Situation of commercially rented workplaces during the COVID-19 pandemic
The coronavirus outbreak, which has affected the whole world, was declared a pandemic by the World Health Organization (WHO) on March 11, 2020. The coronavirus outbreak, which affects every aspect of life, also affects commercial life. Business owners who cannot fulfill their business activities properly cannot make profit and have difficulty in paying the rents of their workplaces. It is among the curious issues whether the coronavirus will be considered force majeure in the payment of rents.
The coronavirus outbreak, which has affected the whole world, was declared a pandemic by the World Health Organization (WHO) on March 11, 2020. The coronavirus outbreak, which affects every aspect of life, also affects commercial life. Business owners who cannot fulfill their business activities properly cannot make profit and have difficulty in paying the rents of their workplaces. It is among the curious issues whether the coronavirus will be accepted as a force majeure for the payment of rents.
The lease agreement is defined in Article 299 of the Turkish Code of Obligations. According to this article, a lease agreement is a contract in which “the lessor undertakes to leave the use of a thing or the use of it together with the use of it to the lessee, and the lessee undertakes to pay the agreed rental price in return”. The conclusion of a lease agreement is not subject to any formal requirements. The parties have freedom of will, provided that the contract is not contrary to the mandatory provisions, public order and general moral rules. Force majeure is an unforeseeable and irresistible event that may cause the debtor to fail to fulfill the obligation. Regarding the lease agreement, the force majeure events and the effects of force majeure events on the lease agreement vary depending on whether the leased immovable is a workplace or a residence. In this article, lease agreements concluded in relation to immovables leased for commercial purposes will be discussed.
The law of obligations does not clearly define what force majeure is. This is one of the reasons for the emergence of problems related to force majeure. However, force majeure is exemplified in some special laws, such as the Law on Public Procurement Contracts. Article 10 of the Public Procurement Contracts Law No. 4735 lists natural disasters, legal strike, general epidemic, partial or general mobilization as examples of force majeure. Force majeure is an unforeseeable and irresistible extraordinary event that develops beyond the will of the debtor, which may cause the debtor to be unable to fulfill the obligation. According to the general acceptance, force majeure events are death, illness, bankruptcy, and imprisonment. Sometimes these situations are examined more broadly and situations such as fire, earthquake, flood, war, epidemic disease are also considered as force majeure. Some commercial lease agreements include force majeure. Therefore, various cases of termination are foreseen in the contract or it may be foreseen which party will bear the damages in case of impossibility of performance. In accordance with the freedom of will, if force majeure is regulated in the contract, the parties may benefit from these force majeure circumstances. However, in terms of force majeure situations or the effects of the virus, if the force majeure situation is not regulated in the contract, it will be necessary to look at the General Provisions of the Code of Obligations. As mentioned, force majeure is not defined in the Code of Obligations. However, case law draws the general framework in this regard. Based on the decisions of the Court of Cassation, an inference can be made about the characteristics that the situation that can be accepted as force majeure should have. In this case, the event to be accepted as force majeure; 1. It must be unforeseeable at the time of signing the contract 2. It must occur after the contract is signed 3. It must make the performance of the performance agreed in the contract impossible 4. It must be unavoidable and uncontrollable even if the parties take due care.
Law No. 7226 Enacted to Mitigate the Effects of Coronavirus
During this pandemic, a number of current regulations have been introduced regarding the rents of workplaces. First of all, it will be useful to address the Law No. 7226 on the Amendment of Certain Laws, which entered into force after being published in the Official Gazette dated March 26, 2020 and numbered 31080. According to the provisional article 2 of the Law No. 7226, “Failure to pay the rent for the workplace to be processed from March 1, 2020 to June 30, 2020 does not constitute a reason for termination of the lease agreement and eviction.” Therefore, it is clear that between March and June 2020, lessors cannot terminate the workplace lease agreement and evict the tenant. The lessor will not be able to evict the tenants and terminate the lease agreement due to the tenants’ failure to pay the rent debts during this period. In this respect, the lessor may notify the lessee in writing that if the lessee does not fulfill the obligation to pay the rent or ancillary expenses due after the delivery of the lease, the lessor may give the lessee a written notice of termination of the contract in case of non-performance within this period. ” or TCO 352 “If the lessee has caused two justified notices to be given to him in writing for not paying the rent within the lease period in lease agreements with a term of less than one year, and within one lease year in lease agreements with a term of one year or more, or within a period exceeding one lease year, the lessor may terminate the lease agreement through litigation within one month starting from the end of the lease period and the lease year in which the notices were made in leases with a term of more than one year. ” provision, it will not be possible to terminate the lease agreement. Likewise, the lessor will not be able to resort to extraordinary termination based on Article 331 of the TCO during this process.
