The Applicable Law In Lease Agreements Involving Public Institutions And The Determination Of Rent

What Are the Contract Terms and Relevant Provisions for Public Leases?

When leasing real property owned by public institutions and organizations, it is a legal requirement that they generally comply with the procedures and principles of the State Procurement Law No. 2886 (“DIK”). As a reflection of this requirement, pursuant to Article 64 of the SPL, the lease term generally may not exceed ten years. Indeed, Article 64 of the STL states: 

“The lease term for movable and immovable property to be leased may not exceed ten years. However, it is permissible to lease land required for the establishment of tourist facilities, as well as land required for energy production facilities, transmission and distribution facilities and networks, and land required for natural gas transmission, distribution, and storage facilities and networks, for a term exceeding ten years.

For leases with a term exceeding three years, prior authorization from the Ministry of Finance is required. In agencies with supplementary budgets, this authorization is obtained from the ministry to which the agency is affiliated. For special administrative units and municipalities, their respective special laws apply.

“In lease transactions with a term exceeding three years, the rent is reassessed annually in accordance with the terms set forth in the specifications and the contract.” 

This provision clearly establishes that, under the aforementioned legal regulation, in lease transactions involving public administrations, the contract term generally may not exceed ten years; this term may not be exceeded except for investments of an exceptional nature; and in long-term leases exceeding three years, the rent must be re-determined annually in accordance with the terms of the tender specifications and the contract. 

Which Law Applies to Public Leases: the Public Property Lease Law (DİK) or the Turkish Code of Obligations (TBK)?

Following the leasing of a property owned by the government, the question of whether the provisions of the Public Property Lease Law (DİK) or the tenant-protective provisions of the Turkish Code of Obligations No. 6098 (“TBK”) should apply upon the expiration of the lease term or during the rent adjustment process is a matter of debate in both practice and legal doctrine, with two distinct legal viewpoints on this issue: 

• The View Advocating for the Application of the DİK: According to this approach, which is rooted in administrative law, the DİK constitutes a special law regarding the leasing of public property as compared to the TBK, and pursuant to the general legal principle that special laws take precedence over general laws, it must be applied first in lease relationships. This view holds that the administration may immediately evict the tenant upon the expiration of the lease term without requiring any other grounds for eviction. 
• The View Advocating for the Application of the Turkish Civil Code (TBK): The prevailing view in legal doctrine, however, argues that the unequivocal and mandatory provision in Article 339, Paragraph 2 of the Turkish Code of Obligations (TBK)—which states, “These provisions shall also apply to all lease agreements entered into by public institutions and organizations, regardless of the procedures and principles under which they are concluded”—brings public administrations under the umbrella of the law of obligations. According to this view, the Turkish Civil Code (TBK)—being the later-enacted general law—has, by its express intent, implicitly repealed the provisions of the earlier-enacted Residential Lease Code (DİK) regarding eviction as they pertain to residential and commercial premises. In this context, pursuant to Article 347 of the TBK, the expiration of the term does not terminate the contract; rather, it is deemed to have been extended for one year by operation of law. 

What Do the Case Law of the Court of Cassation and the Court of Auditors Say Regarding the Termination of the Lease Agreement and Unlawful Occupancy?

Despite the view in legal doctrine that the Turkish Civil Code (TBK) should be applied, an examination of high court decisions reveals that, in resolving disputes where the lessor is a public authority, it is strictly emphasized that the tenant becomes a squatter upon the expiration of the lease term. 

In a decision issued by the General Assembly of the Court of Accounts on January 21, 1993, under Case No. 4761/1 K., the following statements were made: 

“…Since Law No. 2886 on State Procurement, which entered into force on January 1, 1984, repealed Law No. 2490, it is no longer possible to refer to Law No. 6570 regarding real estate leased under Law No. 2886 on State Procurement… Consequently, it is no longer possible to apply the provisions of Law No. 6570 on Real Estate Leases—through Article 14 of that Law—to real estate leased under Law No. 2886, as if it had been leased under Law No. 2490.” 

Similarly, in its decision dated February 13, 1991 (Case No. 1990/13-630, Decision No. 1991/72), , it was ruled that after the entry into force of the Real Estate Lease Code (DİK), the general statutory provisions protecting tenants in government-owned real estate could not be applied, and that at the end of the lease term, the tenant could be evicted as a trespasser pursuant to Article 75 of the DİK. 

This approach in favor of the administration is also maintained in recent Supreme Court decisions. Indeed, pursuant to the decision of the 6th Civil Chamber of the Supreme Court dated February 23, 2015, Case No. 2015/946 E., Decision No. 2015/1669 K.: 

“…Although the lease agreement was automatically renewed on an annual basis as of August 1, pursuant to Article 11 of Law No. 6570 on Real Estate Leases, following the expiration of the contract term on July 31, 1997, it must be accepted that the contract terminated as of August 1, 2005—the date on which the final period following July 13, 2005, when Law No. 5393 on Municipalities (which grants the plaintiff municipality the right to benefit from Article 75 of Law No. 2886 on State Procurement) entered into force, came to an end… The amount claimed and paid by the plaintiff is, in fact, in the nature of compensation for unlawful occupation. As explained above, since there is no longer a tenancy relationship between the parties and it is therefore not possible to seek a determination of rent, the court should have ruled to dismiss the case; however, since the written decision was deemed incorrect, the judgment must be reversed.” 

As is clearly evident from the decision cited above, the Court of Cassation has ruled that administrative contracts that have expired do not automatically renew under the Turkish Civil Code (TBK) and that the tenant becomes a trespasser by law; it has further established in its case law that, since there is no valid lease agreement in place, a request for the determination of rent cannot be made to the courts. 

