May 2010
Adaptation Actions
Lease agreements could be structured as follows: 1) ordinary leasing agreement 2) lease of a revenue-generating asset agreement.
Ordinary leasing agreement is a contract when an owner of movable goods and real property grants another person an exclusive possession of the property in return for a certain price.
On the other hand, a lease of revenue-generating asset agreement expresses when an owner of a real property grants another person right to use, right to collect the benefits, the operating rights and also renting out the rights of the property in return for a certain consideration.
Even though admissibility of a lease agreement does not require any particular form, some statutes (such as Public Procurement Statute, Leasing Statute, Intellectual and Artistic Works Statute) further require the necessary conditions for admissibility of lease agreements.
Besides that, parties (lease holder and lessee) may agree that validity of the contract depends on if it is in writing. When a dispute arises whether the contract in question has been made in accordance with the form requirement, the proof varies according to form of the agreement structured between the parties, while lease agreements in writing could only be proved by documentary evidence in contrary lease agreements made orally, could be proved by all sorts of evidences.
On failure to pay rent on time, all claims for rent shall become due and payable. If parties specify the due date in their agreement and the lease holder fails to comply with the term in question he shall become default without further notification.
When to charge past due interest requires default party to be notified, it shall be calculated from the date when notified party receives the notification. If there is no need to send a notification then past due interest shall be calculated from the date when the debt becomes due and payable.
According to the Code of Obligations, legal actions arising from lease agreements regarding to defaulted payments are subject to five-year time limit.
Besides, legal actions due to payments made without fair cause or made under a mistake, should be brought within two-year time limit. In the event that lease-holder fails to perform his/her other obligations, apart from rent payment, derived from the lease agreement, legal actions relating to those claims are subject to ten year time limitation.
Adaptation Action is a judicial adaptation of lease contracts due to changing circumstances. Competent court shall be determined according to annual rent of the property. As stated by the Code of Civil Procedure (Hukuk Usulu Muhakemeleri Kanunu-hereafter will be referred to as HUMK) Civil Courts of Peace shall be competent if the annual rent of the property is below the pre-determined limit. On the other hand, Civil Courts of First Instance are considered as a competent court when the annual rent of the property exceeds the pre-determined limit.
It should be noted that, if legal actions brought to cancel the judicial sentence which increased the rental rate are different than adaptation actions and they are deemed as declaratory judgment actions. Accordingly, these declaratory judgement actions fall within the competence of Civil Courts of Peace as provided by article 8 of the HUMK.
As a rule, it is accepted that there was a balance of rights and obligations between the parties’ at the time when the contract was concluded.
Therefore, an adaptation action is taken when the equilibrium of rights and obligations were severely disrupted due to extreme changes after conclusion of the contract which affect the majority of the society and ruined the social and economic balance and as a result one of the party’s performance becomes unbearable. In this case, the claim is to adapt the rental money according to the changed circumstances.
In order to bring an adaptation case, the extraordinary event should be unforeseeable and unexpected.
Whether or not changes in circumstances are unforeseeable is determined by taking into account of all facts together such as the contract period, the content of contract and the feature of event happened after the contract has structured and etc.
On the other hand, in short term lease contracts; costliness, inflation, fall of currency and changes in legal regulations are considered as foreseeable.
Besides that, the extraordinary event should be unexpected and also it should not be caused by claimant’s own actions or his/her own negligence. The claimant cannot ask for adaptation of the contract if the circumstances in question are arisen by his own negligence.
Nevertheless, another significant issue is that to continue the contractual performance obligations in the absence of reservation clause which is regarded as waiving from adaptation right of the contract.
Accordingly, it can be said that adaptation actions could be brought when the equilibrium of rights and obligations are severely breached or, in other words, when the contractual obligations become onerous to fulfil for one of the party. This is because expecting one to perform his/her contractual obligations under the circumstances caused by unforeseeable event would contradict with the good faith.
Judicial adaptation of contracts to the changing conditions has ex nunc effect which means court decision shall be effective from the date of the legal action has been brought. Therefore, rental rates incurred before the legal action has been brought could not be subjected to adaptation actions. In a decision rendered by the 13th Civil Chamber of the Courts of Appeal on 22.03.2001 which states “Adaption is related to the rental rate and it does not alter the other terms of the contract. Adaptation award does not have ex tunc effect therefore the appeal shall be dismissed.”(2001/3866 E., 2001/7917 K.)
