Transfer of Lease in Turkey: Rules and Legal Guide

Transfer of Lease Relationship under the Turkish Code of Obligations: Conditions, Consequences, and Court of Cassation Practices

Today, one of the most debated topics in real estate law, which closely concerns both property owners and tenants, is the changing of hands of lease agreements. The Transfer of the Lease Relationship, which was established in a legal framework by Article 323 of the Turkish Code of Obligations (TCO), is not merely a simple assignment of a debt or receivable; it is the transfer of the contract as a whole, together with all its rights and obligations, to a third party.

In this detailed article, we will comprehensively examine the Transfer of the Lease Relationship in light of its legal nature, statutory conditions, differences between residential and commercial leases, the property owner's obligation to give consent, and judicial decisions.

The Concept and Legal Nature of the Transfer of the Lease Relationship

In our legal system, a debt relationship is characterized as a "continuous framework relationship" existing between the creditor and the debtor, almost like a living "organism" or "a tissue". This relationship does not solely consist of a single claim right; it also encompasses innovative rights such as termination, revocation, and cancellation, as well as defenses and accessory rights (interest, penal clauses, etc.).

In this context, the Transfer of the Lease Relationship is different from the assignment of an individual receivable arising from debt relationships (for example, only the right to collect the rent amount) to someone else. Since debt relationships arising from a contract are created as a whole, they cannot be transferred as a rule; however, in cases where the law explicitly permits, the legal status of the parties can be transferred to another person. Article 323 of the TCO is the exact legal basis that creates this exceptional and special transfer opportunity.

Looking at previous periods, this issue was not regulated as a direct and clear right in our repealed Code of Obligations No. 818 and the Law on Real Estate Leases No. 6570. During the period of Law No. 6570, it was generally forbidden for the tenant to transfer the leased property to someone else or to sublease it. However, with the adoption of the Swiss Code of Obligations (Art. 263) as a source, our New Turkish Code of Obligations No. 6098 has brought this transfer to a legal ground under certain conditions, especially by taking the requirements of commercial life into consideration.

Conditions Required for the Transfer Transaction to Take Place

In order to speak of a legally valid transfer transaction, the three basic conditions required by the law must exist cumulatively (together):

A) Existence of a Valid Lease Agreement: First of all, there must be a functioning, valid agreement between the parties. Because the transfer of lease agreements that have expired, been terminated, or become legally invalid (void) cannot be made valid; the transfer agreement made becomes void.

B) The Tenant's Transfer Request: The tenant must have a clear request for a third party to join the contract in the "capacity of a tenant". The third party can step into the legal status of the tenant only through this transfer request and contract structure.

C) The Written Consent of the Lessor: Article 323 of the TCO states in very clear terms, "The tenant cannot transfer the lease relationship to another person unless they obtain the written consent of the lessor." At this point, there is a serious debate in legal doctrine: Is this written consent a "condition of validity" or merely a "condition of proof"? According to the dominant view in scientific doctrine and the decisions of the Federal Court; the written form required by the law has the nature of a condition of proof rather than the validity of the transaction. Indeed, for a property owner who has not objected to a new tenant occupying their property for a long time and has accepted regular rent payments from them, to try to invalidate the transfer of the contract merely by saying "I do not have a written consent document" would be incompatible with the Principle of Good Faith (Turkish Civil Code Art. 2). Still, in order to eliminate the risks that may arise in practice, putting the consent into a written document is the safest way.

The Difference of the Consent Element in Residential and Commercial Leases

The legislator has created a very sharp distinction between residences and roofed commercial workplaces regarding the Transfer of the Lease Relationship. The protection of commercial enterprises and the principle of the continuity of commercial life lie at the core of this distinction.

Freedom in Residential Leases: In residential leases, the property owner is completely free whether to give consent to the transfer of the contract or not. The lessor can reject the transfer without providing any reason or justification.

Requirement of Just Cause in Commercial Leases: The situation is different in workplace (commercial) leases. The text of the law has established a mandatory provision stating; "The lessor cannot avoid giving this consent in workplace leases unless there is a just cause." The property owner cannot arbitrarily reject this request of a tradesman who wants to transfer their shop.

In Which Situations Can the Lessor Assert a "Just Cause"?

A property owner's refusal to give consent to the transfer transaction can only be based on serious and just reasons that will be evaluated in the light of the principle of good faith. According to scientific doctrine, these reasons can be objective or subjective:

Economic Reasons (Paying Capacity): The new tenant lacking paying capacity, being on the verge of bankruptcy, or not having sufficient customer potential.

Professional Weakness: The new tenant lacking the knowledge to carry out the relevant commercial activity, lacking experience, or having a bad reputation in the market.

Change of Purpose of Use: The new tenant intends to completely change the existing structure or purpose of use of the property (For example, wanting to turn a quiet bookstore into a nightclub).

Hostility and Competition: The existence of a past hostility/enmity between the new tenant and the property owner, or the new tenant intending to engage in unfair competition against the property owner with other subtenants in the same building.

License Problems: The probability that the new tenant will not be able to obtain the necessary official permissions (licenses) for the subject they will execute.

