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Adaptation Lawsuit in Agreements in Terms of Lease Relationships and Corona Virus (Covid-19) Pandemic

2020, ERDEMİR&ÖZMEN ATTORNEY PARTNERSHIP

Adaptation Lawsuit in Agreements in Terms of Lease Relationships and Corona Virus (Covid-19) Pandemic

This newsletter has been prepared in order to furnish information about adaptation lawsuits in lease agreements in regard to the lessees that have extreme difficulty in paying their rent debts due to the Coronavirus (Covid-19) pandemic.

 Extreme difficulty of performance due to the pandemic

 Due to the Corona Virus (Covid-19) outbreak declared as a “pandemic” by the World Health Organization, many economic and social activities are suspended or significantly reduced both in our Country and around the world.  

Thus, pursuant to the additional notice sent by the Ministry of Interior to the Offices of Provincial Governors, it is ordered that, in the 81 provinces, the activities of theaters, cinemas, performance centers, concert halls, engagement/wedding-ceremony halls, restaurants/cafés with live performance/music, casinos, pubs, taverns, coffee houses, coffee shops, cafeterias, countryside gardens, waterpipe lounges, waterpipe cafés, internet cafés, all kinds of video game arcades, all kinds of indoor playgrounds for children (including shopping malls and restaurants), tea gardens, clubhouses, amusement parks, swimming pools, Turkish baths, saunas, thermal springs, massage parlors, SPAs and sports centers be temporarily suspended as of 24:00 on 16.03.2020.  

As a matter of fact, even if these businesses start to perform activities again, the economic difficulty that takes place around the world and the fear that occurs on the part of the public due to the pandemic reduce the visits of people particularly to the businesses with indoor spaces and therefore, serious decreases emerge in the turnovers of these businesses. Consequently, business owners experience serious difficulties in paying the rents. This is because; the outbreak is still ongoing and strict warnings are everyday given to all people not to go out except in compulsory cases. 

It should be stated that a number of new measures are taken since the number of cases rapidly increase due to the pandemic, and in line with the new decisions taken at the Presidential Cabinet on 30.11.2020, it is ordered that the activities of swimming pools, Turkish baths, saunas, massage parlors and funfairs are hereby suspended. As can be seen, the reclosure of many businesses pursuant to the new measures taken within the scope of combating the pandemic will negatively affect the businesses economically, and it will consequently be unavoidable for the lessee businesses to have difficulty in paying their rents.  

Adaptation lawsuit due to extreme difficulty of performance

In the case that an extraordinary circumstance, which has not been foreseen and is not expected to be foreseen by the parties at the time of conclusion of the lease agreement, emerges for a reason not originating from the obligor and that such extraordinary circumstance changes the facts, existing at the time of conclusion of the agreement, to the detriment of the obligor in such a degree that the request for the performance from the obligor would run counter to the rules of objective good faith, the obligor has the right to request the judge to adapt the agreement to the new circumstances.  

 

Thus, the article 138 of the TOC bearing the heading “Extreme Difficulty of Performance” is as follows;  

“In the case that an extraordinary circumstance, which has not been foreseen and is not expected to be foreseen by the parties at the time of conclusion of the agreement, emerges for a reason not originating from the obligor and that such extraordinary circumstance changes the facts, existing at the time of conclusion of the agreement, to the detriment of the obligor in such a degree that the request for the performance from the obligor would run counter to the rules of objective good faith and further, in the case that the obligor has not performed his obligation yet or that the obligor has performed his obligation by reserving his rights arising from the extreme difficulty of performance, the obligor has the right to request the judge to adapt the agreement to the new circumstances, or if this is not possible, the obligor has the right to rescission of the agreement. In the agreements containing continuing obligations, in principle, the obligor exercises his right to termination instead of his right to rescission.”

 

In addition, the preamble for the article 138 of the TOC is as follows;  

This new legal arrangement relates to “the collapse of the underlying basis of the transaction”, which is adopted as one of the exceptions to the pacta sunt servanda in the doctrine and practice. The rules of objective good faith prescribed by the article 2 of the Turkish Civil Code constitute the basis of the request for adaptation resting on extreme difficulty of performance which is different from the concept of impossibility. However, the adaptation of an agreement to changing circumstances or the exercise of the right to rescission is dependent on the coexistence of the following four conditions specified in the article 137 of the Bill:  

 

1. An extraordinary circumstance, which has not been foreseen and is not expected to be foreseen by the parties at the time of conclusion of the agreement, should emerge.

