Adjustment Of Rent – Balance Between Actions – Rent Set At An Excessive Amount At The Beginning Of The Contract – Conditions For Adjustment
Summary:
Under our law, contracts must be performed exactly as they were made, in accordance with the principles of “contractual fidelity (Ahde Vefa)” and “freedom of contract.” The principle of contractual fidelity constitutes a fundamental principle of contract law as a requirement of legal certainty, accuracy, and the rule of good faith. However, this principle is limited by other principles of private law. The balance that existed between the mutual performances at the time the contract was made may subsequently be significantly disrupted to an intolerable degree for one of the parties due to extraordinary changes in circumstances. In this case, a conflict arises between the principles of contractual fidelity and contractual justice, and strict adherence to this principle would create a situation contrary to the rules of justice, fairness, and objective good faith (TMK. art. 4,2).
In reciprocal contracts, if the balance between the performances is disrupted due to extraordinary changes, making the performance of the obligation difficult, the “collapse of the basis of the transaction” comes into play. In this context, the judge may decide, based on the facts of the case, to increase the debtor’s performance in favor of the creditor or to release the debtor from his performance obligation in whole or in part in favor of the debtor, and intervene to adapt the contract to the changed circumstances. When adapting the contract to the new circumstances, the court first examines whether the contract and then the law contain provisions on adaptation. If there are no provisions in the contract or the law, the court examines whether the contract needs to be adapted to the changed circumstances and conditions.
In the case in question: The plaintiff argued that this rent was much higher than both the rent for the property on the upper floor that was newly rented and the rents for comparable properties in the neighborhood, yet the defendant increased the rent for the new period by 10% and invoiced it as TL 39,830.51 excluding VAT. The plaintiff claims that the balance of obligations in the lease agreement between the parties has been unbearably disrupted for the plaintiff tenant company in comparison to the rents of comparable leased properties. The plaintiff requests that the monthly rent for the property be adjusted to 26,000 TL excluding VAT, effective as of April 1, 2011. The court states, “… Two years after the lease agreement was established between the parties, the plaintiff began to request that the rent not be increased, and this request was accepted by the defendant, and this situation continued until the date of the lawsuit. This fact constitutes a disruption of the balance between the obligations, which is also accepted by the plaintiff, and the defendant’s contribution should be considered fair and positive in order to restore the balance. The root cause of the dispute between the parties over the rent is not the exorbitant amount reached by the increases up to the date of the lawsuit, but rather the high amount specified in the contract at the outset. This is because the plaintiff requests that the rent, which was agreed upon as 30,000 TL in the lease agreement dated 2007 and in the text of the agreement, be reduced to 26,000 TL in 2011. Our court has concluded that it is not possible for an amount lower than the initial rent agreed upon by the free will of the parties to be compatible with the principle of contractual freedom, and our court has concluded that the plaintiff has the conditions to file the present lawsuit…” …it was decided that the monthly rent should be adjusted to 35,122.00 TL excluding VAT, effective as of 01/04/2011. However, since it cannot be said that the above-mentioned adjustment conditions have been fulfilled by the parties, the court should have decided to reject the claim on the grounds that the conditions have not been fulfilled, and it is erroneous to decide in writing…
The ruling should be overturned for these reasons…
T.C.
Court of Cassation
6th Civil Chamber
Case No: 2013/14703
Decision No: 2014/5826
Date: 7.5.2014
The decision of the local court regarding the rent adjustment case, dated and numbered above, was appealed by the plaintiff and defendant within the prescribed time limit. All documents in the file were read, and the necessary deliberations were made.
The case concerns a request for rent adjustment. The court ruled that the monthly rent should be adjusted to TL 35,122.00 excluding VAT, effective as of 01/04/2011. This ruling was appealed separately by the plaintiff and the defendant’s representative.
1. Based on the scope of the file, the evidence gathered, and the grounds on which the decision is based, all of the plaintiff’s attorney’s objections, except for the one below, are unfounded.
2. Regarding the defendant’s appeal objections:
The plaintiff’s attorney stated in the complaint that the monthly rent for the property in March 2011 was TL 36,300, that this rent was much higher than both the rent for the property on the upper floor that was newly rented and the rents for comparable properties in the neighborhood, and that despite this, the defendant invoiced the rent for the new period with a 10% increase to TL 39, 830.51 TL excluding VAT, and that the balance of obligations in the lease agreement between the parties was unbearably disrupted for the plaintiff tenant company in comparison to the rents of comparable leased properties. The plaintiff requested that the monthly rent for the property be adjusted to 26,000 TL excluding VAT, effective as of April 1, 2011. The defendant’s representative argued in their response that the plaintiff is a merchant, that there has been no economic fluctuation requiring improvisation of the lease agreement since its inception, that the rent increase was determined based on the average TEFE —TÜFE average, that there was no situation in the case that would cause the basis of the transaction to collapse, and that there were no criteria requiring an adjustment, and argued that the case should be dismissed. The court partially accepted the case and ruled that the monthly rent should be adjusted to TL 35,122.00 excluding VAT, effective as of 01/04/2011.
