Article 323 of the Turkish Code of Obligations No. 6098 gives the tenant the opportunity to hand over its position under the contract to another person; the exercise of that opportunity is, however, conditional on the written consent of the landlord. Once consent is obtained, the assignee becomes a party to the lease relationship and the claims and obligations arising from the contract pass to that person as a whole.
In practice this institution is frequently confused with sub-letting or with allowing a third party the right of use. In leases of business premises in particular, whether the landlord may refuse to give consent, which grounds are regarded as acceptable, and when the liability of the assigning tenant comes to an end are headings that give rise to debate.
In this briefing note we address the legal character of the assignment, its conditions of validity, the regime as it differs between residential leases and leases of business premises, the consequences of assignments made without consent, and the position of the former tenant after the assignment.
What Does Assignment of a Lease Agreement Mean?
The assignment is the transfer, without division, of the rights and obligations arising from the lease relationship to another person, and the taking of that person’s place as a party to the contract vis-à-vis the landlord. Once the transaction is complete the capacity of tenant changes hands, while the lease relationship continues with the new tenant on its existing terms.
Legal Character of the Assignment
In terms of its legal character, the assignment is a change directed not at the content of the contract but at one of its parties. All the claims and obligations of the tenant arising from the contract pass to the assignee; from that moment the assignee becomes the person bearing the obligations of the lease relationship.
This transaction has three defining consequences. First, there is no question of a new lease agreement being concluded; the existing contract remains in force with the same terms. Second, a direct contractual bond arises between the assignee and the landlord, without any intermediary. Third, the term of the contract, the rent and its other terms do not change automatically by reason of the assignment.
Under Art. 323 of the Turkish Code of Obligations No. 6098, assignment is as a rule subject to the written consent of the landlord. The legislature has moreover introduced a limitation for leases of business premises, providing that the landlord may not refuse consent in the absence of a just ground. The purpose behind this provision is to enable commercial activity to be carried on without interruption.
Difference from Sub-letting and Transfer of the Right of Use
Although assignment and sub-letting are frequently used interchangeably in practice, they are distinct institutions as regards the consequences they produce.
In an assignment of the contract the identity of the tenant changes entirely. The assignee enters into a direct contractual relationship with the landlord. The assigning tenant, however, is not wholly released from the obligations; its liability may continue alongside the assignee until the date on which the contract will end, for a maximum of two years.
In sub-letting, or in allowing the right of use, the picture is different. The tenant under the contract remains in place and continues to bear its obligations towards the landlord. Even though a third party actually using the leased property appears, no contractual bond of any kind is established between that person and the landlord.
In short, assignment is a transaction that changes one of the parties to the lease relationship and creates a direct legal bond between the landlord and the new tenant; sub-letting, by contrast, preserves the existing parties and merely opens the use to a third party.
Under What Conditions Is an Assignment Valid?
Art. 323 of the Turkish Code of Obligations No. 6098 makes assignment conditional on certain requirements being satisfied together. While the provision affords the tenant the opportunity to transfer its position under the contract, it also lays down limits that have regard to the interests of the landlord.
The Written Consent of the Landlord
The first and indispensable condition of the assignment is that the landlord’s consent be obtained in written form. In the face of Art. 323 of the Turkish Code of Obligations No. 6098, the tenant may not hand over its place under the contract to another person without that consent.
That consent is constitutive as regards validity. As long as written consent is absent, an assignment made produces no effect of any kind as against the landlord.
Consent May Not Be Refused Arbitrarily
Where leases of business premises are concerned, the landlord’s margin of discretion is not absolute. The statute expressly provides that consent to the assignment may not be withheld unless a just ground is put forward.
The following may be given as examples of grounds capable of justifying a refusal: the payment capacity of the prospective assignee being inadequate; an activity being carried on at the leased property that does not conform to the purpose of use fixed by the contract; a danger arising as regards the preservation of the property or the maintenance of order in the building.
By contrast, the following grounds are as a rule not regarded as just:
- A desire to raise the rent by seizing on the assignment as an opportunity
- A personal preference based on not wishing the existing tenant to change
- Arbitrary conduct displayed with the aim of delaying the transaction or frustrating it altogether
Form and Validity of the Assignment Agreement
The assignment is given effect by an agreement made between the tenant and the assignee. By virtue of that agreement the rights and obligations arising from the lease relationship pass to the assignee, and the assignee acquires the capacity of tenant.
For the assignment agreement to be valid, the following elements are required to be present together:
- The assignee having accepted that it assumes the capacity of tenant
- The written consent of the landlord having been secured
- The tenant and the assignee having brought their intentions together on the assignment
- The transaction being made with a clarity that leaves no hesitation as to its scope and consequences
Where these elements are satisfied the contract does not come to an end; only the tenant changes, and the lease relationship continues with the new tenant on the same terms.
