In the third article of this series, we address the rental determination case as a means of adjusting the rental price. A rental determination case is filed to revise the rent in accordance with current market conditions and the terms stated in the lease agreement. This type of case frequently arises, especially in long-term leases where the rent no longer aligns with prevailing market conditions.
1. Definition of the Rental Determination Case
Article 344/3 of the Turkish Code of Obligations (TCO) specifically outlines the conditions for a rental determination case: “Regardless of whether the parties have agreed on this matter, in lease agreements with a term longer than five years or that are renewed after five years and at the end of every subsequent five-year period, the rent to be applied in the new rental year shall be determined by the judge in a manner that is fair and based on the twelve-month average change in the consumer price index, the condition of the property, and comparable rental rates. The rent determined in this way at the beginning of each subsequent five-year period may be adjusted in accordance with the principles set forth in the preceding clauses.”
According to the High Court’s Unified General Assembly Decision of November 18, 1964 (Decision No. 2/4) and established Court of Appeals practices, rental prices must be determined based on the principle of “equity and fairness.” All evidence, such as original or certified copies of comparable lease agreements, should be included in the case file. An expert should examine the leased property and comparable examples in detail, isolating the data obtained and comparing all attributes affecting the rental price (location, surroundings, nature, use, start date, duration, etc.) with each property, explaining concretely why the comparable rents are suitable examples. The judge should then set a fair and reasonable rental price based on these findings.” (3rd Civil Chamber, April 17, 2019, 7142-3465)
It is essential to distinguish a rental determination case from other cases opened for adaptation or rent adjustment. According to Article 345/1 of the TCO, “A case related to the determination of rent can be filed at any time.” For instance, in the absence of a rent increase clause in the lease, the lessor may request the court to determine a fair rent each year. Another example is an adaptation case that a tenant may file to lower the rent, arguing that the rent is excessively high compared to similar properties.
However, a rental determination case is a legal right specifically granted to the lessor to adjust the rent according to market rates, available for five-year periods. Information on when to file this case is provided below.
2. When Can a Rental Determination Case Be Filed?
Timing is crucial in filing a rental determination case, as filing at the wrong time may not achieve the desired outcome. The purpose of a rental determination case is to set the gross monthly rental rate for the sixth rental period at the end of each five-year period. For clarity, failure to file a case for the sixth rental period does not remove your right to file. The lessor gains the right to adjust the rent to the market rate once five years have passed from the start of the lease (from the date the property was first occupied). The lessor may exercise this right for any rental period from the sixth year onward. For example, a lessor who first files for a rental determination for the eighth rental period may next file for the thirteenth rental period.
There are three different time frames for filing the case:
(1) A rental determination case must be filed no later than 30 days before the start of the rental period for which the rent is to be determined. For example, in a lease starting on January 1, 2018, if the lessor claims that the rent is below comparable levels and seeks an equitable determination for the 2023 rental period (sixth rental period), the case must be filed by December 1, 2022, at the latest. If the lease term begins on January 1, 2023, counting 30 days back brings us to December 2, 2022, meaning the case must be filed no later than December 1, 2022.
Assuming the case was filed on December 2, 2022, the lessor would not be able to request a rental determination for the sixth rental period unless other conditions, which will be explained shortly, are met.
Additionally, even if the case is filed on time, the Court of Appeals has stated that the case petition must be served to the tenant at least 15 days in advance. In this case, a petition filed on December 1, 2022, must be served to the tenant by December 16, 2022. If served after this date, the court will not make a rental determination for the new rental period.
(2) If a notification indicating the intent to file a rental determination case is sent to the tenant at least 30 days before the start of the rental period for which the rent is to be determined, the case may be filed until the end of the rental period. Continuing with the above example, if the lessor serves the tenant a notice by December 1, 2022, indicating their intention to file a rental determination case, they may file the case for the sixth rental period by December 31, 2023. That is, since the sixth rental period starts on January 1, 2023, a notice must be served no later than December 1, 2022.
This notification can be sent via notary, which is preferable for proof, but notarization is not required. Any written notification is valid if it can be proven. When sent by notary, the receipt date is considered, not the date of dispatch.
(3) If there is a clause in the lease for rental increase, no notice is required, and the case may be filed until the end of the rental period for which the rent is to be determined. Most lease agreements include a clause for an annual rent increase based on CPI or PPI rates. Even without specifying CPI or PPI, the clause must provide a valid rental increase mechanism, either by indicating a rate or referencing an entity to determine it (such as CPI). If no rate is stated, the clause is invalid.
With a valid increase clause, as in the above example, there is no need for notice, and the case may be filed until the end of the sixth rental period.
3. Will the Case Be Dismissed If Not Filed on Time?
No, it will not be dismissed. However, the court will ask the lessor if they wish to proceed with the case for the next rental period. If accepted, the case will continue for the following period. For clarity, consider the example above. Suppose there is no valid clause in the lease for rent increase, and no notice was given. The lessor, as the plaintiff, seeks an adjustment of the rent to market rates for the 2023 rental period (sixth rental period).
If the lessor files the case on December 3, 2022, the court will not determine the rent for the sixth rental period due to timing issues. Even if the rent is below market value, no new rental rate will be set for this period. The judge will ask the plaintiff if they wish to continue with the case for the seventh rental period. If the plaintiff agrees, the case will proceed for the seventh rental period, resulting in a potential economic loss.