In the landlord-tenant relationship, the tenant is considered the weaker party and is protected. This protection is achieved through legal regulations in favor of the tenant. However, the sluggishness of the judiciary and the high inflation rate lead tenants to abuse their legal advantage. Lengthy legal proceedings, annual statutory interest rates limited to 9% despite three-digit inflation, the lack of substantial penalties for tenants who are found to be unjust in the lawsuit, and the landlords' being exposed to the inflation exacerbate the problem.

In the realm of rental relationships, tenants are often considered the weaker party and are protected through legal provisions. This protection is ensured by introducing legal regulations in favor of tenants. However, the slow judicial system and high inflation rates can lead to tenants exploiting their legal advantages. Prolonged legal proceedings, despite an annual statutory interest rate limited to 9% in the face of three-digit inflation in 2022 and 2023, the absence of significant sanctions against tenants is unjust, and the problem of landlords being overwhelmed by inflation deepens this issue. Considering past experiences, it can be argued that the mediation might not be that effective. What about arbitration, can this alternative dispute resolution method solve this problem? In this article, we will examine the nature of lease agreements, and the question of arbitrability, discuss the addition of arbitration clauses to lease agreements, and address frequently asked questions.

The Nature of Lease Agreements in Turkey

The principle of freedom of contract prevails in Turkish law, allowing parties to determine the content of the contract freely within the boundaries of the law. However, this freedom comes with a cost. This cost prevents the contract from conflicting with mandatory legal provisions, morality, public order, and personal rights. Additionally, the subject matter of the contract must be feasible; otherwise, the contract will be considered invalid, and the parties will not achieve their intended purpose.

Under the Turkish Code of Obligations, a lease agreement is defined as a contract where the landlord leaves the use and enjoyment of something to the tenant, and the tenant undertakes to pay the agreed-upon rent in return. Parties make commitments to each other through a written or oral lease agreement. In essence, the tenant undertakes to pay the rent, while the landlord undertakes to keep the leased property in a suitable condition for use. Therefore, lease agreements, which are of significant importance in society, are considered to be related to public order.

Prohibition of Amendments Against the Tenant in Turkey

Since leasing activities are closely related to matters such as housing and the freedom to work, which concern the state, the legislator deems lease agreement provisions as part of public order and restricts freedom of contract in this context. Many articles of the Turkish Code of Obligations impose prohibitions against the tenant. These prohibitions include that no obligation other than the rent and ancillary expenses can be imposed on the tenant, and the provisions regarding thetermination of the lease agreement through legal action cannot be changed to the detriment of the tenant. Furthermore, it is explicitly stated that the landlord's obligation to deliver the leased property in a condition suitable for use on the agreed-upon date and to maintain it in this condition throughout the term of the contract cannot be changed to the detriment of the tenant. As seen, since lease agreements are closely related to public order, making changes to lease agreements is subject to certain limitations.

Arbitration and Dispute Resolution

Arbitration is the resolution of disputes by arbitrators chosen by the parties instead of judges. In other words, disputes are resolved by an authority to which the parties have delegated authority by mutual agreement. Thus, disputes are resolved quickly, and there are no long waiting times as in state courts. Of course, the cost of this speed is higher expenses. While courts provide affordable and accessible services in terms of cost, in arbitration proceedings, arbitrators are paid separately, making the cost higher.

Not all disputes are suitable for arbitration. Domestic arbitration between individuals or companies is regulated under the Law on Civil Procedure (HMK), while international arbitration involving a foreign element is regulated under the International Arbitration Law (MTK). Disputes that do not have the characteristics of foreignness as defined by the International Arbitration Law and where the arbitration place is determined as Turkey will be subject to the HMK.

Question of Arbitrability under Turkish Law

Both in the International Arbitration Law (MTK) and the Law on Civil Procedure (HMK), two conditions have been established for arbitrability. The first is that it should not concern real rights on real properties, and the second is that it should not arise from matters not subject to the will of both parties. Since lease agreements do not establish real rights, it cannot be said that lease agreements are not suitable for arbitration. In fact, in a decision by the Court of Cassation, it was decided that if there is an arbitration provision in the lease agreement, the landlord cannot bypass it to file a lawsuit directly.

"Both Article 11 of the contract dated 01.08.2005, which the plaintiff relies on, and Article 7 of the lease agreement dated 01.10.2005, which the defendant relies on, stipulate that in the event of a dispute, 2 persons from the Chamber of Commerce and 2 persons from the Chamber of Artisans shall be selected as arbitrators for the arbitration. In the response petition submitted by the defendant within the legal period, it objected by stating that in case of a dispute between the parties, it should be referred to the arbitrator. First of all, it is not correct to decide on the merits of the case without considering the provisions regarding arbitration in the lease agreement and the defendant's objection in this regard, which should be evaluated within the framework of Articles of the Turkish Code of Civil Procedure.

Court of Cassation Decision - 6th Chamber, E. 2012/9581 K. 2013/1334 T. 30.1.2013

Therefore, concerning arbitrability, it is necessary to examine the second condition, which is whether the subject matter to be resolved as a result of the dispute is subject to the will of the parties.

Arbitrability Regarding Rent Determination Lawsuits

The Court of Cassation has regarded the rent determination lawsuit as outside of the will of the parties. Therefore, according to the higher court, the arbitration clause in the lease agreement cannot be applied to determine the rent. Although Article 343 of the Turkish Code of Obligations states that "except for determining the rent in lease agreements, no changes can be made against the tenant," the subsequent article imposing a limit on the increase rate restricts the parties' freedom to a certain extent. Therefore, according to the Court of Cassation, since the rent determination is not subject to the free will of both parties, the arbitration clause cannot be included.

