The Covid – 19 Pandemic’s Effects on Workplace Lease Agreements

 1. Introduction

Covid – 19 Pandemic (“the Pandemic”), which has been seen in China for the first time towards end of year 2019 and spread globally in an unexpected speed, has been declared as a pandemic by World Health Organisation on March 11, 2020. As governmental bodies in Turkey, along with many countries effected, have started to take measures to prevent spread the Pandemic, daily life and business life of society have changed a lot.

Social distancing became major rule, many companies has started to working remotely and The Ministry of Internal Affairs of Turkish Republic has temporarily ceased the activities of some workplaces including Public Resting and Amusement Locations (e.g., performance centers, concert venues, cinemas, cafes, playgrounds, and sport centers) as of 24:00 on 16 March 2020 across the country with the Circular[1] (“Circular”) on corona virus precautions dated March 16, 2020. The Association of Shopping Malls advised shutting down shopping malls and making things easier for the tenants. Some shopping malls are already closed pursuant to the recommendation of Association of Shopping Malls. Similarly, the Turkish Federation of Shopping Centers and Retailers (“TAMPF”) declared that within the scope of combating the pandemic, TAMPF member shopping malls will not issue any rent invoices to retailers while shopping malls and stores are closed. In scope of these incidents, it has become a crucial subject to evaluate situation of lease agreements.

2. Force Majeure or Any Other Impossibility of Performance

The term force majeure hasn’t been explicitly defined under Turkish Code of Obligations[2] (“TCO”), but according to the High Court of Appeal, it is an extraordinary event that is (i) inevitable regardless of reasonable will and behaviour of the parties (ii) inescapable by the parties (iii) unpredictable by the parties (iv) making it impossible for the parties to fulfil their contractual obligations. In order for the force majeure to occur, the contract and/or the rights and/or the obligations arising from the contract should be partially or completely be eliminated temporarily or permanently due to external factors along with the conditions stated above. Accordingly, extraordinary epidemic diseases that are not caused by the borrower, which occur outside the activity and operation of the borrower, which cannot be foreseen and resisted and that may prevent the borrower from performing their responsibilities, may constitute a force majeure in accordance with the provisions of the TCO and the case law of the High Court of Appeal.

Article 136 of TCO defines impossibility of performance. In this context, it is regulated that if the performance of the debt becomes impossible due to the reasons that the lessee cannot be held responsible, the debt will come to an end. Force Majeure is interpreted as a permanent impossibility of performance in doctrine and case law, which leads termination of an agreement.

In TCO, the lease agreements benefit from the freedom of form principle and the parties may determine the clauses of the agreement with their free will[3]. Accordingly, in determining whether the Pandemic constitutes a force majeure in terms of any lease agreement, the provisions of the lease agreement subject to the concrete event should be examined first. It is important in this regard whether there is any clause regulating force majeure events. If an epidemic/infectious disease condition is clearly defined as a force majeure in the agreement, the Pandemic will constitute a force majeure for the performance of the debts arising from the relevant agreement and if there is a consequence in the determined in the agreement, that will be applied. If not, the workplace lease agreement shall become invalid. However, if a force majeure clause is included in the agreement but the epidemic/infectious disease is not considered as one of the force majeure events, the relevant clause should be interpreted. If the force majeure events are determined in the clause in a limited way, another assessment than force majeure should be made in the provision is regarded as limiting, a different evaluation should be made by taking into consideration of effects the Pandemic on the lease agreements.

In addition, the first point to be evaluated when examining whether the circumstances other than force majeure which may lead to the impossibility of performance, is temporary or permanent.

In this regard, lease agreements’ current situation due to the Circular and advices of Shopping Mall authorities may be evaluated.

