New Regulation on Rent Increase Rates Based on CPI

1. With the Law on Amendments to Tax Law and Certain Other Laws and Decree Laws (“Omnibus Law“) published on the Official Gazette of January 18, 2019 numbered 30659; the cap on rent increase rate in the lease agreement is limited by the CPI average of the previous year.

With article 56 of the omnibus law (“Amendment to the Law”), article 344 of the Turkish Code of Obligations (“TCO”) has been changed. It has been decided that, the rent increase rate will have a cap based on the CPI average of the previous year in the immovable lease agreements. However, if the parties have decided on a lower rent increase rate, the rent increase rate shall be applied based on the decided rate.

2. The amendment to the law is applicable to residential and roofed workplaces or public institutions and organizations. With article 56 and 59 of the Omnibus Law and Article 344 of the TCO titled “Residential and Roofed Workplaces Leases”, the amendment to the law will be applicable to all types of leases of immovable in terms of residential and roofed workplaces (including workplaces of legal persons and merchants as lessees) and public institutions and organizations.

3. With the Omnibus Law paragraph 3 of Article 344 of the Turkish Code of Obligations has also been amended. The article previously indicated that, with the lease agreement concluded in foreign currency for residences and roofed workplaces, the rent shall not be increased until five years had passed. In accordance with Communiqué No. 32 on the Protection of the Value of the Turkish Currency published in the Official Gazette dated 16.11.2018 and Presidential Decree No. 32 in relation to lease agreements made with foreign currency, it should be noted that, the restrictions brought with these regulations are also applicable.

4. A recent legislative amendment on the CPI increase was made related to the Immovable Leases of Public Administrations. Pursuant to the Circular on the Immovable Leases of Public Administrations published in the Official Gazette dated January 16, 2019, it is stated that the rent increases should be at the capped at the CPI average of the previous year.

5. According to article 59 of the amendment to the law provisional article 2 of the TCO on the implementation of the amendment, the workplace rents, wherein the lessees are merchants and legal entities under private/public law, shall not be subject to Article 334 until 01.07.2020. The regulation on CPI increase rates indicated in the Amendment to the Law, can only applicable after 01.01.2019 pursuant to article 69(b) of the Omnibus Law.

6. To conclude, if there is no regulation regarding a lower rate determined by the parties in the agreement on the increase of rents in lease agreement, to be made in 2019, with residential and roofed workplaces or public institutions (or if it is prepared as (CPI+PPI)/2), a maximum increase can be made based on the 2018 CPI average. In lease agreements lasting more than 5 years, the lessor has the right to file a lawsuit to determine the new lease if the rate is deemed to be unfair.

When the new amendment to the law made with the current regulation of TCO is evaluated together, it can be said that, with the new amendment the lessee has been further protected in residential and roofed workplaces immovable lease agreements. It should be noted that, the regulation brought with the amendment is not valid for all lease agreements and that the contents and parties of all lease agreements must be evaluated with due diligence. Determining the increase rates in this way is of utmost importance.

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