Every contract takes its shape from the economic picture prevailing at the moment it is concluded. Economic life, however, offers no guarantee that this picture will remain unchanged for the duration of the contract. The Turkish Code of Obligations has not overlooked that possibility; where extraordinary developments arising after the conclusion of the contract severely upset the balance between the parties’ obligations, Article 138 grants the aggrieved party the opportunity to ask the court to adjust the contract to the new circumstances. Lease relationships also fall within the scope of this provision, and the rent may be redetermined by the court once the conditions are met.
The need becomes more visible in long-term lease relationships. Rapid movements in the price level, sharp jumps in exchange rates, or unexpected events affecting the market as a whole may turn a rent that appeared reasonable at the outset into an unbearable burden for one of the parties. In such a picture, adaptation may be sought on the ground that insisting on upholding the contract as it stands would be irreconcilable with the rule of good faith.
Below we examine, from a practical standpoint, the facts that bring an adaptation claim into play, each of the conditions required, where it parts company with the rent determination action, and the procedural headings encountered in the proceedings.
Legal Basis of the Adaptation Claim
Adaptation is a remedy resorted to where an extraordinary development arising after the conclusion of the contract upsets the economic balance between the parties. The party invoking it does not seek to bring the lease relationship to an end, but to continue it with content suited to the changed circumstances. Indeed, the design of the provision likewise gives priority to keeping the contract alive; termination is a secondary solution reserved for cases in which adaptation is not possible.
The Excessive Difficulty of Performance Provision
The claim originates in the institution of excessive difficulty of performance set out in Article 138 of the Turkish Code of Obligations No. 6098. The provision comes into play where an extraordinary fact that the parties could not be expected to take into account when concluding the contract subsequently materialises, and where that fact renders performance so much more onerous for one of the parties as to conflict with the rule of good faith.
Within this framework, an adaptation claim can only be entertained where the following facts are present together:
- The burden of performance must have passed markedly beyond the bearable limit for one of the obligors.
- A development of an extraordinary nature must have occurred after the date on which the contract was signed.
- That development must not have arisen from the conduct or the fault of the party seeking adaptation.
- The development must not have been of a kind that the parties could have taken into account at the time of the contract.
The Purpose Pursued by the Action
The fundamental aim pursued in adaptation is to restore the balance of obligations on which the parties originally agreed. What is asked of the court is not the liquidation of the lease relationship but the reduction, or the increase, of the rent to a level compatible with equity.
That aim may be gathered under several headings: ensuring that the lease relationship continues to exist, relieving the excess burden that extraordinary circumstances have accumulated on one party, restoring the economic balance that has been upset, and making it possible for the contract to continue operating in conformity with the rule of good faith. In short, adaptation is not an instrument that extinguishes the lease relationship but a mechanism that keeps it alive by fitting it to the new circumstances.
Comparison with the Rent Determination Action
In practice the adaptation claim and rent determination are frequently used interchangeably, whereas the two actions rest on different provisions and pursue different outcomes.
As regards the rent determination action: the basis is Article 344 of the Turkish Code of Obligations No. 6098; the expiry of a five-year period from the conclusion of the contract is required; the aim is to fix the rent by reference to comparable rents; and the action forms one link in the ordinary regime of rent increases.
As regards the action for adaptation of the rent, by contrast, the picture changes: the basis is Article 138 of the Turkish Code of Obligations No. 6098; the action is brought upon developments that are unforeseeable and extraordinary in nature; the fact sought is that the economic balance of the contract has been upset; the statute lays down no waiting period, but there is an advantage in raising the claim without delay once the difficulty of performance emerges.
As can be seen, adaptation is not an institution concerned with routine rent increases or with fixing a comparable rent; it is directed at enabling the contract to survive fairly in the face of extraordinary circumstances. For a detailed treatment of the subject, reference may be made to the study entitled Differences Between the Rent Determination Action and the Rent Adaptation Action.
When Adaptation May Be Sought
The route of adaptation is open where extraordinary developments occurring after the conclusion of the contract seriously upset the economic balance between the parties. Not every economic movement produces that result; the change must go beyond ordinary limits and performing the contract with its existing content must create a picture that conflicts with the rule of good faith.
