Transfer of the Lease Relationship

TRANSFER OF THE LEASE RELATIONSHIP

Introduction

Today, the dynamic nature of commercial activities and the increasing value of workplaces have made the transfer of lease relationships important for both tenants and lessors. Especially in workplace leases, the protection of elements such as customer base, location, and investments made renders the transfer of the lease agreement a practical and economic necessity.

General Explanations

Article 323 of the Turkish Code of Obligations regulates the principles regarding the transfer of the lease relationship. This provision finds significant application particularly in workplace leases. Although Article 323 of the TCO is in the nature of an assignment of contract, there is no doubt that it constitutes a special provision in relation to Article 205 of the Turkish Code of Obligations titled “Assignment of Contract.”

With the transfer of the lease agreement, the aim is for all rights and obligations of the tenant under the agreement to pass to the transferee. However, with respect to workplace leases, the consent of the lessor is subject to certain conditions, and the liability of the transferring tenant is also separately regulated.

Pursuant to Article 323 of the TCO, the tenant may not transfer the lease relationship without the written consent of the lessor; therefore, it can be stated that the transfer transaction remains suspended until written consent is obtained. In workplace leases, however, the lessor may not refrain from giving such consent without a justified reason. Again, in workplace leases, while the transferee tenant joins the lease agreement as the tenant, the transferring tenant continues to be jointly and severally liable for a maximum period of two years.

Article 323 of the TCO constitutes the general rule for the transfer of the lease relationship; however, in certain cases this rule does not apply. In particular, in cases such as the transfer of commercial companies through merger or division, contracts (for example, lease agreements) are deemed to have been transferred automatically without the consent of the lessor. This is because such transfers involve universal succession, meaning that all rights and obligations pass automatically to the new party. Therefore, the consent requirement and the two-year liability regulated under Article 323 of the TCO do not apply in such cases.

Conditions for the Transfer of the Lease Relationship

Although the transfer of the lease agreement is subject to the existence of three conditions, if the subject matter concerns a family residence, an additional condition is required, and in the event that the leased property is a family residence, a total of four conditions are sought:

• First of all, in order for the lease agreement to be transferred pursuant to this article, there must be a valid lease agreement between the parties. The establishment of a lease agreement is not subject to any form requirement and may be concluded either in writing or verbally. In addition, the lease agreement may be concluded for a definite or indefinite term. Whether the lease agreement is for a definite or indefinite term makes no difference for the purpose of transfer.

• Secondly, the transferring and transferee tenants must agree on the transfer of the lease agreement. This agreement may be in the form of a contract concluded between the transferring and transferee tenants, or in the form of a tripartite agreement including the lessor. If an agreement is concluded only between the tenants, then the lessor must additionally give written consent. However, if the agreement is tripartite, separate written consent of the lessor is not required, as the lessor will have already given consent by signing the agreement.

• The lessor must give written consent to the transfer of the agreement. As long as written consent is not given, the lease relationship cannot be transferred. Nevertheless, in workplace leases, consent must be given unless there is a justified reason. Indeed, if consent is not given, the tenant who alleges the absence of a justified reason may apply to the court for approval of the transfer of the agreement. Through an action for performance to substitute the declaration of intent of the lessor, the lease agreement may be transferred. The lessor may reject the transfer request only in the presence of objectively reasonable and justifiable reasons. Examples of justified reasons include:

• Breach of contract or excessive use,
• Lack of economic security,
• Absence of sufficient experience and competence,
• Reasons personal to the tenant,
• Bad-faith transfer attempts, etc.

Apart from those listed above, it is observed in practice that failure of the tenant to introduce the new candidate to the landlord in a timely manner and with sufficient information may also cause issues. If, despite the lessor’s reasonable request for information, the tenant fails to provide information such as the financial status and references of the transferee, the lessor may refrain from giving consent due to uncertainty. In such a case, refusal to give consent may be deemed a justified reason.