2. Such circumstance should not arise from the obligor.

3. Such circumstance should change the facts, existing at the time of conclusion of the agreement, to the detriment of the obligor in such a degree that the request for performance from the obligor would run counter to the rules of objective good faith.

4. It is necessary that the obligor has not performed his obligation yet or the obligor has performed his obligation by reserving his rights arising from the extreme difficulty of performance.

According to the article, if all the conditions for adaptation take place, the obligor may request the judge to adapt the agreement to new circumstances. If this is not possible, the obligor may rescind the agreement; however, in the agreements containing continuing obligations, in principle, the obligor exercises his right to termination.

 

In the same direction, the judgment no. E. 2017/11017 K. 2019/5666 of 20.6.2019 rendered by the 3rd Civil Chamber of the Supreme Court of Appeals is as follows:

“In our Law, the principles of pacta sunt servanda and freedom of contract are adopted. According to these principles, an agreement should be implemented exactly as when it is concluded. In other words, even if the conditions of the agreement have become subsequently more severe for the obligor and even if the balance of the obligations has changed due to the occurrences that emerged subsequently, the obligor must perform his contractual obligation exactly. The principle of pacta sunt servanda constitutes the fundamental principle of the law of contracts as a requirement of the rule of objective good faith, trueness, legal security. However, this principle is restricted to other principles of private law. In the Turkish Law, all along, also inspired by the articles 2 and 4 of the Civil Code, it is adopted that adaptation lawsuits are triable by applying both the principle “Clausula Rebus Sic Stantibus” and the theory “Collapse of the Underlying Basis of the Transaction”.

Adaptation lawsuit, which is adopted by the Supreme Court of Appeals and constitutes an exception of the principle of pacta sunt servanda, is also adopted while enacting the Turkish Obligations Code numbered 6098 and thus, is regulated under the article heading “Extreme Difficulty of Performance” in the article 138 of the Code numbered 6098. Thus, the following provisions are contained in the article: “In the case that an extraordinary circumstance, which has not been foreseen and is not expected to be foreseen by the parties at the time of conclusion of the agreement, emerges for a reason not originating from the obligor and that such extraordinary circumstance changes the facts, existing at the time of conclusion of the agreement, to the detriment of the obligor in such a degree that the request for the performance from the obligor would run counter to the rules of objective good faith and further, in the case that the obligor has not performed his obligation yet or that the obligor has performed his obligation by reserving his rights arising from the extreme difficulty of performance, the obligor has the right to request the judge to adapt the agreement to the new circumstances, or if this is not possible, the obligor has the right to rescission of the agreement. In the agreements containing continuing obligations, in principle, the obligor exercises his right to termination instead of his right to rescission. The provisions of this article shall also apply to the obligations in a foreign currency.” Likewise, the preamble of the article states that: “This new legal arrangement relates to “the collapse of the underlying basis of the transaction”, which is adopted as one of the exceptions to the pacta sunt servanda in the doctrine and practice. The rules of objective good faith prescribed by the article 2 of the Turkish Civil Code constitute the basis of the request for adaptation resting on extreme difficulty of performance which is different from the concept of impossibility. However, the adaptation of an agreement to changing circumstances or the exercise of the right to rescission is dependent on the coexistence of the following four conditions;

 

a. An extraordinary circumstance, which has not been foreseen and is not expected to be foreseen by the parties at the time of conclusion of the agreement, should emerge.

 

b. Such circumstance should not arise from the obligor.

 

c. Such circumstance should change the facts, existing at the time of conclusion of the agreement, to the detriment of the obligor in such a degree that the request for performance from the obligor would run counter to the rules of objective good faith.

 

4. It is necessary that the obligor has not performed his obligation yet or the obligor has performed his obligation by reserving his rights arising from the extreme difficulty of performance.

 

According to the article, if all the conditions for adaptation take place, the obligor may request the judge to adapt the agreement to new circumstances. If this is not possible, the obligor may rescind the agreement; however, in the agreements containing continuing obligations, in principle, the obligor exercises his right to termination.

 

Thus, the adaptation lawsuit, adopted in practice, is turned into a statutory article.

 

In long-term lease agreements, in the case that the balance between the obligations is broken excessively and that the agreement becomes unbearable for the parties, it is possible to file an “adaptation” lawsuit at any time in order for the adaptation of the rent to the then-current economic circumstances.”