However, it should be noted at this point that within the scope of this law, only the evacuation of the leased immovable and the termination of the lease agreement are prevented in this process. The tenant’s rent debt continues. In this process, only the tenant does not default for not paying his debt. Similarly, enforcement proceedings cannot be initiated against him during this period. In fact, according to the Presidential Decree No. 2279 dated March 22, 2020 on the Suspension of Enforcement and Bankruptcy Proceedings, enforcement proceedings can be initiated as of May 01, 2020. In this case, as of April 30, 2020, the end of the period, as of April 30, 2020, with the notice to be made to the lessee in accordance with TCO 315, enforcement proceedings can be initiated for at least 30 (thirty) days in residential and roofed workplace rents and 10 (ten) days in other rents, depending on the payment order from the following day. In this case, the lessee will be able to pay the debt until the end of the period starting from the day following the date of notification. However, even in this case, the lessor will not be able to terminate the contract and evacuate the leased property due to the rent receivables not paid within these periods.
Until July 1, 2020, it is not possible to terminate the lease agreement and evict the tenant. However, there are various solutions for tenants whose workplace activities are disrupted due to the measures taken due to the coronavirus outbreak and who are unable to pay the workplace rent, and for lessors who cannot collect the workplace rent receivable. While examining these solutions, the judge will decide by taking into account the circumstances of each concrete case. The coronavirus was declared an “international public health emergency” by the World Health Organization on 31 January 2020, the risk level was raised from high to very high on 28 February 2020, and a pandemic was declared on 11 March 2020. In Turkey, many regulations and restrictions have been imposed at the national level, such as the suspension of time limits in judicial proceedings. Although there is not yet a decision of the Court of Cassation regarding the effects of the coronavirus outbreak on the lease agreement, it would not be wrong to say that an outbreak declared as a pandemic will constitute force majeure. However, it is still necessary to evaluate the concrete case.
“Extraordinary Termination” Condition regulated in Article 331 of the TCO:
“Either party may terminate the lease if the continuation of the lease relationship becomes unbearable for itself
the existence of important reasons, the contract may be terminated at any time by complying with the legal termination notice period.
The judge shall decide on the monetary consequences of the extraordinary notice of termination, taking into account the circumstances and conditions.”
On the grounds that the continuation of the lease relationship has become unbearable, the lessee and the lessor may terminate the lease agreement at any time, by complying with the legal termination notice periods. However, whether the epidemic will constitute an important reason will be determined by the judge according to each concrete case. The fact that the lease relationship becomes unbearable due to the epidemic will be important at this point, that is, a causal link will be sought. At this point, the judge is given discretion. In cases of significant termination, legal periods must be complied with, so the termination made by the lessee will take effect after 3 months, and if the judge deems necessary according to the circumstances of the concrete case, he may award a compensation for the damages of the lessor.
“Excessive Difficulty of Performance” Condition regulated under Article 138 of the TCO:
“Unforeseen by the parties at the time of the conclusion of the contract and not expected to be foreseen
If an extraordinary circumstance arises for a reason not attributable to the debtor and changes the facts existing at the time of the conclusion of the contract to the detriment of the debtor to the extent that it would be contrary to the rules of good faith to require performance, and the debtor has not yet performed his obligation or has performed by reserving his rights arising from the excessive difficulty of performance, the debtor has the right to ask the judge to adapt the contract to the new conditions, and if this is not possible, to rescind the contract. In contracts of continuous performance, the debtor, as a rule, uses the right of termination instead of the right of rescission.”