In accordance with syllabus nature of the lease agreement, the lessor falls under the obligation to enable the lessee to use the subject of the agreement and keep it available for use during the term of the agreement[4]. The lessee, on the other hand, falls under the payment debt to the lessor at the due date[5]. However, due to the above-mentioned measures, it is possible to mention that the lessor’s debt is temporarily impossible due to the fact that the lessor could not temporarily make the workplace available to use for lessee under the terms of the agreement. The lessor who cannot fulfil his/her own performance due to temporary impossibility will not be able to force the lessee to pay rent. In such a case, it may be said that the mutual obligations in the contract are temporarily suspended, but the contract will remain valid.

3. Hardship

Other criteria must be assessed concerning the Pandemic’s effects on workplace lease agreements is hardship, which is regulated in Article 138 of TCO. Frustration is a phenomenon that inevitably prevents the debtor from performing his debt regardless of existing terms of the agreement and reasonable will and behaviour of the parties in the contractual relationship, and mostly requires amendment of the terms of the agreement and in some cases requires the elimination of the rights and obligations of the agreement. Frustration often occurs within the administration or has a specific/determinable impact on the affected parties. Also, while frustration does not eliminate the strict liability, the force majeure eliminates the fault and strict responsibility provided that the conditions are fulfilled. The circumstance where a party is affected by an unexpected case/frustration, and thus become unable to fulfil their obligations arising from a contract is described as “hardship”.

Within the framework of the above-mentioned administrative measures, the activities of some workplaces are temporarily suspended or the shopping malls they are in have been closed. This may create hardship by constituting a frustration in terms of lessee’s rent dept. In addition, situations such as disruptions in the supply chain or a significant decrease in the number of customers and the continuity of such situations may fall within the scope of the frustration in accordance with the Article 138 of the TCO depending on the conditions of the concrete event.

In cases where there is a clause for the adaptation of the agreement in the lease agreement executed between the parties, these clauses will be applied first within the scope of the concrete case. However, if an adaptation in accordance with the relevant clauses may not be made in accordance with equity, parties may apply to the court pursuant to Article 138 of the TCO.

Consequently, lessees who’s in hardship within the scope of Article 138 of the TCO may request the judge to adapt the terms of the lease agreements without paying the rental fee or by paying the rental fee with a reservation. In cases where adaptation is not possible, the lessee may apply for the termination of the contract, provided that it complies with the relevant deadlines.

4. Omnibus Law and Its Effects on Workplace Lease Agreements

As a current legislation, Law on the Amendment on Certain Laws[6] (“the Omnibus Law”) contains regulations regarding current situation of lease agreements as well. According to the Provisional Article 2 of the Omnibus Law, workplace rents arisen from period of March 1, 2020 – June 30, 2020 will not constitute a reason to termination of lease agreement or eviction of lessee. Scope of this exemption is limited to workplace lease agreements only. Consequently, the Omnibus Law restricted the legal ways that the lessor may apply in the period between March 1, 2020 and June 30, 2020 in the event that the lease debt is not paid, and due to the fact that the renters in the four-month period are not paid, lessor will not be able to apply for the execution proceedings with an eviction request or by opening two eviction proceedings. they cannot demand the eviction of lessees.

This regulation does not affect lessee’s obligation of paying rent but delays possible consequences of that. Also, there isn’t any obstacle regarding default interest or penal clauses determined under the lease agreements to continue to be applied in the period specified in the Omnibus Law.

5. Conclusion

The Pandemic has affected our daily life in every perspective, including various types of agreements subjected to our daily life. It’s important to evaluate workplace lease agreements as well. However, the Pandemic may show its effects on workplace lease agreements differently. Key point to assess the agreement’s situation is taking into consideration of each agreement’s relevant clauses.

[1] The Ministry of Internal Affairs of Turkish Republic Circular dated 16.03.2020 and numbered 5361.

[2] Turkish Code of Obligations numbered 6098 and dated 11.01.2011 , has been published in the Official Gazette numbered 27836 and dated 04.02.2011.

[3] Article 26 of TCO.

[4] Article 301 of TCO.

[5] Article 313 of TCO.

[6] The Law Amendments on Certain Laws dated 25.03.2020  and numbered 7226 has been published in the Official Gazette dated 26.03.2020 and numbered 31080.