Extraordinary Change in Economic Conditions
For the claim to be met, the change in the economic picture must exceed the limit of foreseeability. A rise in the price level, fluctuations in the market, or a general crisis may in certain cases produce consequences the parties had not calculated. The most striking example from recent years is the Covid-19 pandemic.
By contrast, not every economic movement counts as a ground for adaptation. That the change is of a nature that could not have been taken into account when the contract was concluded, that it can be attributed to a cause not originating from the parties, and that it has made performance excessively difficult for one of the parties are facts required together.
Disturbance of the Balance of the Contract
In establishing a lease relationship the parties create a particular economic balance between themselves. Extraordinary developments arising subsequently may seriously upset that balance. In such a situation, applying the rent as it stands may create an unbearable burden for one of the parties and may equally hollow out the economic meaning of the contract.
For the balance to be said to be upset, the economic relationship established at the outset must have altered to an appreciable extent, maintaining the rent in its existing form must produce results irreconcilable with equity, and the economic benefit one of the parties expected from the contract must have largely disappeared.
Excessive Increase in the Rent or Loss of Its Value
Adaptation may arise not only where the rent becomes more onerous but also where it loses its economic counterpart. For that reason the party able to raise the claim is not only the tenant; the landlord may equally resort to the same route.
By way of example, adaptation may be sought where, in an environment of high inflation, the rent becomes unpayable for the tenant, where in long-term contracts the rent largely loses its economic value, or where owing to extraordinary developments the rent becomes seriously detached from the market level.
Adaptation of Rents Agreed in Foreign Currency
In contracts where the rent is fixed in a foreign currency, movements in the exchange rate may cause the amount payable to increase excessively within a short time, or its economic counterpart to change markedly. Sudden and incalculable exchange rate jumps in particular make the burden more onerous for one of the parties.
In contracts of this kind, adaptation may be sought where exchange rate movements exceed ordinary limits, where the payment burden reaches an unbearable level for one of the parties, and where the economic balance of the contract is seriously upset.
Conditions Required for the Adaptation Action
The claim rests on the regime of excessive difficulty of performance in Article 138 of the Turkish Code of Obligations No. 6098 and requires the conditions laid down in the statute to be satisfied together. These conditions are reviewed separately in every dispute; the absence of one may result in the dismissal of the claim.
Emergence of a Development Unforeseeable at the Time of Contract
The most fundamental element of the institution is the subsequent materialisation of a fact that the parties could not have taken into account on the date the contract was made. That fact is expected to bear the character of an exceptional development going beyond ordinary economic fluctuations.
The following may be given as examples of such developments: extraordinary events such as a pandemic, war or natural disaster; unexpected and sharp movements in the exchange rate; economic crises deepening suddenly; increases in inflation exceeding ordinary limits. By contrast, customary changes in the market, or developments that could reasonably have been calculated when the contract was concluded, do not on their own justify adaptation.
The Development Not Being Attributable to the Obligor
The difficulty into which the party seeking adaptation has fallen must not have arisen from its own conduct. If the resulting picture stems from the obligor’s fault or from its own economic choices, the claim cannot be allowed.
The function of this condition is to prevent a party from transferring to the other side, by way of adaptation, consequences falling within its own sphere of risk. Indeed, the materialisation of a risk known when the contract was made, mistakes made in the management of the business or wrong investment decisions, and the obligor falling into financial straits because of its own commercial choices, do not on their own count as grounds for adaptation.
Performance Becoming Excessively Onerous
For the claim to be met, it is not enough that performance of the obligation has merely become harder; performance must have become excessively difficult. What is meant here is that the obligation, while still capable of being performed, has turned into a burden too heavy to be borne by one of the parties.
Put another way, performance must not have become impossible, but continuing the contract in the existing circumstances must have produced a serious economic imbalance for one of the parties. In this picture, performance of the obligation must have become economically unsustainable, an excessive burden must have accumulated on one of the parties, and applying the contract as it stands must have produced a result contrary to the rule of good faith.
The Obligation Being Unperformed or Performed with Reservation of Rights
Article 138 of the Turkish Code of Obligations No. 6098 makes the obligor’s ability to seek adaptation conditional on one of two possibilities: the obligation must not yet have been performed, or performance must have been rendered with rights reserved (with a reservation entered).
