Action for Determination of Rent

1. Introduction

In Turkish law, the rent determination action is a type of lawsuit brought to determine the rent of a leased property (for example, a residence, a business premises or a plot of land). This action generally arises where there is a dispute between the tenant and the landlord over the amount of rent. Where the parties cannot reach an agreement on the rent, a request for the determination of the rent may be brought before the court within the framework of the Turkish Civil Code and the Code of Obligations.

2. Conditions of the Rent Determination Action

The two fundamental conditions required for a rent determination action to be brought are as follows:

a) Existence of a Lease Agreement: A lease agreement is an agreement that binds both the tenant and the landlord and imposes reciprocal obligations on them. This agreement may have been made in writing or orally. Where the lease agreement exists in written form, the courts, by virtue of the principle of pacta sunt servanda (ahde vefa), remain bound by the wording of the contract and determine the rent increase rate in accordance with what is written in the contract. However, adaptation (revision) actions constitute an exception to this. In the case of lease agreements that are not in writing, the court determines the rent in accordance with the terms of the lease agreement, to the extent that it is able to establish those terms.

b) Existence of a Legal Interest: Another prerequisite for bringing a rent determination action is that the plaintiff has a legal interest. This means that the continuation of the contract has ceased to be reasonable for one of the parties and has become unacceptable. Legal interest means that the plaintiff expects an improvement of the existing situation and that obtaining a decision from the court may change their situation for the better.

If the lease agreement is not in writing, or if, although it is in writing, no agreement has been reached on the rent increase rate, the court may dismiss the action for lack of legal interest. This means that the court has no authority to decide on an increase rate that is not expressly stated in the contract.

3. Court with Subject-Matter and Territorial Jurisdiction

Rent determination actions are an important instrument for resolving disputes arising from lease agreements, and in such actions it is of great importance to identify both the court with subject-matter jurisdiction and the court with territorial jurisdiction. Pursuant to Article 4 of the Code of Civil Procedure (HMK), the court with subject-matter jurisdiction in rent determination actions is the Civil Courts of Peace (Sulh Hukuk Mahkemeleri). Subject-matter jurisdiction determines in which type of court an action is to be heard. In this case, the Civil Courts of Peace are authorised to hear actions relating to the determination of rent. The Civil Courts of Peace are, in general, local courts that decide on matters such as property, lease agreements and receivable claims. Territorial jurisdiction, on the other hand, determines in which court district (that is, before which local court) the action is to be heard. When determining the court with territorial jurisdiction in rent determination actions, the following criteria are taken into consideration. The court at the place of residence of the defendant (the tenant or the landlord under the lease agreement) is one of the courts before which the action may be heard. The court of the place where the lease agreement is performed, that is, where the leased property is located, is also accepted as a place where the action may be heard. This is generally the court of the place where the leased property is situated. If the lease agreement has been concluded between merchants or public legal entities and a special jurisdiction clause has been set out in the contract, the court of the place specified in the contract may also have jurisdiction pursuant to Article 17 of the HMK. This is an allocation of jurisdiction determined by agreement between the parties and is generally expressly stated in the contract.

4. Mediation as a Prerequisite for Filing a Rent Determination Action

By virtue of the amendment made to the Law on Mediation in Civil Disputes No. 6325, a requirement to apply to a mediator before filing an action was introduced for rent determination actions as of 1 September 2023. This provision was added to the law by Article 37 of Law No. 7445. The recognition of mediation as a prerequisite for filing an action aims to encourage the parties to try the chance of a settlement before going to court and, where possible, to resolve their disputes by an out-of-court route. Under this new provision, in disputes arising from a lease relationship, such as the determination of rent, the parties must first apply to the mediation process and complete that process in due form. Where the mediation process cannot be completed with a settlement, the action may be filed together with the mediation minutes. This process aims to reduce the workload of the courts and to provide a faster and less costly solution between the parties. In particular, pursuant to subparagraph (a) of paragraph 1 of Article 18/B of Law No. 6325, having applied to a mediator is prescribed as a prerequisite for filing an action in all disputes arising from a lease relationship, with the exception of the provisions relating to the eviction of leased properties through enforcement proceedings without a judgment under Law No. 2004. Within this scope, the determination of rent is among the disputes subject to the mediation process. The fundamental purpose of introducing this provision is to ensure that the parties reach an agreement through mediation before applying to the court, and thus to lighten the burden on both the parties and the judicial system. Consequently, as of 1 September 2023, those who intend to bring a rent determination action are required to initiate the mediation process before filing the action and to complete that process. This step is important in order to avoid adverse consequences such as the dismissal of the action on procedural grounds and loss of time.

