The Turkish Code of Obligations No. 6098 does not, as a rule, permit a penalty clause to be stipulated against the tenant in a lease agreement, nor an additional sum to be demanded from the tenant where the rent is not paid on the due date. That restriction is regulated in Article 346.
The thinking behind the provision is plain: to forestall the tenant, who stands on the economically weaker side of the lease relationship, being placed under disproportionate financial obligations, and to prevent departure from the routes drawn by the statute for the collection of the rent.
Below we address, within the framework of the legislation and the principles settled in practice, the situations in which penalty clause provisions inserted into a lease agreement will produce no legal effect.
The Statutory Basis of the Prohibition: Turkish Code of Obligations No. 6098, Art. 346
Article 346 of the Turkish Code of Obligations No. 6098 treats as invalid, as a rule, provisions imposing a penalty clause on the tenant and clauses providing for an additional sum to be demanded where the rent is paid late.
Turkish Code of Obligations No. 6098, Art. 346 – Prohibition of stipulations to the detriment of the tenant
"No payment obligation other than the rent and the ancillary expenses may be imposed on the tenant. In particular, agreements to the effect that a penalty clause shall be paid, or that subsequent instalments of rent shall fall due, in the event that the rent is not paid on time are invalid."
The provision draws the outer limit of the sanctions that may be brought into play where the tenant does not perform the obligation on the due date.
The Concept and Legal Nature of the Penalty Clause
A penalty clause is a contractual stipulation by which the debtor undertakes in advance to pay a particular sum to the creditor against the possibility of failing to perform the obligations arising from the contract as required. In function it secures performance of the obligation and constitutes a sanction directing the debtor towards conduct consistent with the contract.
As regards lease agreements, however, the position is different: on account of the mandatory provisions protecting the tenant, clauses of this kind cannot be applied.
Default Interest and a Penalty Clause Are Not the Same Thing
There is no obstacle to default interest running in a lease relationship; the statute accepts it. Clauses introducing a penalty against the tenant, by contrast, are void as a rule under Turkish Code of Obligations Art. 346.
The distinction between the two institutions becomes clear at this point: default interest is a payment serving to make good the loss the creditor sustains through late performance of the obligation. A penalty clause, by contrast, is a sanction providing for the payment of a penalty agreed in advance, irrespective of whether any loss has arisen.
Although both arise where the obligation is not performed on time, their legal natures do not coincide.
Types of Penalty Clause Regarded as Invalid
In practice penalty clause provisions are seen to be inserted into lease agreements under various headings. Foremost among them are clauses imposing penalties of a high amount attached to situations such as late payment of the rent, vacation of the property before the term of the contract has expired, or use of the leased property in breach of the contract.
The validity of such clauses is reviewed in the light of the mandatory provisions protecting the tenant, and provisions found to be in the nature of a penalty clause against the tenant are as a rule regarded as void.
An Additional Penalty Attached to Late Payment of the Rent
Clauses providing for an additional penalty to be demanded from the tenant where the rent is not paid on the due date are invalid under Turkish Code of Obligations Art. 346.
Within this framework, the following may be given as examples of stipulations that will produce no legal effect: clauses providing that a particular sum will be paid as a penalty when the rent is late; provisions stipulating that a further sum or penalty will be collected for each day of delay; contractual articles fixing a penalty clause of a set amount in the event of late payment.
Clauses of this content produce no legal effect even where they have been agreed by the parties.
A Penalty Stipulated at the Amount of Several Instalments of Rent
Clauses providing that the tenant will pay, by reference to particular conduct on the tenant’s part, a penalty amounting to more than one instalment of rent are likewise regarded as a penalty clause against the tenant and are as a rule invalid under Turkish Code of Obligations Art. 346. Stipulations providing, in the event of breach of the contract, for a penalty corresponding to several months’ rent produce no effect, since they place a disproportionate financial burden on the tenant.
The typical clauses regarded as invalid under this heading are the following: provisions stipulating that a penalty amounting to two or three months’ rent will be paid in the event of conduct in breach of the contract; clauses to the effect that a specified number of instalments of rent will be collected as a penalty clause in the event of breach of the contract; articles providing that a high and fixed penalty will come into play where the tenant fails to perform an obligation.
Clauses of this kind are not regarded as binding, even where they have been expressly written into the text of the contract and accepted by the parties, because they are in the nature of a penalty clause against the tenant.
A Penalty of a High Amount Attached to Vacation
Clauses providing that the tenant will pay a high penalty where the tenant terminates the contract before its term or vacates the property early fall within the scope of the same prohibition. Since these stipulations introduce a penalty fixed in advance without the loss sustained by reason of the early termination of the contract being separately proved, they are as a rule invalid under Turkish Code of Obligations Art. 346.
The following may be cited as examples of stipulations that are not accepted as valid: clauses providing that a penalty amounting to a specified number of instalments of rent will be paid where the property is vacated before the term of the contract has expired; provisions stipulating that, in the event of early vacation, the sum corresponding to the whole of the remaining lease term will be demanded as a penalty clause; articles attaching a fixed and high penalty to the premature termination of the contract.