General Law principles considered by the judge when dealing with an adaptation actions are as follows:
1) Pacta sunt servenda: This principle requires parties to perform their contractual obligations even under unforeseeable circumstances, nevertheless; application of this fundamental principle is limited by the principle of objective good faith and equity.
2) Equity and Objective Good Faith: Strict application of pacta sunt servenda principle even though the contractual obligations become onerous due to post-contractual changes in circumstances might frustrate the principle of equity in contracts. In such a case, judicial adaptation of contracts is to be made by considering the principles of equity in contracts and objective good faith.
3) Unforeseeable condition requirement: This principle is established to restore balance of contractual rights and obligations.
Filling gaps in contracts requires judges to take the principle of equity into consideration when adapting contracts to post-contract changes in circumstances.
Initially, judges shall investigate contract terms and legal provisions regarding changes in conditions and in case of existence of such a term or provision, they will be applied as long as if they do not amount to abuse of rights.
On the other hand, general law principles shall be applied along with the Articles 1, 2 and 4 of the Turkish Civil Code by the judge with his discretion for the best solution in the absence of such terms or provisions. Such a judicial intervention shall also be in accordance with the principles of law and equity.
During the proceeding, the judge gathers evidence from the parties and if necessary requires an expert examination about inflation and actual rental rate from the experts and asks the experts whether or not the judicial adaptation of the contract is necessary.
The procedure which judges shall adopt during the proceding was specified by the 13th Civil Chamber of the Courts of Appeal in its decision dated 19.11.1991 as follows“... The court shall carefully evaluate inflation rates, progress rate and area of use, feature, actual rental rate, location and position of the leasehold building, changes in amount of tax expenditure and depreciation amortization and other reasonable and objective elements considering the date of contract and legal action by on-site expertise examination.
In this way the proper state is accepted as a base and afterwards sticking with the principles and substance of the adaptation, it should be argued that what type of obligations should be undertaken by the debtor and the rent money should be brought to a level and degree which should be bearable and not exorbitant considering the parties’ aim and will within the objective good faith, equity and conscience principles and as a consequent the adaptation gap in the contract should be filled by way of all rationales should be shown in a justified decision .” (1991/7015 E. 1991/10562 K.) The judge shall only consider the terms stated in the contract and the judgment shall not be based upon other grounds such as financial background of the parties.
Another issue judges shall answer is how the parties would have filled the gap in the contract relating to adaptation clause if they had intended to do. This is simply an attempt by the judge to determine how the parties would have negotiated the term in question.
In judicial adaptation cases, the courts interfere to the term of the rental rate. Accordingly, such an intervention shall alter the contract term for the rental rate. The 13th Civil Chambers of the Courts of Appeal expressed in its decision on 08.02.1999 that “...Judicial adaptation of contract is a mere adjustment of rental rate to the current circumstances while rest of the terms of the contract remain valid and keep its legal status. (1999/315 E. 1999/995 K.)
Another significant issue arises in judicial adaptation of contracts is whether it is possible to adapt rental rate in short term lease contracts. Ordinarily, adaptation of contracts to current conditions is an available remedy in long term contracts as the balance of contractual rights and obligations between the parties because it is not likely to be extremely disturbed due to unforeseeable events in such short period of time apart from very exceptional cases. This is also confirmed by the 13th Civil Chamber of the Courts of Appeal in its decision dated 08.02.2001 where the court stated that there is no room for judicial adaptation of contracts where the adaptation claim submitted in less than a year before the end of the contract period.
Resources:
1. Erkan ERTÜRK. Kanunlar Açıklamalar ve İçtihatlarla Uygulamada Kira Tespiti ve Uyarlama Davaları 2005 - Adil Yayınevi
2. Nihat Yavuz. Türk Kira Hukuku 1 Uygulamada ve Öğretide Kira Parasının Tespiti Davasının Esasları - Ankara 2003 - Yetkin Hukuk Yayınları
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