If the property owner unjustly avoids giving consent without relying on such a just cause, the current tenant can apply to the court and request that the consent be given by the judge's decision (the judge's declaration of intent taking the place of it). Additionally, if the tenant has suffered damages due to the unjust refusal, the compensation for these may also come to the fore.

The Legal Situation Arising as a Result of the Transfer of the Lease Relationship

When a transfer transaction that complies with the contract terms and has consent takes place, a fundamental "change of party" occurs in the legal relationship. The rights and obligations of the parties are reshaped:

The Status and Responsibility of the New Tenant: With the transfer transaction, the new tenant rises to a position as if they had signed the contract with the property owner from the very beginning. They completely take over the legal situation of the old tenant. They become a party not only prospectively but also "retroactively". For this reason, the new tenant can be held responsible to the property owner for unpaid rent amounts or contract breaches (for example, abusive use) during the period of the old tenant. Of course, after paying these amounts, the new tenant can have recourse to the old tenant within the framework of their internal relationship. Furthermore, the content of the contract remains the same. The purpose of use, the rent amount, and the duration of the contract do not change; only the title of the tenant changes hands. In addition to material values such as furniture, machinery, and installations built by the tenant inside the shop, intangible values such as the "customer base" (goodwill) of the business also pass to the new tenant along with the transfer agreement.

The Situation of the Old Tenant (Joint and Several Liability): With the transfer, the old tenant, as a rule, leaves the contract and is freed from their debts. However, to protect the property owner in commercial leases, the legislator has introduced a very important mandatory provision: The old tenant continues to be jointly and severally liable together with the transferee new tenant until the end of the lease agreement, and in any case for a maximum period of two years from the date of the transfer. In other words, if the new tenant does not pay the rent, the property owner can knock on the old tenant's door if the 2-year period has not expired. It is debated in doctrine that this 2-year upper limit is mandatory in nature; the parties cannot shorten this period by agreement, but if the property owner consents, the old tenant can be completely released (acquitted) from the debt.

The Situation of Guarantors and Securities: When the Transfer of the Lease Relationship is in question, the situation of the persons who are guarantors for the old tenant gains importance. Since the main debtor of the contract changes with the transfer transaction, the special guarantees given by the old tenant (for example, the guarantees of third parties), as a rule, terminate automatically unless otherwise agreed. The responsibility of the old guarantor for the debts of the new tenant does not continue unless the guarantor gives a special and new written approval.

Consequences of Transfer Without Consent (Unauthorized) and Court of Cassation Practices

What happens if the Transfer of the Lease Relationship is carried out without the approval of the property owner, contrary to all these rules? According to the precedent decisions of the General Assembly of Civil Chambers of the Court of Cassation (e.g., Merits 2013/1067, Decision 2013/364 and Merits 2017/11757); the lease relationship cannot be transferred to another person without the written consent of the lessor. A third party who takes over and starts using the leased property without the consent or approval of the property owner falls into the legal position of an "unjustified occupier" (fuzuli şagil). In this scenario, the property owner acquires very strong rights.

Termination of the Contract and Eviction: Pursuant to Article 316 of the TCO, the property owner can give the tenant a period and issue a notice to remedy the breach. If the breach is not remedied (the new person does not leave), they can terminate the contract and file an eviction lawsuit. Alternatively, an "action for prevention of interference and eviction" can be filed directly against the new person (unjustified occupier).

Claim for Ecrimisil (Unjust Occupation Compensation): The third party who uses the real estate without consent is held liable to pay "ecrimisil" because they prevent the property owner from enriching and unjustly use the property. The Court of Cassation rules that the person who takes over without permission must pay unjust occupation compensation calculated over the rental value or current market value of the real estate during this period.

The Difference Between the Transfer of the Lease Relationship and the Sale of the Real Estate

To ensure a good understanding of the subject, a final distinction should be mentioned. The Transfer of the Lease Relationship is the replacement of the tenant by someone else. However, the property owner selling the real estate to someone else is a completely different institution. According to the TCO, in the event of the sale of the real estate, the new owner directly becomes a party to the lease agreement by law. However, in the transfer of the tenant, consent and agreement are essential; the law does not provide the transfer automatically.

The Transfer of the Lease Relationship, regulated by Article 323 of the Turkish Code of Obligations, is built upon a delicate balance that both responds to the needs of commercial life and protects the right to property. The absolute right of refusal granted to the property owner in residential leases has been passed through the "just cause" filter in commercial leases, allowing the tradesman to monetize their enterprise value (goodwill) and not suffer losses while ending their commercial life. However, in order to prevent grievances in practice, it is imperative that the transferring tenant, the transferee new candidate, and the property owner conduct this process absolutely with written agreements. Otherwise, heavy compensation (ecrimisil) burdens arise for new tenants who fall into the position of unjustified occupiers, while old tenants who are unaware of the 2-year joint liability carry the risk of facing surprise execution proceedings years later. Writing down the existing securities, past debts, and purpose of use transparently during the transfer phase of contracts will be the guarantee of legal security.