Where it is alleged that the landlord has genuinely sustained a loss, it is possible for that loss to be proved within the framework of the general provisions and claimed as damages. By contrast, demanding a penalty fixed in advance without any inquiry at all into whether a loss has arisen is not accepted in law.
An Excessive Penalty in the Event of Use in Breach of the Contract
Clauses providing for a penalty of a high amount to be demanded from the tenant where the leased property is used in breach of the contract are likewise assessed as a penalty clause against the tenant. Since these stipulations fix a penalty in advance without the existence and amount of the loss that may arise from the conduct in breach being examined at all, they are as a rule void under Turkish Code of Obligations Art. 346.
Among the clauses not regarded as valid in this context are the following: provisions stipulating that a penalty of a particular amount will be paid where the property is used otherwise than for its purpose of use; clauses providing for a fixed and high penalty where the neighbours are disturbed or the rules of the apartment building are not observed; articles attaching a penalty clause of an excessive amount to use of the leased property in breach of the contract.
In such situations, where the landlord has a genuine loss, it is possible for the landlord to claim damages by proving that loss according to the general provisions. Disproportionate penalty clauses fixed without regard to whether a loss has arisen are not, however, accepted as binding.
The Legal Consequences of Invalidity
The presence in the contract of a penalty clause against the tenant does not mean that the clause stands in law. Under Turkish Code of Obligations Art. 346 stipulations of this character are as a rule invalid; accordingly, no additional sum may be demanded from the tenant in reliance on the clause in question.
Where the clause is regarded as invalid, the provision in the contract finds no field of application and the dispute is resolved according to the general provisions of the statute. That outcome does not deprive the landlord of his rights altogether; it merely makes it necessary for the landlord to rest the claim on the statutory routes and on the actual loss.
The Nullity of the Penalty Clause
Contractual clauses imposing a penalty clause on the tenant are invalid by reason of their contravening the statute. The presence of such a clause in the contract, or the fact that it has been signed by the parties, does not confer validity upon it.
Put differently, the tenant cannot be held liable to make an additional payment on the justification of a penalty clause provision in the contract.
The Statutory Provisions Taking the Place of the Invalid Clause
Where a penalty clause is regarded as invalid, its place is taken by the provisions of the statute. In that event the landlord may claim the rent due, or the loss the landlord alleges to have sustained, only within the framework of the general provisions.
Where the rent is paid late, for example, the route open to the landlord is not to claim a penalty clause; it is to claim interest in reliance on the provisions on default or, where the conditions are met, to commence statutory proceedings.
The Return of Sums Collected
Where a sum has been collected from the tenant in reliance on an invalid penalty clause, it is possible to seek the return of that amount. Since a penalty clause payment taken contrary to the statute is in the nature of a payment devoid of legal basis, it must be returned.
In that situation the tenant may commence enforcement proceedings to recover the sum overpaid and may equally bring an action for the debt.
The Court’s Power Not to Apply the Clause
Where the penalty clause in the lease agreement produces a result to the tenant’s detriment, the court may decline to apply that clause at all. In particular, where the clause is contrary to the statute or will create severe consequences for the tenant, it may be decided that the provision is not to be applied.
For that reason the presence of a penalty clause in the contract does not mean that the court will give effect to it as it stands; the conformity of the stipulation with the statute is separately reviewed in every dispute.
Related topics:
The prohibition on imposing a penalty clause on the tenant is a decisive subject as regards performance of the rent obligation, the validity of contractual clauses and the mandatory provisions directed at the protection of the tenant. Other topics connected with the subject include how the rent increase rate is determined (Turkish Code of Obligations Art. 344), the conditions for and the course of an action for the adaptation of the rent (Turkish Code of Obligations Art. 138), the definition, types and legal nature of the lease agreement, and further the prohibition on contracting to the detriment of the tenant (Turkish Code of Obligations Art. 354).
Independent Legal’s Assessment
A significant proportion of the disputes concerning penalty clauses in lease agreements arises from the parties assuming, when they sign the contract, that such a clause is binding. Turkish Code of Obligations Art. 346 is, however, mandatory in character; the presence of a signature, the fact that the clause has long been applied, or the amount appearing reasonable does not remove the invalidity. The practical consequence for the landlord is this: the penalty figure written into the contract is not a security but, in most cases, an item that cannot be collected.
The landlord of course has an interest deserving of protection; that interest can be protected, however, not through a penalty clause but through default interest, damages resting on proof of the actual loss, and the routes of eviction and enforcement provided for in the statute. Drafting contract texts with that distinction in mind forestalls arguments about invalidity arising later.
In a concrete file it is appropriate for the following matters to be separately assessed:
- Determining whether the payment obligation in the contract is framed within the scope of the rent and the ancillary expenses, or as an item outside them
- Reviewing the true character of the clause and weeding out stipulations that, whatever their heading, function in substance as a penalty clause
- Ensuring that default interest and the penalty clause have not been confused with one another in the text of the contract
- Where sums have been collected in reliance on an invalid clause, examining the claim for their return and the time limits applicable to it
- Where the landlord has a genuine loss, documenting that loss within the framework of the general provisions
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