 

In the judgment no. 2020/1103 E. 2020/1008 K. rendered by the 4th Civil Chamber of the Bursa Regional Court of Justice about the same matter, it is ordered that:

 

It is obvious that the current pandemic disease represents an extraordinary circumstance and could not be foreseen by the parties. So then, in general terms, the current pandemic disease must be considered as an extraordinary circumstance referred to in the article 138 of the TOC.

 

…. when a court is requested to adapt the rent as in the concrete case, the court should assess the effects of the outbreak and of the measures on the lessee himself, and the court should adopt that the agreement be adapted to the new circumstances in such a manner and way that the burden occurred will be distributed over the both parties to the agreement, considering that this negative circumstance is not caused by the lessor.”

 

Thus, it is adjudged that the circumstance namely the current pandemic disease constitutes a justification for adaptation of the lease agreement and the lessee’s request for preliminary injunction is accepted by the court.

 

Pursuant to the article contained in the Code, the preamble for the article and the jurisprudences of the Supreme Court of Appeals, the possibility to request for adaptation of an agreement due to extreme difficulty of performance is considered as an exception to the principle of pacta sunt servanda. Therefore, for the adaptation of an agreement to changing circumstances, it is necessary that the following conditions are existing, in other words, it is necessary that: (i) an extraordinary circumstance emerges, which circumstance has not been foreseen and is not expected to be foreseen by the parties at the time of conclusion of the agreement; (ii) such circumstance does not arise from the obligor; (iii) such circumstance changes the facts, existing at the time of conclusion of the agreement, to the detriment of the obligor in such a degree that the request for performance from the obligor would run counter to the rules of objective good faith; and (iv) the obligor has not performed his obligation yet or the obligor has performed his obligation by reserving his rights arising from the extreme difficulty of performance. If the above conditions take place, the obligor may request the judge to adapt the agreement to changing circumstances.    

 

For all these reasons, and in an extraordinary circumstance that emerges particularly due to the pandemic, it should be adopted that it is inequitable to sustain a lease agreement governed by the conditions determined previously. This is because, if either party is forced to be bound by the agreement under these conditions despite the existence of unforeseen reasons, this would constitute a breach of the balance of interests and a violation of the rules of objective good faith. Therefore, it is necessary to eliminate this injustice by adapting the lease agreement to the new circumstances.  

 

Accordingly, in order for such adaptation lawsuit serves for its purpose and in order to provide a protection for the financial states of the businesses that are currently and adequately in a difficult situation, it is possible to request the court to render a preliminary injunction decision that will be effective throughout the judicial process. Otherwise, the balance of interests, broken between the parties, could not be redressed and the ultimate legal protection could not be established properly as aimed. Thus, the request for preliminary injunction is accepted in the judgment no. 2020/1103 E. 2020/1008 K. rendered by the 4th Civil Chamber of the Bursa Regional Court of Justice about the same matter, as we have referred to above.

 

Conclusion

As explained above in detail, in case of difficulty in paying the rent due to the pandemic, the party may, in his capacity as lessee, file an adaptation lawsuit and may thereby request the judge to adapt the lease agreement to changing circumstances. Thus, pursuant to the express provision of the Code and the jurisprudences of the Supreme Court of Appeals, the lessee party may request for adaptation and even a preliminary injunction.  

However, in order for an agreement to be adapted to changing circumstances, the conditions referred to above should coexist i.e. it is necessary that an extraordinary circumstance emerges, which circumstance has not been foreseen and is not expected to be foreseen by the parties at the time of conclusion of the agreement and that such circumstance does not arise from the obligor and that such circumstance changes the facts, existing at the time of conclusion of the agreement, to the detriment of the obligor in such a degree that the request for performance from the obligor would run counter to the rules of objective good faith and further, it is necessary that the obligor has not performed his obligation yet or the obligor has performed his obligation by reserving his rights arising from the extreme difficulty of performance.  

 

References

https://www.icisleri.gov.tr/81-il-valiligine-koronavirus-tedbirleri-konulu-ek-genelge-gonderildi

 

https://www.icisleri.gov.tr/koronavirus-salgini-ile-mucadele-kapsaminda-lokantalarla-ilgili-ek-genelge


https://www.icisleri.gov.tr/bakanligimiz-81-il-valiligine-koronavirus-tedbirleri-konulu-ek-bir-genelge-daha-gonderdi

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