The Impact of COVID-19 on Workplace Lease Agreements

Due to the coronavirus, which is on the world and Turkish agenda, many workplaces in our country have been closed by the state and various measures have been taken. The closure of workplaces has caused disputes between tenants and landlords. So, what will happen to the rents of workplaces, which many people are wondering about? Especially if your workplace is located in a shopping mall, what course of action should you take?

Shopping Mall Lease Agreements

Let's assume you've rented a space in a shopping mall. The crucial point here is whether the property owner has fulfilled their obligation to make the property available to the tenant. While the owner's duty is to make the property ready, the tenant is obligated to pay rent. Based on these two fundamental points, if the property owner fails to fulfill their obligation to make the property available to the tenant, the tenant is also relieved of their obligation to pay rent to the owner. Furthermore, if the situation becomes such that the property is completely unusable by the tenant, the tenant may even terminate the contract.

There are several methods a tenant can use besides termination. The first is to apply to the court, invoking Article 138 of the Turkish Code of Obligations (TBK), to request the suspension of the terms of the contract with the property owner during the pandemic. Article 138 of the TBK, which regulates excessive inability to perform, includes the following sentences: 'If an extraordinary situation, unforeseen and unforeseeable by the parties at the time the contract was made, arises due to a reason not attributable to the debtor, and this situation changes the facts existing at the time the contract was made to such an extent that demanding performance from the debtor would be contrary to the rules of good faith, and the debtor has not yet performed their obligation or has performed it while reserving their rights arising from the excessive difficulty of performance, the debtor has the right to request the court to adapt the contract to the new conditions, or, if this is not possible, to terminate the contract.'.

Termination of Lease Agreement

In contracts involving continuous performance, the debtor, as a rule, uses the right of termination instead of the right of withdrawal. Based on this clause, you can terminate the contract, withdraw from it, suspend its provisions during the pandemic, or demand a new rent in accordance with the prevailing conditions, provided that the above conditions are met. But what rights do you have if the place you rented is outside the shopping mall?

Other Business Premises Lease Agreements

Here, as mentioned above, you can request the suspension of the lease terms or a rent adjustment appropriate to current conditions. If you, as a tenant, do not make these requests and fail to pay your rent, you may be in default. Therefore, you should pay your first rent payment to the landlord under reservation and inform them in writing that you will be unable to pay subsequent rents due to COVID-19. For businesses paying annual rent, the method to apply is to request an adjustment. You will either request a new rent based on the months you did not use the property, or you should terminate the contract and claim the money you lost from the landlord based on the principles of unjust enrichment. Article 77 of the Turkish Code of Obligations states: "Anyone who unjustly benefits from the property or labor of another is obliged to return that enrichment. This obligation arises especially when the enrichment is based on an invalid, non-existent, or terminated reason." You can apply the principles of unjust enrichment to monthly rent payments as well. Due to the pandemic, property owners should follow the steps mentioned above.

The COVID-19 pandemic, as accepted in doctrine and practice, constitutes a force majeure event. Therefore, in addition to severing the causal link between damage and the act in tort cases, it also constitutes a justifiable reason for termination of contracts. In this context, those who cannot use their rented property due to the pandemic (merchants, tradespeople, students, etc.) can rely on this reason when wishing to terminate their lease agreements.

Lease Agreements for Residential and Commercial Properties

Lease agreements for residential and commercial properties can be terminated either through extraordinary termination under Article 331 of the Turkish Code of Obligations (TBK), as referenced by Article 347/3, or through termination for just cause under general provisions. In this context, it can be said that the tenant has a right of choice. However, when exercising the right of termination, the tenant must inform the other party whether the termination is for just cause or for a substantial reason under Article 331 of the TBK. Of these two options, termination for just cause is more advantageous for tenants. This is because the termination takes effect from the moment it reaches the other party. However, in the case of extraordinary termination under Article 331 of the TBK, according to Article 329 of the TBK, lease agreements terminate no earlier than three months after the notice of termination, and tenants will be obliged to pay rent for this three-month notice period to the landlord.

Termination Notice

The termination notice is subject to the written validity requirement under Article 348 of the Turkish Code of Obligations (TBK). Therefore, the written nature of the notice is crucial for the termination to take effect. Business owners, particularly those engaged in commerce, may be reluctant to vacate their rented premises to avoid impacting their customer base. Tradespeople and merchants who are unable to pay rent due to the temporary closure of their businesses or a complete halt to their operations as a result of COVID-19 may, instead of terminating the lease agreement, request adaptation of the contract to new terms under Article 138 of the TBK due to excessive difficulty in performance. In this case, there must be an unforeseen extraordinary circumstance that did not exist at the time the contract was made, i.e., one that arose later. This situation must also result in the inability to demand, according to the principle of good faith, that the debtor fulfill their obligation under the terms of the contract.

Renewal of Lease Agreements

From a COVID-19 perspective, it is clear that this global pandemic is an extraordinary situation that did not exist at the time the lease agreements were made and arose later. Tenants who are unable to use the leased property as a result of this pandemic can request that the lease agreement be adapted to the new conditions if they do not wish to terminate it. Because it would be contrary to the principle of good faith to expect the party to fulfill their obligations exactly as they did when they are unable to do so due to reasons beyond their control.

For traders whose businesses have come to a standstill and whose workplaces have been closed due to Covid-19, adapting the contract to new terms is a more preferable option to avoid customer loss and maintain their current workplaces. However, the obligation of traders to act as prudent businesspeople does not prevent them from requesting the adaptation of the contract to new conditions based on Covid-19, which constitutes a force majeure event. Although the Supreme Court has rejected requests for adaptation of contracts to new conditions in situations such as economic crises, citing the obligation of traders to act as prudent businesspeople, an economic crisis cannot be equated with a global pandemic like Covid-19. This is because it is impossible for traders to foresee a global pandemic like Covid-19, which has been declared a pandemic and affected the entire world.[1]

[1] Yıldırım, A. (2015). Tenant's obligation to provide security in residential and commercial leases. Ankara University Faculty of Law Journal, 64 (1), 237-266. DOI: 10.1501/Hukfak_0000001778

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Trainee Lawyer Fatih CEYHAN