Assignment in Residential Leases
The assignment of residential lease agreements is likewise possible under Art. 323 of the Turkish Code of Obligations No. 6098. Since the protection of the landlord’s interest comes to the fore in residential leases, however, assignment is approached more cautiously in practice and the landlord’s will carries far more decisive weight.
The point of departure from leases of business premises is this: in residential leases the landlord cannot be compelled to consent to the assignment. In residential contracts the fate of the assignment therefore remains essentially dependent on the express written consent of the landlord.
The Decisive Nature of the Landlord’s Consent
In residential leases the landlord’s consent is not merely a formal requirement; it is the essential element determining whether or not the assignment will take place. Unless written consent is present, the assignment is not regarded as legally valid.
That decisive character takes concrete form at three points. As long as consent is not obtained in written form the contract cannot be assigned; in residential leases the landlord is free to permit or not to permit the assignment; and where consent is not forthcoming, the tenant cannot exercise a right of assignment by a unilateral declaration of intention.
Faced with this picture, the problem in residential leases is in practice most often resolved not by way of assignment but either by a new lease agreement being concluded between the landlord and the assignee, or by the existing contract being terminated by mutual agreement.
Limits in Practice
Although the assignment of a residential lease agreement is theoretically possible, it is rarely seen in practice. The principal reason is that consent is made mandatory while the landlord is nonetheless under no obligation to give it.
The limitations encountered in practice may be gathered under the following headings:
- No obligation to permit the assignment having been imposed on the landlord
- The landlord retaining a discretionary power as to the identity of the prospective assignee, its payment capacity and the manner in which it will use the property
- The landlord’s right to choose its tenant being protected, proceeding from the acceptance that the lease relationship rests on trust
For that reason assignment finds a far narrower field of application in residential leases than in leases of business premises, and can generally be given effect only with the express consent of the landlord.
Assignment in Leases of Business Premises
The assignment of leases of business premises is dealt with specifically in Art. 323 of the Turkish Code of Obligations No. 6098 and is made subject to a more flexible regime than residential leases, having regard to the continuity of commercial life. In order to enable businesses to maintain their existence and to prevent economic activity from being interrupted, the legislature has limited the landlord’s power of consent.
Within this framework, in leases of business premises the landlord may not refuse consent to the assignment unless it has a just ground. That limitation does not, however, mean that the landlord may in no circumstances object to the assignment. If the existence of a just cause can be established in the particular case, the landlord may withhold consent.
Cases in Which Consent May Not Be Refused
Under Art. 323 of the Turkish Code of Obligations No. 6098, in leases of business premises a refusal of consent is valid only where it is based on a just cause. Otherwise the landlord’s opposition to the assignment may constitute an unlawful act.
The typical situations that cannot be relied on as a basis for refusing consent, and that therefore open the way to assignment, are the following:
- A business activity compatible with the nature of the leased property being carried on
- The assignee being in an adequate financial position
- There being no danger of any kind as regards the preservation of the property and order in the building
- No change being made in the purpose of use of the leased property
On the other hand, the following cases are not accepted as grounds legitimising a refusal:
- The landlord’s expectation of raising the rent
- A wish to maintain a personal relationship with the existing tenant
- Subjective preferences for the tenant not to change
As can be seen, in leases of business premises the landlord’s power of consent is not absolute in character but a power reviewable against objective criteria. For details on the subject, reference may be made to our study entitled Can a Business Premises Lease Agreement Be Assigned?
The Link Between Transfer of a Business and Assignment of the Lease
In commercial life the change of hands of business premises and the assignment of the lease agreement most often take place within the same process, and the two transactions complement one another. Indeed, when a commercial enterprise is transferred, it frequently becomes unavoidable that the leased property should also pass to the transferee so that the activity may be carried on without interruption.
For that reason the assignment of the lease agreement arises together with the transfer of the business, and at that point the landlord’s consent becomes decisive. The change of hands of the business does not, however, produce the result that the lease agreement is automatically assigned as well; written consent must be secured separately for the assignment of the lease.
The relationship between the two transactions may be summarised as follows:
- The assignment of the lease agreement is a separate transaction requiring the written consent of the landlord
- The transfer of the business does not automatically carry the lease agreement over to the transferee
- In most cases the assignment of the lease becomes a practical necessity if the activity at the premises is to be carried on
- The landlord may not refuse consent to an assignment of the lease connected with a transfer of the business unless it shows a just ground
Courses of Action Where Consent Is Withheld
Where the landlord withholds consent in a lease of business premises, the first thing to be done is to assess whether that refusal rests on a just cause. In the face of Art. 323 of the Turkish Code of Obligations No. 6098, the landlord is not free to withhold consent to the assignment where it has no just ground.
