the contract may be terminated for just cause
They can also seek compensation for damages to their brand reputation.

Question 7: Which court has jurisdiction in disputes arising between parties in business lease agreements?

Generally, commercial disputes in commercial courts of first instance . A jurisdiction clause may be included in a contract; however, this jurisdiction clause cannot contradict mandatory provisions of the law. In practice, most contracts specify that the courts located where the business is situated have jurisdiction.

12. Conclusion: Business Rent Is Not Just a Simple Shop Rent

The leasing of a commercial property (business lease) is a complex legal transaction that presents significant opportunities as well as serious risks for both the landlord and the tenant. In particular:

Accurate identification of the tangible and intangible elements of the business,
Clarifying tax, social security, licensing and permit processes,
Detailed regulation of non-compete clauses, trademark and name usage, subleasing and transfer provisions
The terms of termination and eviction must be clear and predictable

This will minimize future disputes between the parties.

Therefore, it is crucial for landlords and tenants considering a business lease to seek legal advice from a specialist lawyer before signing a contract, to review the business with a financial advisor, and to manage the process professionally

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