In summary, when the case law of the Court of Cassation and Article 323 of the TCO are evaluated together, the transfer of workplace lease agreements has become the rule, while refraining from consent has become the exception. The lessor may refrain from giving consent only if there are concrete and provable justified reasons; otherwise, the lessor is obliged to give consent.

• If the lease agreement to be transferred relates to a family residence, the consent of the spouse of the transferring tenant must also be obtained. This requirement is regulated under Article 194 of the Turkish Civil Code and Article 349 of the Turkish Code of Obligations. According to these provisions, in immovable properties leased for use as a family residence, the tenant may not terminate the lease agreement without the explicit consent of the spouse. The transfer of the lease agreement produces the same result as termination of the lease agreement for the transferring tenant. It should be particularly noted that although the spouse’s consent is not subject to any form requirement, obtaining such consent in writing facilitates proof in the event of a potential dispute.

Consequences of the Transfer of the Lease Relationship

If the necessary conditions for the transfer of the lease agreement are fulfilled, the agreement passes to the transferee with the consent of the lessor, and two main consequences arise as a result of this transfer. The first is the change of the tenant under the agreement, and the second is the continuation of the liability of the transferring tenant for a certain period.

Change of Parties

With the transfer transaction, the lease agreement continues under the same conditions; however, one of the parties, namely the tenant, changes. With this change, the transferring tenant transfers all rights and obligations arising from the agreement to the transferee tenant. The transferring tenant is no longer liable for obligations arising after the date of transfer (without prejudice to the regulations regarding workplace leases) and also loses the right to use the leased property.

The lease agreement may also be established in the form of a new agreement with the participation of all three parties (lessor, transferring tenant, and transferee tenant). In this case, the parties may redefine the lease conditions by mutual consent.

Liability of the Transferee Tenant

The transferee tenant replaces the former tenant in the lease agreement, and the lease relationship continues with retroactive effect. Within this scope, the transferee is also liable for obligations that arose prior to the date of transfer. All obligations such as use of the leased property, duty of care, and payment of the rental fee are assumed by the transferee tenant.

In addition, in order for the lessor to impose liability on the transferee tenant pursuant to Article 335 of the TCO, the lessor must conduct a condition assessment when taking back the leased property. Otherwise, it may not be possible to assert claims against the transferee tenant regarding deficiencies or damages relating to the period prior to the transfer.

Joint and Several Liability / Continuing Obligation of the Transferring Tenant

In workplace leases, pursuant to Article 323/III of the TCO, the transferring tenant remains jointly and severally liable together with the transferee tenant until the termination of the lease agreement and for a maximum period of two years. The purpose of this regulation is to protect the lessor who consents to the agreement and to provide a certain level of security.

Status of the Lease Relationship in Case of Transfer of a Commercial Enterprise

In the event of the transfer of a commercial enterprise, Article 11/3 of the Turkish Commercial Code (“TCC”) must also be considered in addition to Article 323 of the Turkish Code of Obligations. Pursuant to Article 11/3 of the TCC, when a commercial enterprise is transferred as a whole, unless otherwise stipulated, the tenancy right is also deemed to have been transferred together with the enterprise. In this case, the lease agreement is deemed to have been transferred without the consent of the lessor.

This provision gives rise to two different views in practice: According to the first view, Article 323 of the TCO should also apply in the transfer of a commercial enterprise, and therefore the consent of the lessor should be sought. According to the second and prevailing view, Article 11/3 of the TCC constitutes a special provision, and the lease relationship is deemed to have been transferred automatically. This approach has been predominantly adopted in judicial precedents as well.

With regard to the transfer of a commercial enterprise, pursuant to the second paragraph of Article 202 of the TCO, the transferring party remains jointly and severally liable together with the transferee for the debts of the enterprise for an additional two years.

Conclusion and Evaluation

While the transfer of the lease relationship enables the transfer of the tenant’s contractual rights and obligations to a third party, it also directly affects the balance of interests of the lessor. In practice, supporting the processes related to the transfer of the lease relationship with written agreements, notifications, and approval mechanisms will serve to prevent potential disputes and ensure the legal security of the parties.

Sincerely,

Atabay Law Office