Under our law, the contract must be applied exactly as it was when it was concluded, in accordance with the principles of “contractual fidelity” and “freedom of contract.” The principle of contractual fidelity constitutes a fundamental principle of contract law as a requirement of legal certainty, accuracy, and the rule of good faith. However, this principle is limited by other principles of private law. The balance that existed between the mutual obligations at the time the contract was concluded may subsequently be significantly disrupted to an intolerable degree for one of the parties due to extraordinary changes in circumstances. In this case, a conflict arises between the principles of contractual fidelity and contractual justice, and strict adherence to this principle would create a situation contrary to the rules of justice, fairness, and objective good faith (TMK. art. 4,2). In law, this conflict is addressed by the principle of Clausula
Rebüs Sic Stantibus (the unforeseen circumstances clause—adapting the contract to changing circumstances). If the conditions that influenced the parties’ intentions and led them to enter into the contract subsequently change significantly due to striking events that cause injustice, the parties can no longer be bound by that contract. In light of these changed conditions, the contract must be renegotiated by invoking Article 2 of the Civil Code.
Examples of extraordinary circumstances that disrupt the balance between the obligations under the contract include war, economic crises that shake the country, extreme rises in inflation, shock devaluation, and a significant decline in the value of money, where adherence to the contract cannot be expected.
In reciprocal contracts, if the balance between the obligations is disrupted due to extraordinary changes, making it difficult to fulfill the debt, the “collapse of the basis of the transaction” comes into play. In this context, based on the facts of the specific case, the judge may decide to increase the debtor’s obligation in favor of the creditor or to release the debtor from their obligation in whole or in part in favor of the debtor, and may intervene to adapt the contract to the changed circumstances. When adapting the contract to new circumstances, the court first examines whether the contract itself contains provisions for adaptation, and then whether the law contains such provisions. If neither the contract nor the law contains such provisions, the court examines whether the contract needs to be adapted to the changed circumstances.
Regarding the necessary principles for intervention in the contract: Events arising during the performance of the contract after its conclusion must be extraordinary and objective in nature. The changed circumstances should not be foreseeable, expected, normal, or calculable for the parties, or, even if foreseeable, their effects on the contract should not be predictable to such an extent in terms of scope and form. Since adherence to the contract is fundamental, adaptation should always be considered as an auxiliary solution. The specific provisions written into the contract should be interpreted, and all objective and subjective circumstances and conditions, such as the rights and benefits they provide to the parties, the effects of economic changes, and the characteristics of the leased property, should be evaluated. If it is concluded that adaptation is necessary, the gap in the contract should be filled by the judge using the authority granted in TMK Article 1, as in the case of a legal gap, in light of the principles of fairness, justice, truthfulness, and good faith (TMK Article 4, 2/1). Ultimately, any decision rendered must not be contrary to the principles outlined above, must be well-reasoned and include its grounds, and must be subject to review by the Court of Cassation.
In the case in question, the Plaintiff argued that this rent was significantly higher than both the rent for the newly leased property on the upper floor and comparable properties in the vicinity. Despite this, the Defendant increased the rent for the new period by 10% and invoiced it as 39,830.51 TL excluding VAT. The Plaintiff claims that the balance of obligations in the lease agreement between the parties has been unbearably disrupted for the Plaintiff tenant company when compared to the rental prices of comparable properties. The Plaintiff requests that the monthly rental price of the property be adjusted to 26,000 TL excluding VAT, effective as of April 1, 2011. The court ruled that “… Two years after the lease agreement was established between the parties, the plaintiff began to request that the rent not be increased, and this request was accepted by the defendant, and this situation continued until the date of the lawsuit. This fact constitutes a disruption of the balance between the obligations, which is also accepted by the plaintiff, and the defendant’s contribution should be considered fair and positive in order to restore the balance.
The root cause of the dispute between the parties regarding the rent is not the exorbitant amount reached by the increases up to the date of the lawsuit, but rather the high amount specified in the contract at the outset. This is because the plaintiff requests that the rent, which was agreed upon as 30,000 TL in the lease agreement dated 2007 and in the text of the agreement, be reduced to 26,000 TL in 2011. Our court has concluded that it is not possible for an amount lower than the initial rent agreed upon by the free will of the parties to be compatible with the principle of contractual freedom, and our court has concluded that the plaintiff has the conditions to file the present lawsuit…” …it was decided that the monthly rent should be adjusted to 35,122.00 TL excluding VAT, effective as of 01/04/2011. However, since it cannot be said that the above-mentioned adjustment conditions have been fulfilled by the parties, the court should have decided to reject the claim on the grounds that the conditions were not met, and the written decision is therefore erroneous.
The judgment should be overturned for these reasons.
CONCLUSION: For the reasons explained in paragraph (2) above, the defendant’s attorney’s appeal is accepted, and in accordance with the provisions of the temporary Article 3 added to the Civil Procedure Code No. 6100 by Law No. 6217, the judgment is overturned in accordance with Article 428 of the Civil Procedure Code. Accordingly, it was unanimously decided on 07.05.2014 to REVERSE the ruling and, based on the grounds for reversal, to find no need to examine other objections and to refund the advance appeal fee to the appellants upon request.