5. Increase Rate

With Law No. 7409, published in the Official Gazette on 11.06.2022 and entered into force, residential rent increase rates were capped at 25%. Under this provision, it was determined that landlords cannot raise rent increases above 25%. A rent determination action brought by a landlord who demands an increase above this cap may be dismissed for lack of legal interest.

Paragraph 3 of Article 344 of the Turkish Code of Obligations (TCO) opens the way for a rent determination action to be brought for lease agreements with a term of more than five years or lease agreements renewed after five years. Whether or not the parties have reached an agreement is of no importance. What matters is that the term of the contract is longer than five years or that it has been renewed at the end of five years. Paragraph 4 of the Article defines the conditions required for a rent determination action to be brought where the rent is determined in a foreign currency or is indexed to a foreign currency and at least five years have passed since the date on which the lease agreement was concluded. This provision regulates the right to bring an action in the special cases in which the rent is indexed to a foreign currency and a certain period of time has passed.

The process of determining the new rent requires a fair and objective assessment. There are steps to be followed in this process. In the process of determining the rent, the parties must add to the file evidence such as lease agreements relating to the leased property and to similar properties in the surrounding area. This is important for comparing comparable rents. Examples of comparable lease agreements play a key role in determining the rent. These agreements give an idea of the rents of properties with similar characteristics. An expert witness prepares a report on the condition of the leased property and the similar properties in the surrounding area by inspecting them on site. This inspection covers factors such as the location of the property, its surroundings, its nature and its manner of use. The data obtained must be made concrete in accordance with the characteristics of the subject matter of the action. All factors affecting the rent, such as the rent commencement date and the lease terms, must be compared. The reasons why the comparable rents are or are not appropriate must be explained with concrete grounds. This stage is an important step in determining a fair rent. The rent that the property subject to the action could obtain if it were re-let as of the rental period for which the determination is sought must be estimated. This reflects market conditions and the potential value of the property. Taking all this information into account, the judge decides on an equitable and reasonable rent. This decision must be a fair solution that takes into account the interests of both the tenant and the landlord. This process ensures the application of objective criteria and a fair approach in determining the rent, so that a reasonable and fair outcome is achieved for both parties.

6. When Can the Action Be Filed?

According to Article 345 of the Turkish Code of Obligations (TCO), an action relating to the determination of rent may be filed at any time. However, when the action is filed plays a critical role in determining from which period the rent set by the court will apply. Paragraph 2 of Article 345 of the TCO explains for which period the rent will be valid. In this respect, “where the action is filed at least thirty days before the beginning of the new period, or where the landlord has given the tenant written warning within that time that the rent will be increased, when the action is filed by the end of the following new rental period, the rent determined by the court shall be binding on the tenant from the beginning of the new rental period.”

If the rent determination action has not been filed within the thirty days preceding the beginning of the new rental period, or the increase request has not been communicated in writing to the other party within that time, and the lease agreement also contains no provision on an increase, the rent determined as a result of the action applies for the next rental year. Where the property changes hands, if the previous landlord has sent a notice within the period specified in Article 345 of the TCO, the action brought by the new owner will also have retroactive effect.

According to paragraph 3 of Article 345 of the TCO, if the contract contains a provision that the rent will be increased in the new rental period and the action is filed by the end of the new rental period, the rent determined by the court applies from the beginning of that new period. The parties may have agreed that the rent will increase in the new period but not have specified the rate of increase. In this case, even if the determination action was not filed 30 days before the new rental period or no notice was given to the other party, the rent determined by the court as a result of an action filed by the end of the new rental period will apply from the beginning of the new period.