Turkish Code of Obligations No. 6098, Art. 138
“… and if the obligor has not yet performed its obligation or has performed it while reserving the rights arising from the excessive difficulty of performance, the obligor has the right to request the judge to adapt the contract to the new circumstances or, where this is not possible, to withdraw from the contract.”
Adaptation Being Compatible with Equity
The court does not confine itself to reviewing whether the statutory elements are present; it also weighs whether adaptation is equitable in the particular dispute. For that reason not every economic change produces the result of adaptation; the judge decides by comparing the interests of the parties.
In this assessment, particular regard is had to whether the continuation of the contract is possible, the economic position of the parties, the extent and effect of the economic change, and the risks the parties assumed over the course of the contract. Adaptation is therefore an institution resting not merely on the existence of the statutory elements but on passing the particular case through the filter of equity.
Matters the Court Will Examine
In the proceedings the judge does not confine himself to movements in economic indicators; he weighs together the process by which the contract was concluded, the position of the parties, and whether it is fair for the relationship to be carried on under the existing terms. In that respect adaptation is a holistic assessment of balance rather than an arithmetical calculation.
The Extent of the Change in Economic Conditions
The first matter examined is whether the change in the economic picture exceeds ordinary market movements. Price increases, a rise in the exchange rate or an escalation in costs do not in every case justify adaptation; these developments must be of a nature that could not have been predicted when the contract was concluded and must be of appreciable magnitude.
At this point the court examines the date on which the change emerged, its extent and effect, the consequences it has produced for the parties, and whether it was predictable when the contract was made.
The Position of the Parties at the Time of Contract
The judge also weighs the economic and commercial position of the parties on the date the contract was concluded. For the risks assumed and the expectations held when the contract was made constitute a decisive criterion for how subsequent changes are to be assessed.
In this context the economic strength of the parties at the time of the contract, the consistency of the agreed rent with the market level on that date, the risks assumed over the course of the contract, and the economic conditions the parties assumed when concluding the contract may be examined.
The Nature of the Leased Property and Its Purpose of Use
The nature of the immovable property and the purpose for which it is used also enter into the assessment. Whether the leased property is a dwelling, a business premises or an immovable devoted to a special purpose may directly affect the economic structure of the lease relationship and the obligations of the parties.
In leases of business premises, the fact that the property is allocated to commercial activity makes the effect of market changes on the relationship more pronounced. For that reason the court may have regard to the income-generating capacity of the leased property, the district in which it is situated and the surrounding economic structure, its purpose of use, and the extent to which the field of activity is affected by economic developments.
Equity and the Balance of the Contract
At the heart of the institution lies the idea of preserving the economic balance between the parties. For that reason, alongside the statutory elements, the judge also asks whether maintaining the contract as it stands is fair to the parties.
The assessment takes into account whether the economic balance has genuinely been upset, whether applying the contract with its existing content creates an excessive burden on one of the parties, whether adaptation is capable of securing the continuation of the relationship, and whether the intervention to be made will cause disproportionate harm to the other party. Ultimately the judgment is shaped not by economic data alone but by an assessment of equity in which all the circumstances of the case are weighed.
Procedure and the Course of Proceedings
Certain procedural rules must be complied with before an action is brought. For monetary claims arising from a lease relationship and for adaptation claims, recourse to mediation is a procedural requirement. Where this step is skipped and the court is approached directly, the action may be dismissed on procedural grounds.
Mandatory Mediation as a Procedural Requirement
Since the adaptation claim arises from a lease relationship, the mandatory mediation process must be exhausted before an action is brought. Actions brought without this requirement being satisfied are dismissed on procedural grounds for want of a procedural requirement.
Courts with Subject-Matter and Territorial Jurisdiction
As to subject-matter jurisdiction: since the dispute arises from a lease relationship, the court with subject-matter jurisdiction is the Civil Court of Peace. This rule applies to leases of business premises just as it does to residential leases.
As to territorial jurisdiction: the action may be brought before the court of the place where the leased property is situated or before the court designated as competent in the contract.
Evidence and Court-Appointed Expert Examination
In these actions the court usually has recourse to a court-appointed expert in order to establish the extent to which the change in economic conditions has affected the balance of the contract. It is therefore important that the documents setting out the economic data and the content of the contract be submitted in full when the action is brought.
