The sum requested from the tenant when a lease agreement is signed, known in practice as the deposit, is in law a security payment. Its function is to secure in advance the losses the landlord may sustain while the lease is running; it constitutes a fund to be drawn upon where the tenant fails to pay a debt, damages the property or breaches some other obligation arising from the contract.
Disputes between the parties generally turn on a handful of points: the conditions under which security may be demanded, the statutory ceiling on its amount, the manner in which the landlord must hold that money, and the circumstances in which repayment falls due once the lease has ended. In practice, the most frequent type of dispute is the deposit remaining in the landlord’s personal account and not being returned after the property is vacated.
In this briefing note we examine, from a practical standpoint, the legal character of the security deposit, the ceiling imposed by the Turkish Code of Obligations No. 6098, the manner in which the sum is delivered and held, the conditions for its return, the claims against which set-off may be made, and the legal remedies available where the deposit is not returned.
Legal Nature of the Security Deposit
The deposit is a sum of a security character taken at the outset to cover the losses the landlord may suffer in the future. It operates as a margin of safety held by the landlord against the possibility that the tenant fails to perform the obligations arising from the contract.
For the purposes of Article 342 of the Turkish Code of Obligations No. 6098, security is neither a mandatory nor a natural element of a lease agreement. Such an obligation arises only where the parties so agree; the statute merely sets out the framework to be observed if it has been stipulated.
Turkish Code of Obligations No. 6098, Art. 342(1)
"Where, in leases of residential and roofed commercial premises, a contractual obligation to provide security has been imposed on the tenant, that security may not exceed three months’ rent."
The Security Function and Purpose of the Deposit
The reason for the existence of the security deposit is to render financially coverable the risks that may arise while the lease is running. In practice these risks fall under three main headings: damage occurring to the property, use of the leased premises in a manner different from that provided for in the contract, and non-payment of rent. The deposit is a financial cushion, provided in advance, which comes into play when losses of this kind materialise.
The deposit, by contrast, is not intended to generate additional income for the landlord. Where the tenant has performed its obligations in full, the sum taken must be repaid in its entirety. Indeed, the deposit is conceived not as a means of payment but solely as a security mechanism to be resorted to when a risk materialises.
Points of Distinction from Rent and from a Penalty Clause
Because the security deposit is directed at covering losses that may arise from the lease, it has a legal identity distinct from that of rent, and neither can it be classified as a penalty clause.
The distinction between the two institutions lies here: under a penalty clause the debtor undertakes from the outset to pay a specified sum if it acts in breach of the contract, and whether loss has in fact arisen is a secondary matter. With a deposit, on the other hand, the amount that may be used is limited to the loss actually incurred. The prohibition on stipulating a penalty clause against the tenant likewise supports this distinction.
The security deposit is therefore not money to which the landlord becomes entitled of its own accord. It is a narrowly framed security which may be resorted to only where a justified and concrete claim arises, and then only to the extent of that claim.
The Amount of the Deposit and the Statutory Ceiling
In leases of residential and roofed commercial premises, the amount of the security deposit is not a matter the parties may fix as they please. In order to prevent the tenant from being placed under a disproportionate financial burden, the legislature has imposed an express ceiling on this sum. That ceiling must not be exceeded when the contract is drawn up.
The provision in question is mandatory in character. Even where the parties have given their mutual consent, they may not stipulate security above the statutory limit. For this reason, correctly calculating the limit is of considerable practical importance when settling the figure to be written into the contract.
The Ceiling of Three Months’ Rent
Under Art. 342 of the Turkish Code of Obligations No. 6098, security in leases of residential and roofed commercial premises may amount to no more than three months’ rent. The figure to be taken as the basis of the calculation is the monthly rent agreed on the date the contract was concluded.
For a property whose monthly rent is set at TRY 20,000, the highest security deposit that may be demanded is TRY 60,000. It is not possible to agree on a figure above that. The mandatory character of the provision rests on the aim of protecting the tenant in economic terms.
The Legal Consequence Where the Limit Is Exceeded
Where the contract provides for a deposit above three months’ rent, that clause is not treated as void in its entirety. The invalidity is confined to the portion exceeding the ceiling; the contract itself stands, and the tenant acquires the right to demand the return of the excess taken.
Where the landlord has demanded or collected a sum above the statutory limit, there is no obstacle to the tenant reclaiming that excess. In practice, claims of this kind are for the most part advanced on the basis of the provisions on unjust enrichment.
Taking a Second Security Under a Different Name
Some contracts are found to provide, in addition to the deposit, for a second sum under headings such as "additional security" or "security contribution". Where this method produces the result that the three-month limit drawn by the statute is circumvented, it enjoys no legal protection.
Dividing the security into parts and giving each part a separate name does not alter the outcome; as soon as the total figure exceeds three months’ rent, the excess portion is treated as invalid. What is decisive in the assessment is not the name given to the payment but its true nature and total amount.