Where consent is not given, the tenant has the following options:
- It may ask the landlord to state the ground of refusal in writing
- If it takes the view that there is no just cause, it may ask the court to declare that consent was refused without justification
- If it has suffered loss because the assignment was prevented, it may claim damages
- If the transfer of the business could not take place or was delayed, it may claim compensation for the resulting pecuniary losses
That said, the following points, which mark out the limits of the process, should not be overlooked:
- The court does not substitute itself for the landlord’s will and rule that consent is deemed to have been given
- The landlord’s consent as a rule continues to be required for the assignment to take place
- In the event of an unjustified refusal, the landlord’s liability arises essentially at the level of damages
The course to be followed in leases of business premises is therefore to review the justification of the refusal and, where the refusal is unjustified, to have recourse to the legal remedies directed at making good the loss suffered by the tenant.
Assignment Made Without Consent
Since Art. 323 of the Turkish Code of Obligations No. 6098 makes assignment conditional on the written consent of the landlord, an assignment carried out without consent constitutes a breach of contract and lays the ground for a series of rights arising in favour of the landlord.
Where the tenant hands over its position under the contract to a third party without obtaining consent, the landlord may resort to termination on the basis of the breach of contract and may request that the leased property be vacated.
Breach of Contract and Termination
An assignment made without consent is characterised as conduct in breach of the lease agreement. In such a situation the landlord may allow the tenant a period in which to remedy the breach; if the breach continues despite that period, it may terminate the contract.
The exercise of the right of termination depends on the following conditions being satisfied:
- The assignment having been made without the landlord’s consent
- That transaction constituting a breach of the lease agreement
- An appropriate period having been given to the tenant to remedy the breach
- The state of breach continuing notwithstanding the expiry of the period allowed
The Emergence of a Ground for Eviction
Since an assignment without consent bears the character of a breach of contract, it may at the same time constitute a ground for eviction. Where in particular the leased property begins to be used by a third party without the landlord’s knowledge and consent, the landlord may terminate the contract and request that the property be vacated.
In that event the options open to the landlord are the following:
- To terminate the lease agreement if the breach of contract continues
- To bring an eviction action on the ground of breach of contract
- To have recourse to eviction through enforcement proceedings where the conditions are met
For details on the subject, reference may be made to our study entitled Grounds for Eviction of a Tenant and Eviction Actions.
Continuation of the Former Tenant’s Liability
An assignment made without consent does not mean that the capacity of tenant has changed hands in law. As far as the landlord is concerned, the party to the contract is still the former tenant, and its liability for the obligations arising from the lease relationship does not disappear.
In such a situation:
- The landlord may require payment of the rent and its other claims from the former tenant
- The former tenant continues to be liable for the rent debt and the other obligations arising from the contract
- No direct contractual relationship is deemed to be established between the landlord and the third party actually using the property
As can be seen, an assignment without consent not only fails to release the tenant from its obligations but also gives rise to additional legal risks by reason of the breach of contract.
Does the Former Tenant’s Liability Continue After the Assignment?
Whether the former tenant’s liability disappears entirely once the assignment has taken place is a question that frequently gives rise to hesitation in practice. Under Art. 323 of the Turkish Code of Obligations No. 6098, even in an assignment made with the landlord’s consent the assigning tenant’s liability survives for a further defined period.
Having regard to the landlord’s interest, the legislature has not brought the assignor’s liability to an end altogether; it has instead adopted the continuation of that liability alongside the assignee for a limited period.
The position after the assignment may be summarised as follows:
- In a valid assignment resting on written consent, the former tenant loses the capacity of party to the contract
- It is nevertheless held liable alongside the assignee for the obligations arising from the lease relationship for a further period
- The statute has limited that liability to two years
- On the expiry of the two-year period the assignor’s liability comes to an end
This provision performs a particularly important function in leases of business premises. Against the possibility of a risk arising as to the new tenant’s payment capacity or the continuity of the business, the landlord regards the former tenant remaining liable for a further defined period as a form of security.
Assignment is accordingly not a transaction that immediately releases the former tenant from all its obligations. Even where the assignment has been completed in due form, the assigning tenant continues to bear liability alongside the assignee for the period laid down in the statute.
Independent Legal Assessment
Although the assignment of a lease agreement is perceived on the surface as a simple change of party, in practice it is most often intertwined with transfers of businesses, eviction claims and disputes over debts. The moment at which, the scope within which and the form in which consent was obtained directly determine the position of the parties in disputes arising subsequently. Constructing the assignment process correctly from the outset therefore removes a large part of the risks that may arise at later stages.
Where an assignment arises, we recommend that the following headings in particular be assessed in advance:
- Documenting the landlord’s consent in written form and in terms that clearly show the scope of the assignment
- Where a lease of business premises is concerned, reviewing the ground of refusal against the criterion of just cause
- Regulating separately in the assignment agreement the fate of accrued debts, the deposit and ancillary claims
- The assigning tenant obtaining security from the assignee against the two-year period of liability
- Documenting both transactions, having regard to the fact that the transfer of the business and the assignment of the lease are separate transactions
- Correctly characterising, in cases of use without consent, whether what is in question is sub-letting or assignment
Independent Legal provides advisory services on contract management and the conduct of disputes, from the establishment of lease relationships through to their assignment and termination.