The principal items of evidence resorted to in practice are the following:
- Documents establishing market rates
- The lease agreement together with any supplementary protocols drawn up subsequently
- Expert opinions and court-appointed expert reports
- Official data on the CPI, the PPI or the exchange rate
- Records reflecting the financial position of the parties
These documents perform a decisive function in establishing whether the agreed rent is sustainable in the existing circumstances.
The Date from Which the Judgment Takes Effect
The moment from which the judgment given is to be applied is a matter producing direct consequences for the rights and obligations of the parties. Depending on the features of the case, the court may determine whether the judgment is to have retrospective effect or is to apply from the date of the action.
An adaptation judgment takes effect from the date of the action. The moment from which the judgment is applied therefore constitutes a decisive element in the settlement of accounts between the parties.
Possible Outcomes of the Action
At the conclusion of the proceedings the court may, according to the features of the particular case, rule that the contract continue unchanged, that the rent be increased or reduced, or that the claim be dismissed. The aim is not to bring the contract to an end but to restore the economic balance between the parties in the face of changed circumstances.
Increase or Reduction of the Rent
If the court forms the view that the rent has become excessively onerous for one of the parties in the existing circumstances, or has largely lost its economic counterpart, it may rule that the rent be increased or reduced. The new rent is fixed having regard to the changed economic conditions and the balance between the parties.
This action may accordingly be brought not only for a reduction of the rent but also for an increase where the rent has lost value.
In fixing the rent the judge has regard in particular to market conditions and criteria of equity, the change in economic conditions, the nature of the leased property and its purpose of use, and the contractual balance between the parties.
Adaptation of Other Terms of the Contract
The court’s intervention need not remain confined to the rent. Where it sees fit, it may rule that other terms of the contract be altered as well. Such interventions are directed at enabling the relationship to operate in a manner suited to the new circumstances.
For example, the court may redraw the scope of the obligations between the parties; it may introduce a provision on the rate of increase; it may change the manner in which payment is made; it may rule that a rent agreed in foreign currency be converted into Turkish lira.
Adaptation is therefore a legal instrument aimed not at extinguishing the contract but at maintaining it by fitting it to the changed circumstances.
Dismissal of the Claim
If it is concluded that the statutory elements have not materialised, the action is dismissed. In that event the lease relationship continues with its existing content and the parties remain bound to perform the obligations they have assumed exactly as they stand.
A dismissal may arise in particular in the following cases: where the economic change relied on remains within ordinary limits; where performance has not become excessively difficult; where the risks were of a predictable nature when the contract was concluded; where the party making the claim has been at fault in its conduct.
As can be seen, adaptation is not a general remedy available in every economic difficulty. For the claim to be allowed, the elements required by the statute must clearly have materialised in the particular dispute.
Independent Legal Assessment
In adaptation disputes the factor determining the outcome is more often the quality of the evidential work than the legal characterisation. Where the allegation of unforeseeability is left in the abstract, or where the effect of the economic change on the balance of the contract cannot be demonstrated numerically, there is a risk that the claim will be assessed as an ordinary request for a rent increase. For that reason, constructing at the pleading stage a comparison between the picture on the date of the contract and the picture on the date of the action is the most critical step in the process.
For tenants who continue to pay the rent, the condition in Art. 138 of the Turkish Code of Obligations No. 6098 relating to performance calls for separate attention. Payments made without a reservation being entered may weaken the basis of an adaptation claim raised subsequently.
In charting a course of action in a particular dispute, the following headings should be given priority:
- Clarifying at the outset whether the claim is one for rent determination or one for adaptation based on excessive difficulty of performance
- Verifying whether payments were made with a reservation and whether the wording of the reservation is adequate
- Exhausting the mandatory mediation process in due form and adding the final minutes to the case file
- Documenting the allegation of unforeseeability with concrete economic data, on the basis of a comparison of periods
- Examining, in contracts concluded in foreign currency, on whom the contract leaves the exchange rate risk
- Planning the timing of the application having regard to the fact that the judgment takes effect from the date of the action
Independent Legal provides advisory and litigation services across the whole of the process in disputes arising from lease relationships, from review of the contract to the conduct of the adaptation action.