Real Estate Law Series – No: I / Rent Determination Lawsuits

The high inflation environment experienced in recent years has significantly increased disputes between landlords and tenants. In addition to eviction lawsuits—which we will examine in a separate article—we will outline a general framework for rent determination lawsuits, which are sometimes filed jointly if conditions permit.

To better clarify the operation of rent determination lawsuits, we will evaluate several subcategories below, focusing on whether there is an agreement between the parties regarding rent, the duration of the lease, and the currency in which the rent is determined.

1. Basic Conditions for Rent Determination Lawsuits

1.1. If an agreement has been made between the parties regarding rent and the lease term is less than five years:

According to Article 344/1 of the Turkish Code of Obligations No. 6098 (“TCO”), the parties may agree on the rent and freely determine the rent increase rate. However, this increase rate cannot exceed the 12-month average of the Consumer Price Index (CPI) for the previous lease year. In cases where there is such an agreement made within these legal limits, the landlord has no legal benefit in filing a rent determination lawsuit.

1.2. If no agreement has been made between the parties and the lease term is less than five years:

Pursuant to TCO Article 344/2, if no agreement has been made between the parties regarding a rent increase, the landlord may apply to the court to request the determination of the rent. In this case, the court evaluates the characteristics of the property and comparable rental values to determine an appropriate increase rate. However, the court’s discretion is not unlimited, since the determined increase rate cannot exceed the 12-month CPI average of the previous rental period.

1.3. Rent determination in leases longer than five years or renewed after five years:

Under TCO Article 344/3, if the lease agreement lasts longer than five years or is renewed after the fifth year, the rent may be determined by the court regardless of whether the parties have agreed on rent. In this case, the court considers the condition of the property, comparable rental values, the 12-month CPI average, equity, and similar criteria when setting the increase rate. At this stage, the court is not bound by the previous year’s CPI increase; therefore, starting from the sixth lease term, a broader assessment based on judicial discretion is carried out.

1.4. Rent determination lawsuits in lease agreements denominated in foreign currency:

It is possible for the parties to agree on rent in foreign currency. However, such agreements are subject to special provisions under the TCO. According to Article 344/4, in leases denominated in foreign currency, no changes can be made to the rent until the end of the 5-year period (i.e., before the 6th lease term). Nevertheless, under TCO Article 138 concerning “excessive hardship,” the rent may be redetermined before five years if extraordinary circumstances occur.

Once the lease reaches its 5-year mark (i.e., starting from the 6th term), the rent may be determined by the court. In such cases, the court considers the property’s condition, comparable rents, the 12-month CPI average, changes in the value of the foreign currency, equity, and other relevant factors. Here too, the court is not bound by the CPI rate of the previous term.

2. Timeframe for Rent Determination Lawsuits

A rent determination lawsuit may be filed at any time during the lease term. However, the timing of the lawsuit directly affects when the newly determined rent will apply. Pursuant to TCO Article 345, if the lawsuit is filed at least 30 days before the start of the new lease term and/or the landlord notifies the tenant in writing within this period that the rent will be increased, the new rent determined by the court will apply from the beginning of the new lease term.

Additionally, if the lease agreement already includes a clause providing for a rent increase in the new term, the lawsuit may be filed until the end of the new term, and in this case, the rent determined by the court will also apply retroactively from the start of that new term.

Therefore, before filing a rent determination lawsuit, it is essential to carefully review the lease agreement to determine the current rental period and when the court-determined rent will take effect. Otherwise, the landlord may risk losing rights.

3. Mandatory Mediation

It should be emphasized that rent determination lawsuits fall within the scope of mandatory mediation. Therefore, before filing such a lawsuit, mediation proceedings must be completed as a procedural requirement. Lawsuits filed without completing mediation will be dismissed on procedural grounds for lack of a mandatory condition.

Considering that both mediation and litigation processes can be time-consuming, it is advisable to initiate the mediation process before the start of the 6th lease term. If the parties fail to reach an agreement, the lawsuit may then be filed without waiting for the 6th term.

The court’s ruling will apply to the rental period specified in the lawsuit petition. For subsequent renewal periods during the trial, the rent determined by the court will continue to be increased annually according to the contractual increase rate or the CPI.

4. Conclusion

In light of all this information, both mediation and litigation play a crucial role in rent determination disputes. Initiating and following up on such claims with proper foresight and strategy is directly linked to success at trial. Considering the lease duration, the parties’ intentions, comparable rental values, and legal limitations will prevent both temporal and financial losses while contributing to the creation of an effective and result-oriented legal roadmap.

Author

Saruhan Tunca Turhan