If the tenant’s payment of the lease obligation cannot be expected from the tenant in good faith due to reasons such as the coronavirus outbreak, which was not foreseen at the beginning of the contract, and the disruption of workplace activities due to the epidemic, the tenant has the right to request the adaptation of the lease agreement or to request the termination of the contract. In this case, the debtor must have not yet fulfilled its obligation or must have fulfilled it by reserving its rights arising from the excessive difficulty of performance. The judge will make a separate assessment according to each concrete case. Although there is no precedent decision on the consequences of the coronavirus yet, a general framework can be drawn regarding in which cases it is possible to adapt the lease agreement to the changing conditions due to the pandemic by looking at the previous decisions regarding force majeure. Accordingly
1) The emergence of an unforeseeable extraordinary situation after the conclusion of the contract
2) For this reason, the performance of the performance stipulated in the contract becomes impossible
3) This situation is not caused by the debtor
The judge will make a decision by examining each concrete case separately. In this case, it will be possible for the lessee to request the adaptation of the contract to the changing conditions, and if it cannot be adapted, it may be possible to request the termination of the contract.
The Use of the Leased Property and the Performance of the Debt Has Not Begun:
If the use of the leased property has not yet started, the application of TCO 137 and TCO 27 may be in question. For example, if the performance of the acts has not yet started for a real estate leased for 3 months for tourism activities in the tourism region, it can be said that tourism activities will be seriously disrupted due to the coronavirus, so it will not be possible to generate income through tourism activities and pay the rental fee. It would not be fair to expect the lessee to continue this contract. Moreover, it may be possible for the lessor to generate income by renting the leased property to a lessee who earns income from activities other than tourism activities, in which case it would be unfair to expect the lessee to bear the consequences of this situation arising from the pandemic;
TCO 137;
“If the performance of the obligation becomes partially impossible due to reasons for which the debtor cannot be held responsible, the debtor shall be released only from the part of the obligation that has become impossible. However, if it is clearly understood that such an agreement would not have been concluded by the parties if this partial impossibility of performance had been foreseen in advance, the entire obligation shall be discharged.”
Temporary impossibility is not defined in Turkish Law. However, in the doctrine, by analogy, partial impossibility is interpreted as temporary impossibility. Considering that this temporary impossibility is of indefinite duration since the duration of the pandemic cannot be predicted in advance, it is stated that the temporary impossibility will turn into a permanent impossibility. If the use of the leased property and the performance of the obligations have not yet started, if it will be partially, that is, temporarily impossible for the lessee to fulfill the obligation due to the serious disruption of the workplace activities due to the coronavirus outbreak, and if the lessee would not have concluded such an agreement if he could have known in advance that the coronavirus outbreak and workplace activities would be seriously disrupted, the lease agreement and therefore the debt will be terminated. In this case, contrary to TCO 138 and TCO 331, the debt ends without the need to apply to the court and the judge.
TCO 27;
“Contracts that are contrary to the mandatory provisions of the law, morality, public order, personal rights or whose subject matter is impossible are absolutely null and void.
The nullity of some of the provisions contained in the contract does not affect the validity of the others. However, if it is clearly understood that the contract cannot be concluded without these provisions, the entire contract is absolutely null and void.”
If the use of the leased property and the performance of the obligation has not yet begun, if it is not possible to use the leased property in accordance with its specific purpose due to the coronavirus outbreak, and if it will not be possible for the lessee to continue its business activities and generate income if the leased property is used, the temporary impossibility may render the purpose of concluding the lease agreement irrelevant. Pursuant to TCO 27, in this case, the temporary nullity will cause the contract to become null and void in terms of all its consequences. Therefore, the lease agreement will be terminated. In this case, contrary to TCO 138 and TCO 331, the debt will be terminated without the need to apply to the court and the judge.
Status of Workplaces Closed by Circulars
Another issue that complicates matters at this point and that needs to be evaluated is the workplaces whose activities have been suspended with the circulars of the Ministry of Interior. With the circulars issued by the Ministry of Interior as a precautionary measure to protect against the coronavirus pandemic, the activities of many workplaces were temporarily suspended. Among the closed workplaces are “night clubs, bars, pavilions, discotheques, theaters, cinemas, show centers, concert halls, engagement/wedding halls, restaurants/cafes with music, casinos, beer houses, taverns, coffee houses, cafes, cafeterias, country gardens, hookah lounges, hookah cafes, internet lounges, internet cafes, all kinds of arcades, all kinds of indoor children’s playgrounds (including those in shopping malls and restaurants), tea gardens, clubhouses, amusement parks, swimming pools, Turkish baths, saunas, spas, massage parlors, SPA and sports centers”. Thus, the number of businesses closed across the country reached approximately 200,000. Regarding the problems that these circulars may cause regarding leased immovables;
It may be possible to evaluate TCO 301 and TCO 136 together;
TCO 301;
“The lessor is obliged to deliver the leased property on the agreed date in a condition suitable for the use intended in the contract and to keep it in this condition for the duration of the contract.”
