What is a Rent Determination Lawsuit? Its Legal Nature

In long-term lease agreements, the rent initially determined may fall behind current economic realities and market conditions over time. This situation leads to serious imbalances of interest between the lessor and the lessee. One of the legal remedies resorted to in order to address this imbalance is the rent determination lawsuit. A rent determination lawsuit is a lawsuit filed to redetermine the rent according to current market conditions and the terms specified in the lease agreement. It frequently arises, especially in long-term lease agreements, when the rent is not compatible with current market conditions.

The rent determination lawsuit allows for the redetermination of the rent by the judge in conformity with fair market value and equity at the end of five-year periods, in accordance with the Turkish Code of Obligations. The conditions for a rent determination lawsuit are specifically defined in Article 344, Paragraph 3 of the Turkish Code of Obligations (TCO):

“Regardless of whether the parties have made an agreement on this matter, in lease agreements longer than five years or renewed after five years, and at the end of every subsequent five-year period, the rent to be applied in the new lease year shall be determined equitably by the judge, taking into account the twelve-month average change rate in the consumer price index, the condition of the leased property, and comparable rental values. In the lease year following every five-year period, the rent determined in this manner may be modified according to the principles set forth in the preceding paragraphs.”

The Court of Cassation has clearly laid down in its established practice which concrete criteria judges should base this determination on. As stated in the decision of the 3rd Civil Chamber of the Court of Cassation, dated 17.4.2019, no. 7142-3465, in order to determine the rent in accordance with the principle of “equity and fairness,” first, all evidence of the parties, if any, original or certified copies of comparable lease agreements, must be placed in the file, and the leased property and comparable properties of the parties must be individually inspected and examined by an expert. As emphasized in the same decision, the data thus obtained should be concretized, and all characteristics affecting the rent (location, surroundings, nature, usage, lease commencement date, lease durations, etc.) should be compared separately for the subject property; concrete reasons should be explained as to why comparable rental values are appropriate or not; the rent that the subject property could generate if re-leased vacant for the period for which determination is sought should be determined; and the judge should rule on a reasonable rent in accordance with equity and fairness, taking this rent into account.

It should be noted that the rent determination lawsuit differs from other lawsuits filed for adaptation or rent determination. According to TCO Art. 345/1, “A lawsuit for the determination of rent may be filed at any time.” For instance, in cases where there is no increase clause in the lease agreement, the lessor may request the court to determine the rent equitably each year. Another example is an adaptation lawsuit that the lessee may file to reduce the rent, claiming it is too high and comparable rents are lower.

The rent determination lawsuit, on the other hand, is a right of adjustment to fair market value specifically granted by law to the lessor. It can be requested for five-year periods. Information regarding when this lawsuit can be filed is provided below.

When Can a Rent Determination Lawsuit Be Filed?

For a rent determination lawsuit to be filed, a five-year period must have passed since the commencement of the lease agreement. The timing for filing a rent determination lawsuit is crucial, as the desired outcome cannot be achieved if the lawsuit is filed at the wrong time. The purpose of a rent determination lawsuit is to determine the gross monthly rent for the 6th lease period at the end of every five years. To avoid misunderstanding, not having filed a lawsuit for the determination of rent for the 6th lease period does not deprive you of your right to file a lawsuit. The right to demand adjustment of the rent to fair market value is legally granted to the lessor upon the expiration of five years from the commencement of the lease agreement (from the date the leased property began to be used). The lessor can exercise this right for any lease period starting from the 6th year. For example, a lessor who files a rent determination lawsuit for the first time for the 8th lease period can subsequently request a fair market value adjustment for the 13th lease period.