The Form in Which the Security Is Given and Its Safekeeping
In leases of residential and roofed commercial premises the statute has not confined itself to limiting the amount of the deposit; it has also regulated the form in which the sum is to be given and how it is to be held. The aim is to prevent the security from being spent arbitrarily by the landlord and to place the tenant’s money under protection. No freedom of action has been afforded to the parties on this point.
As a matter of statutory design, the deposit is not a payment passing into the landlord’s direct disposal. The essential rule is that the sum be held with a bank on defined conditions and be incapable of withdrawal without the common will of both parties. In this respect the security is not a resource opened to the landlord’s use; it is a security that may be resorted to only where defined conditions are met.
Delivery as Money or as a Negotiable Instrument
The statute accepts that the security may be provided in cash and equally that it may be given in the form of a negotiable instrument. Although in practice the deposit is predominantly paid in cash, cases are also encountered in which a bank letter of guarantee or a similar negotiable instrument is accepted as security.
This flexibility shows that the parties are left a measure of latitude in choosing the type of security. Whatever instrument is chosen, however, the purpose and legal nature of the security remain constant: in every case what is in issue is a security directed at covering the landlord’s possible losses.
The Obligation to Deposit with a Bank and to Block the Account
Art. 342 of the Turkish Code of Obligations No. 6098 provides that, where the security is given in cash, that money is to be deposited with a bank and held in an account on which the landlord cannot act alone. The account is blocked so that it cannot be used unless the parties consent jointly.
The rationale for this requirement is to prevent the security deposit from becoming mixed with the landlord’s personal assets and to protect the money. Where, on the ending of the lease, the landlord has no justified claim to advance, the blocked sum must be repaid to the tenant. For further detail, our study on the return of the deposit may also be consulted.
The Position of a Deposit Not Placed with a Bank
It is well known that in practice the deposit is most often handed over directly and is not blocked with a bank. This irregularity does not render the security deposit invalid; a valid security exists, and it is merely the method of safekeeping required by the statute that has not been observed.
A deposit taken by hand does not turn into income the landlord may spend freely. That money may be used only to meet a claim that has actually arisen. Where the tenant has no outstanding debt when the lease ends, the sum must be returned in full; otherwise the tenant may have recourse to legal remedies.
Return of the Deposit and the Conditions for Return
Because the security deposit is given in order to secure the landlord’s possible claims for the duration of the lease, it must be repaid once the contract has ended and the tenant has performed its obligations in full. Return is the natural consequence of the lease and is not a matter left to the landlord’s discretion.
That said, where the landlord has a justified claim such as unpaid rent, a liability for common expenses, or damage arising to the property, the deposit may be used to meet those items. Whether return is to be made, and in what proportion, is accordingly determined by reference to whether any debt or loss exists between the parties as at the date the contract ended.
The Obligation to Return Arising on Termination of the Contract
Whatever the reason for which the lease ends, if the tenant has returned the property in a condition conforming to the contract the landlord is obliged to pay the deposit. Where there is no rent, no liability for service charges and no damage caused to the leased premises, the whole of the sum must be returned in full.
Where the property has been vacated, the keys handed over and no mutual debt remains between the parties, return becomes a legal obligation. It is not acceptable conduct for the landlord to retain the money without putting forward any justification.
Circumstances in Which the Landlord May Withhold the Deposit
A landlord with a justified claim arising from the lease agreement may retain the security deposit in whole or in part. In practice this outcome arises in particular in the following situations:
- The property being returned damaged or incomplete at the time it is vacated
- Damage having arisen to the leased premises through use contrary to the contract
- The tenant carrying out alterations without permission or causing destruction to the property
- The existence of rent claims that have fallen due but remain unpaid
- Payments in the nature of service charges or common expenses not having been met
For the power to withhold to arise, however, the claim must be genuine and capable of proof. Retaining the deposit on the basis of the possibility of a loss that has not yet arisen, or on an assumption, enjoys no legal protection.
The Timing of Return
The statute lays down no fixed number of days for return. Payment is nevertheless expected to be made within a reasonable period after the contract ends and the property has been given back. That period denotes the time sufficient for the landlord to inspect the property and to identify any deficiency or damage.
In practice that period is confined to a short interval for inspection. The conduct of a landlord who retains the deposit for a long time without showing a justified basis is not regarded as lawful, and the tenant may demand its return.
The Fate of Interest and Other Returns
Where the deposit has been held in an account with a bank, the interest and other returns accumulating in that account are likewise treated as part of the security and are transferred to the tenant when the lease ends. The economic fruits of the security are a natural extension of the security relationship.
Where return is not made without justified cause, the tenant may claim the accrued interest as well as the principal sum. A landlord who wrongfully retains the money may also be held liable for the losses arising over that period.
Set-Off and Deductions from the Deposit
Because the security deposit is given in order to meet the landlord’s claims arising from the contract, set-off may be made against it where the tenant fails to perform its obligations or damage arises to the property. For a deduction to be valid, two conditions must be met: a genuine claim or loss must exist, and that state of affairs must be capable of proof.