For rent determination disputes that concern public order, the arbitration clause regarding the resolution of these disputes will be invalid according to Article 518 of the HMK, so it is not correct for the dispute over the rent in question to be heard by an arbitration board... the arbitration agreement is possible only for disputes subject to the will of the parties in the sense defined by the International Arbitration Law. The purpose is disputes in which the parties have free discretion over the subject. Parties can freely make an agreement to resolve their dispute, and if this agreement is valid without the need for a court decision, an arbitration agreement (or arbitration clause) can be made regarding that dispute. In cases where parties cannot freely exercise their discretion over the subject matter in dispute, arbitration is not permissible. According to the established practices of the Court of Cassation, arbitration cannot be resorted to in rent determination lawsuits. Since the issue of rent determination concerns public order, parties can only decide the rent amount with their free will within certain limits and boundaries. Therefore, in this regard, the parties' discretion is not unlimited. Moreover, the tenant is not obliged to pay the rent amount requested by the landlord. Therefore, the arbitration clause regarding rent determination disputes concerning public order will be invalid...

Court of Cassation 3rd Chamber. 02.12.2004, E. 2004/13018, K. 2004/13409

It is possible to exceed the limit in Article 344 of the Turkish Code of Obligations with mandatory mediation. In other words, the legislator has acknowledged that parties can validly determine the rent through mediation with their own free will. If parties can resolve the dispute by mutual agreement through mediation, the dispute can also be resolved through another alternative dispute resolution method, arbitration. In the end, the precedents of the Court of Cassation are not binding on the courts, and the approach of higher courts may be updated according to changing circumstances.

Arbitrability in Eviction and Rent Collection Lawsuits

Eviction lawsuits have a close relationship with public order. This is because any disruption of housing needs can lead to social problems and unrest. Moreover, in terms of eviction of commercial tenants, issues like unemployment and disruption in the supply chain can also arise. There are no current decisions stating that eviction and rent collection lawsuitscannot be resolved through arbitration. Therefore, there are gaps in terms of precedents in this regard. While the defendant in a Court of Cassation decision on an eviction case stated that arbitration could not be used for eviction requests, the court did not accept this claim and stated that the dispute could be resolved through arbitration.

...the plaintiff and the defendant selected their arbitrators, but they could not agree on the third arbitrator, requesting the appointment of a third arbitrator as per the contract. In response, the defendant's attorney stated that the dispute that arose from the eviction could not solved through arbitration, requesting the dismissal of the claim. The court ...decided to appoint B. as the third arbitrator, and the decision was appealed by the defendant's attorney... The decision was approved by unanimous vote, rejecting all the appeals of the defendant's attorney, found to be without merit, in accordance with the procedure and the law.

Court of Cassation 19th Chamber, 16.12.2004, E.2004/5413, K.2004/12656

We believe that a clause in a contract written in accordance with the Turkish Code of Obligations and not making changes against the tenant can be enforced through arbitration. For example, Article 354 of the Turkish Code of Obligations states, "provisions regarding the termination of a lease agreement through legal action, cannot be changed to the detriment of the tenant." Since expanding the grounds for legal action in lease agreements would be contrary to mandatory provisions, it is clear that a clause in violation of this article in a contract is not suitable for arbitration. However, if a valid contract includes an arbitration clause, we believe that it can be enforced. Because disputes over rent and eviction can be resolved through mediation, they can also be solved with arbitration by analogy. Moreover, in this case, even though the disputes regarding lease agreements are subject to mandatory mediation, the mediation provisions will not apply, according to Article 18/A-18 of the Law on Mediation in Legal Disputes, since there is a requirement in the special laws that arbitration or another alternative dispute resolution method is mandatory or if there is an arbitration agreement.

Frequently Asked Questions

  • Are lease agreements suitable for arbitration in Turkey?

    Yes, arbitration clauses can be added to lease agreements. Although the Court of Cassation has stated in an old decision that arbitration cannot be used for rent determination lawsuits, the mandatory mediation regulation for lease disputes hints that an arbitration clause can be considered valid. 

  • If there is an arbitration clause in the contract, can a lawsuit be filed?

    If there is an arbitration clause in the contract, a lawsuit should not be filed. If a lawsuit is filed, the other party can object and have the lawsuit dismissed.

  • Is an arbitration decision binding in Turkey?

    Yes, arbitration decisions are binding, just like court decisions.

CONCLUSION

The protection of tenants in rental relationships is an important principle in Turkish law. However, due to the slow operation of the judiciary and high inflation rates, tenants may exploit their legal advantages. This situation has increased the desire for a quick solution to the problem through alternative dispute resolution methods, and the possibility of resolving problems arising from lease agreements through arbitration has come to the fore. However, arbitration is not suitable for disputes that are not subject to the will of the parties. According to the Court of Cassation, disputes over the determination of the rent amount cannot be resolved through arbitration because this dispute is not subject to the free will of both parties. However, the mandatory mediation regulation can make the arbitration clause valid. On the other hand, the Court of Cassation has ruled in an eviction lawsuit that the arbitration clause is valid. Considering these precedents and mediation regulations together, it can be argued that arbitration can also be used for eviction and rent collection lawsuits.

Inflation and the 25% rent increase limit adversely affect rental prices and as a result, parties are suffering negativities. If there is no arbitration clause in your contract, legal eviction reasonscan be explored, or if the conditions are met, a rent determination lawsuit or a rent adjustment lawsuit can be filed.

Originally published 07 September 2023.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.