The timing for filing the lawsuit also varies. There are three different times to file a lawsuit:

• A rent determination lawsuit must be filed at least 30 days before the start of the lease period for which determination is sought. For example, in a lease agreement starting on 01.01.2018, the lessor, claiming that the rent is below comparable values, may request the equitable determination of the rent in line with comparable values for the 01.01.2023-31.12.2023 lease period (6th lease period). This lawsuit must have been filed no later than 01.12.2022. This is because the 6th lease period, for which determination is sought, begins on 01.01.2023. If we count back 30 days from this date, the 30th day would be 02.12.2022. Therefore, the lawsuit must have been filed no later than 01.12.2022. If we assume this lawsuit was filed on 02.12.2022, the lessor will not be able to demand rent determination for the 6th lease period, unless other conditions are met (which will be explained shortly). Another important point is that, even if filed on time, the Court of Cassation states that the petition for this lawsuit must be served on the lessee at least 15 days before. That is, the petition for a lawsuit filed on 01.12.2022 must be served on the lessee no later than 16.12.2022. Even if it is due to an error by the court clerk or postal officer, the Court of Cassation states that if served after this period, rent determination for the new lease period cannot be made.
• Provided that a warning (ihtar) is served on the lessee, at a date at least 30 days before the start of the lease period for which determination is sought, stating that a rent determination lawsuit will be filed, the lawsuit can be filed until the end of the lease period for which determination is sought. Continuing with the example above, if the lessor served a warning to the lessee about filing a rent determination lawsuit no later than 01.12.2022, they can file this lawsuit for the 6th lease period until 31.12.2023. In other words, since the 6th lease period, for which determination is sought, begins on 01.01.2023, as stated above, the warning must be served no later than 01.12.2022, considering 30 days prior. The warning can be sent via a notary; this would be the most reliable for proof, but a notary warning is not mandatory. All written notifications are valid as long as they can be proven. It should be noted that when sent via a notary, the date of service, not the date of dispatch, will be considered.
• If there is a clause in the lease agreement regarding the increase of the rent, a lawsuit can be filed until the end of the lease period for which determination is sought, even without the need for a warning (ihtar). Generally, all lease agreements contain a clause stating that the rent will be increased year by year at the rate of CPI (Consumer Price Index) or PPI (Producer Price Index). It is not strictly necessary to explicitly state CPI or PPI, but there must be a valid rent increase clause. That is, either a rate must be determined, or a reference must be made to the institution that will determine that rate (like CPI). If it merely states that the rent will be increased year by year without specifying a rate, there is no valid increase clause. If there is a valid increase clause, as in the example above, a lawsuit can be filed until the end of the 6th lease period, even without the need to send a warning.

Will the Rent Determination Lawsuit Be Dismissed if Not Filed on Time?

Failure to file a rent determination lawsuit within the legal periods does not lead to the procedural dismissal of the lawsuit, but it causes the period for which determination is sought to change. Therefore, the lawsuit is not dismissed. However, based on the filing time, the lessor is asked whether they wish to request rent determination for the subsequent lease period, and if they accept, the lawsuit continues in that respect.

To be clearer, let's continue with the example above. Suppose there is no valid rent increase clause in the lease agreement, and no warning was issued. The lessor-plaintiff's request is for the rent to be adjusted to fair market value for the 01.01.2023-31.12.2023 lease period (6th lease period).

However, let's assume the lessor-plaintiff filed their lawsuit on 03.12.2022. In this case, since the lawsuit filing times were not adhered to, the rent for the 6th lease period will not be determined by the court. Even if it is below fair market value, a new rent will not be determined for the 6th lease period. The judge will ask the plaintiff if they wish to continue their lawsuit for the 7th lease period. If the lessor-plaintiff accepts, the lawsuit continues for the 7th lease period. This implies a significant economic loss.

Conclusion

The rent determination lawsuit is a critical legal tool that ensures the equitable re-establishment of the economic balance between parties in long-term lease relationships. However, obtaining a positive outcome from this lawsuit depends on meticulous adherence to the warning and lawsuit filing periods stipulated in law and Court of Cassation practices. Missing deadlines or procedural errors can lead to serious economic losses, even if you are in the right. To prevent loss of rights and manage the process correctly, you can obtain professional legal support from the expert staff of Çevik Legal. It is advisable to consult a real estate law expert to protect your legal rights regarding your rent determination and adaptation processes.