Since the deposit is not an item of income the landlord may spend freely, it does not lend itself to arbitrary or estimated deductions. For a deduction to be made, the tenant must have breached a contractual obligation, or a loss contrary to the contract must have arisen in the leased premises.
Set-Off in Respect of Unpaid Rent
Where the tenant has accrued rent arrears, the landlord may set that amount off against the security deposit. As rent is the principal obligation arising from the contract, meeting claims of this kind is also the most typical field of use of the deposit.
By contrast, it is not legally possible for the tenant, while the lease is still running, unilaterally to take the course of "setting the final month’s rent off against the deposit". The security deposit is not an instrument that takes the place of payment of rent; it is a security to be brought into account when the relationship comes to an end.
Deduction on Account of Damage Arising to the Leased Premises
Damage occurring to the property through the tenant’s fault is among the items that may be met out of the security deposit. Fixtures being broken or destroyed, or the property being used contrary to the contract, may be given as examples of such damage.
For a deduction to be made, the landlord is expected to establish both the existence and the amount of the loss in concrete terms. Proof is most often furnished by a handover report, photographic records, a court-appointed expert report and similar evidence. A deduction from the deposit made on the basis of an abstract allegation of loss is not regarded as sufficient.
Ordinary Wear and Tear Cannot Be Made the Subject of a Deduction
Deterioration emerging over time as a result of careful and normal use of the property cannot be attributed to the tenant. Paintwork losing its colour, floor coverings wearing through use and similar changes fall within the scope of ordinary wear and tear.
As deterioration of this kind does not rest on any fault of the tenant, it cannot be met out of the deposit. For a deduction to be made, the loss must exceed the bounds of ordinary use and must stem from the tenant’s fault.
Set-Off of Service Charge and Ancillary Cost Liabilities
Where service charge and ancillary cost payments assumed by the tenant under the contract have not been met, the landlord may also set those liabilities off against the security deposit. Unpaid service charges or items of common expenditure emerging when the lease ends are, in particular, among the claims that may be recovered from the deposit.
Here too the existence and the amount of the liability must have been established. A deduction may not be made on the basis of costs that are not yet settled or are estimated in nature.
Legal Remedies Available Where Return Is Not Made
Where the lease has ended and the property has been handed over but the deposit is not repaid, legal remedies become available to the tenant. Since the security deposit is not money the landlord may retain at will, where return is refused without a justified claim being shown the tenant may both make a demand and, where necessary, take the route of enforcement proceedings or an action.
Disputes of this kind typically arise after the end of the lease and concentrate on the point whether any debt or loss exists between the parties. The tenant’s ability to protect its rights depends on using the options available to it in the right order.
Written Demand and Formal Notice
As a first step it is appropriate to convey a written demand to the landlord. In practice this demand most often takes the form of a formal notice sent through a notary. Demanding return by formal notice and affording the landlord a defined period carries evidential weight for any action subsequently brought or proceedings subsequently commenced.
Where the landlord does not make payment despite this notification, the tenant may move to the next stage and commence enforcement proceedings or bring an action.
Enforcement Proceedings by Way of General Attachment
Since a claim to a deposit is in the nature of a monetary debt, it is possible to proceed directly to enforcement proceedings in order to secure its return. The tenant may seek collection of the sum by using the general attachment route.
Where the landlord objects to the proceedings, they are stayed; at this stage the tenant may collect its claim by having recourse to one of the routes of annulment of the objection or removal of the objection. In practice a significant proportion of deposit claims are brought to a conclusion by this route.
Action for Debt
It is also open to the tenant to bring an action directly. As a rule this action is heard as an action for debt and rests on the allegation that the deposit has been wrongfully withheld. The court reaches its conclusion by examining whether the tenant has performed the obligations arising from the contract and whether the landlord has a justified claim.
In such actions, records evidencing that the property was handed over, payment records, correspondence between the parties and similar documents serve as decisive evidence.
Independent Legal Assessment
Although deposit disputes often appear limited in amount, how the burden of proof is allocated and which documents are drawn up at the time the property is vacated directly determine the outcome. The failure to deposit the security with a bank when the lease is entered into, the failure to draw up a handover report when the property is vacated, and the failure to record the fixtures are the source of the greater part of later disagreements.
For the tenant, predictability is secured by framing the security clause in the contract in conformity with the statutory limit; for the landlord, by supporting the claim with concrete evidence. In a concrete dispute, we recommend that the following headings in particular be reviewed:
- Calculating whether the security agreed in the contract exceeds three months’ rent
- Examining whether additional securities taken under different names together press against the statutory limit
- Documenting whether security given in cash has been blocked with a bank, together with the account details
- Establishing the existing condition at the vacating stage by means of a handover report, photographs and meter readings
- Assessing whether the loss relied on as the basis of an alleged deduction exceeds the bounds of ordinary wear and tear
- Documenting the demand for return by formal notice and planning the period before moving to enforcement proceedings
Independent Legal provides advisory services across the whole range of lease law disputes, from the drafting of lease agreements to the enforcement and litigation processes relating to the return of the security deposit.