TCO 136;
“If the performance of the obligation becomes impossible for reasons for which the debtor cannot be held responsible, the obligation is terminated.
In mutual obligation contracts, the debtor who is released from the obligation due to impossibility is obliged to return the performance received from the other party in accordance with the provisions of unjust enrichment, and loses the right to demand the performance that has not yet been performed to him. Cases where the creditor is obliged by law or contract to pay the damage arising before the performance of the obligation are excluded from this provision.”
If the workplaces whose activities have been suspended with the circulars have foreseen and specified the purpose for which they will use the leased property in the contract in advance, they may rely on the fact that the lessor’s obligation to keep the leased property in a manner suitable for the use of the lessee has become impossible, and therefore the lessee is released from the obligation to pay rent in accordance with TCO 301 and TCO 136, and if there is a performance paid by the lessee for this process, it may be claimed that these performances will be returned in accordance with the provisions of unjust enrichment.
Although the impossibility of performance here is temporary and partial, it can be said that the impossibility here is of indefinite duration since it is not clear how long the effects of the pandemic will last and whether the periods determined by these circulars will be extended. Therefore, it can be said that the impossibility is not temporary but permanent. The precedent decisions of the Court of Cassation are also in this direction, therefore, in the presence of such a situation, it would be appropriate to rely on the impossibility of performance in TCO 136 instead of relying on the provision of TCO 137, which regulates the partial impossibility of performance. Also,
Contrary to TCO 138 and TCO 331, the debt will be terminated without the need to apply to the court and the judge.
In this case, it is clear that a workplace whose activities are not prohibited by the circular cannot be considered the same as a prohibited workplace. Therefore, in order for the lessee to benefit from this article, the leased premises must be a workplace whose activities are prohibited by a circular. This is not enough, the lessee of the workplace whose activity has been suspended in the contract must have leased the leased premises with the activity of the workplace that caused the suspension of the activity.
TCO 138 “Excessive Difficulty of Performance”:
Workplaces closed by circulars may benefit from the provision of TCO 138. Therefore, pursuant to TCO 138, the lessee has the right to adapt the contract to the changing conditions by stating that the conditions existing at the time of the establishment of the contract have changed unpredictably due to the coronavirus outbreak, that the workplace activities have been stopped by circular, that the balance has changed to its detriment, and that it cannot be expected to pay the lease debt under the current conditions, and if it is not possible to adapt the contract, it has the right to terminate the contract. Here, considering that the tenant’s workplace activities have been suspended, it can be said that this situation will be considered as force majeure by the judge.
TCO 331 “Extraordinary Termination”:
Another regulation that tenants or lessors may benefit from is TCO 331. Either party may terminate the lease agreement on the grounds that the lease relationship has become impossible for them due to the coronavirus outbreak and the restriction of workplace activities by circular. The parties may terminate the contract by complying with the legal termination period. However, it should be noted that the termination of the lease agreement based on TCO 331 will only be possible as of 1.7.2020. Here, the judge will make the evaluation, but considering that the workplace activities were stopped by circular, it can be said that this situation will be considered as an important reason.
Situation of Workplaces Leased in Shopping Centers
Large retail outlets such as Shopping Malls (Malls) are social gathering places where individuals come together and pose a danger in the context of the COVID-19 pandemic. There is no official decision on the closure of shopping centers yet. However, the Association of Shopping Centers and Investors (AYD) has announced a recommendation regarding working hours. With this recommendation, it was recommended that the working hours of shopping centers should be 12:00 and 20:00. In addition, the Association of Shopping Centers and Investors also recommended the closure of shopping malls and stated that the necessary facilities will be provided to the tenants. In the event of the closure of shopping centers in the future, the information we have mentioned for the workplaces whose business activities have been suspended by circulars will also apply to shopping centers. However, in the current situation, what we have stated regarding the application of TCO 138 and TCO 331 also applies to shopping malls.