How Is a Request for Determination of Rent Assessed in Contracts Where the Term Has Not Expired?

It is established by case law that a rent determination action may be filed in cases where the term of the lease has not yet expired and the existence of the lease relationship between the parties is undisputed. Indeed, the decision of the Third Civil Chamber of the Court of Cassation dated September 24, 2012, Case No. 2012/16988, Judgment No. 2012/19518, serves as a precedent for this situation: 

“In the present case… the defendant municipality demanded a rent of 1,600.00 TL from the plaintiff for the new term, that the plaintiff paid 1,554.00 TL in rent for the property in question on August 1, 2009, that the plaintiff requested the rent be set at 1,215.00 TL ( ) as of the date of the lawsuit, May 25, 2010, and that the court determined the rent to be 1,300.00 TL… It is a well-known fact that, given the commercial and economic conditions in the country and the decline in the purchasing power of money, rent amounts have increased rather than decreased in the new rental period compared to the previous period. According to the parties’ acknowledgment, it was established that the plaintiff-tenant paid 1,554.00 TL in rent prior to the lawsuit; therefore, the determination of the monthly rent at 1,300.00 TL—without taking into account that the court cannot rule for an amount less than what was paid—warranted reversal.” 

In the aforementioned decision, the Court of Cassation acknowledged that, in ongoing administrative leases, courts may determine rent based on current economic conditions by addressing the merits of the case; however, it established as a mandatory rule that the court cannot set a rent amount lower than the actual amount the tenant is currently paying voluntarily, given macroeconomic realities. 

Does the Administration Have the Authority to Unilaterally Determine Rent in Light of the Court of Accounts’ Current Case Law?

In practice, public authorities may interpret the provision in Article 64 of the DİK, which states that “the rent shall be reassessed annually in accordance with the terms of the specifications and the contract,” as granting the administration the right to freely “reassess” the rent based on market rates. However, the legal purpose of this article is to strictly bind the administration to the objective increase formula set forth in the contract it has prepared. 

Indeed, the Decision of the 3rd Chamber of the Court of Accounts, dated September 12, 2023, No. 204 I., 460 K., has clarified the legal consequences of the Municipal Council deviating from the text of the contract. Although the contract stipulated that rent increases would be based on the Consumer Price Index (CPI), the Municipal Council’s unilateral decision to set this rate at 1% was deemed to constitute a public loss and an abuse of authority. The relevant portion of the decision reads as follows: 

“…the council has not been granted any authority to determine the rent increase rate… the provisions of the Turkish Civil Code (TBK), and specifically Articles 339–356 of the TBK in this context, shall apply by priority to lease agreements involving residential and commercial premises where public institutions and organizations are parties. In this case, since the CPI rate used as the basis for the annual rent increase in the Municipality’s lease agreements was higher than the CPI for that year, the mandatory provision in Article 344 of the Law stating, ‘It is valid provided that it does not exceed the rate of change based on the twelve-month average of the consumer price index in the previous rental year,’ and in accordance with the provision in Article 27 of the Law stating that “contracts that conflict with the mandatory provisions of the Law are absolutely void,”… rent increases for that year must be calculated based on the CPI rate rather than the PPI rate specified in the lease agreements… As a result of the decision by the Council to increase the rent by 1 percent and its subsequent implementation… public harm as defined has been caused.” 

As emphasized in the Court of Accounts’ decision, the administration does not possess the authority to conduct its own market research and determine rent based on its own discretion, relying on Article 64 of the Public Procurement Law. The administration cannot, through a council or assembly decision, deviate from the objective rules in the contract or exceed the CPI limit set forth in the Turkish Civil Code. If the administration wishes to determine a rent amount beyond the terms agreed upon in the contract, it must assert this claim only through a rent determination lawsuit filed with independent judicial authorities.

Conclusion: What Steps Should the Administration and the Tenant Take?

In lease agreements involving public institutions and organizations, the conflict between the provisions of the DİK and the Turkish Civil Code (TBK) poses legal risks in practice. 

In light of Supreme Court precedents, it should be noted that tenants whose lease terms have expired will be deemed unlawful occupants under the provisions of the DİK and may be evicted through the local administrative authority. Conversely, in cases where the lease term is still effectively in effect, the administration’s unilateral intervention in the lease’s rent increase mechanism through council or board decisions is clearly contrary to both the law and judicial rulings. In this context, it is essential for the parties to meticulously pursue notice procedures and judicial remedies to prevent the loss of their rights.

Frequently Asked Questions (FAQs)

What happens when the lease term for real property leased from a public institution expires?

According to Supreme Court precedents, in leases entered into under the DİK, the expiration of the term terminates the lease, and the tenant becomes a “quasi-squatter” (unauthorized occupant) by law.

What is the maximum lease term under Article 64 of the DİK?

Under the law, with the exception of special-purpose facilities (tourism, energy, natural gas, etc.), the lease term for public real estate generally may not exceed 10 years.

In public leases, can the administration unilaterally increase the rent to the market rate?

No. According to decisions of the Court of Accounts and the Court of Cassation, the administration (by a council or assembly decision) cannot unilaterally determine the rent. The administration may only apply the objective formula specified in the contract or file a lawsuit in court to determine the rent.

Can a lawsuit to determine the rent be filed for public lease agreements that are still in effect?

Yes, as long as the contract term has not expired, the lease relationship between the parties is undisputed, and a lawsuit to determine the rent may be filed. However, the court cannot set the rent at an amount lower than what the tenant is actually paying, given macroeconomic realities such as inflation.