7. The Plaintiff’s Claim and the Prohibition of Amendment (Islah)

Rent determination actions are among the special types of action that require a distinctive trial process and have a structure similar to formative (constitutive) civil actions. Such actions are aimed solely at determining the rent that will be valid for the relevant rental period, and the subject matter of the action is limited. By the decision rendered by the court, the rent to be applied for a one-year period determined prospectively is set. In this process, the existing rent stated in the lease agreement is deemed to have been changed by the court decision. In rent determination actions, the claim is of an indivisible nature. This means that the plaintiff must claim the rent in a single instance, clearly and unambiguously. Such actions are among those in which rights in respect of any excess cannot be reserved and in which no request for amendment (islah) can subsequently be made in respect of such a right. Consequently, where the claim is specific to the period stated in the petition and an increase of the amount is sought by way of amendment, this constitutes a new claim covering a later period, and this runs contrary to the fundamental nature of rent determination actions. In these actions, the judge’s authority to decide prospectively and the plaintiff’s obligation to apply with a clear claim are designed to ensure that the rent is determined fairly and effectively. This approach aims to eliminate uncertainties in lease relationships and to establish a fair balance between the parties. This special structure of rent determination actions strengthens both the stability of lease relationships and the principle of certainty in legal proceedings.

According to the view of the Court of Cassation (Yargıtay), in rent determination actions it is mandatory for the plaintiff to state precisely in the petition the rent that it envisages for the new period. Changing the rent claimed in the action at later stages is not acceptable. This is an important point to be observed in the processes of determining and harmonising the rent. According to current case law, formulating the prayer for relief (netice-i talep) section as an action for an indeterminate claim is not considered appropriate.

This is one of the fundamental principles of the practice of the Court of Cassation. However, the relevant article of the Turkish Code of Obligations and the decisions of the Court of Cassation leave many questions on the subject unanswered. As stated in the decisions of the Court of Cassation based on the principles of fairness and good faith, a detailed examination and comparison must be carried out to determine comparable rents, an expert panel must be formed, and the factors affecting the rent must be assessed.

8. Can a Judgment in a Rent Determination Action Be Enforced Before It Becomes Final?

Although it is not a general rule that a judgment must have become final for a creditor to be able to initiate enforcement proceedings based on a judgment, certain special cases are treated as exceptions to this general rule. According to the decisions of the Court of Cassation, it is accepted that a rent determination decision must have become final in order to be enforceable. This explains why, by the very nature of rent determination actions, finality is required. Since rent determination decisions relate to the use value of the leased property and generally affect the present or future use of the property, the fact that such decisions cannot be enforced before becoming final is regarded as an important safeguard for the protection of the rights of the parties. Furthermore, the fact that litigation costs and attorney’s fees can also be enforced only once the judgment has become final is important in order to ensure that the financial obligations arising in court proceedings are collected fairly. This shows that court decisions produce not only legal consequences but also financial consequences, and that these financial consequences can be collected only once the judgment has become final. The fact that interest can be claimed from the date on which the decision becomes final is based on a similar logic. The finality of the decision provides the creditor with legal certainty and enables the creditor, if the debtor avoids making payment, to claim interest from the date on which the decision became final. This is important in order to prevent the creditor’s receivable from eroding over time and to increase the financial consequences of the debtor’s failure to pay. The process by which a court decision becomes final operates through the service of the decision on the parties and the absence of any appeal against the decision within the prescribed period. This process determines when the legal effects of the decision begin, and gives the parties a clear framework for objecting to or accepting the decision. Once the decision has become final, the legal procedures necessary for its enforcement may be initiated.

9. The Matter of Deduction

In the process of determining the rent, once all the evidence has been collected and the market value has been established through an expert witness, the stage of decision-making begins. However, according to the settled view of the Court of Cassation, a fair deduction may need to be made from the amount thus determined.

In the process of determining the rent, once all the evidence has been collected and the market value has been established through an expert witness, the stage of decision-making begins. However, according to the settled view of the Court of Cassation, a fair deduction from the amount thus determined is mandatory. The decisions of the Court of Cassation emphasise that, taking into account the fact that the defendant tenant is the former tenant, a fair deduction must be made, and that determining the rent without making this deduction is contrary to law.

Furthermore, it has been stated that the rent must be determined in accordance with right and justice, but that where this deduction has already been applied in the expert report, it is not correct for the court to apply a further deduction. In this context, the expert report must be open to objection and based on concrete data, and the current rent must be determined without applying any fair deduction. If a fair deduction is to be made, it is clear that this amount must be determined by the court.

Attorney at Law Mehmet Emre DARICI