Rent Determination Action or Rent Adaptation Action? Distinguishing the Two Remedies

The legal order provides two separate routes for fixing the rent or for reordering it in line with changed circumstances: the rent determination action and the rent adaptation action. Both are frequently used tools in resolving disputes over the rent that arise while the lease relationship is running.

In practice, however, these two types of action are often used interchangeably, and hesitation arises as to which of them should be resorted to in a given case. Although both produce a result concerning the rent, the legal bases on which they rest and the conditions they require differ markedly from one another.

Below we address the scope of each action, its field of application and the points that separate them, on a comparative basis.

The Rent Determination Action

Definition and Statutory Basis

The rent determination action is an action brought within the framework of the rent increase provisions contained in Article 344 of the Turkish Code of Obligations No. 6098, and it is directed at fixing the rent according to statutory criteria.

The manner in which the rent is to be determined is regulated in the statute as follows:

Turkish Code of Obligations No. 6098, Art. 344
“Irrespective of whether the parties have concluded an agreement on this matter, in lease agreements with a term longer than five years or renewed after five years, and at the end of each subsequent five-year period, the rent to be applied in the new lease year shall be determined by the judge in an equitable manner, having regard to the rate of change in the twelve-month averages of the consumer price index (CPI), the condition of the leased property and comparable rents.”

The practical meaning of the provision is this: in lease agreements that have completed their fifth year, the court may set an amount on the basis of comparable rents, without being bound by the CPI rate. The details of the subject are addressed in our note titled The Rent Determination Action.

The Purpose of the Action

The aim of the determination action is to bring the rent paid while the lease relationship is running into line with current economic and market conditions.

To that end, the action is brought for the purposes of updating a rent that has long remained unchanged, closing the gap between the amount paid and comparable rents, fixing the rent in a manner consistent with market realities, and maintaining the lease relationship without interruption while all of this is done.

The action has no function of bringing the contract to an end; the rent that will apply in the new period is determined on the footing that the relationship continues.

Field of Application

The rent determination action concerns leases of residential property and of roofed business premises, and it may be brought only in respect of lease relationships that are in force.

The principal situations in which the action arises in practice are the following:

• In agreements concerning leased property in the nature of a residence or of roofed business premises
• Where the parties have been unable to reach agreement on the rate of the rent increase
• Where the rent paid has fallen behind comparable rents in the locality
• Where the lease relationship has not yet come to an end and is in fact continuing
• Particularly in lease agreements that have completed 5 years, where the rent needs to be redetermined in the light of comparable values

As will be seen, this action is directed not at terminating the contract but only at reordering the rent.

The Rent Adaptation Action

The rent adaptation action is brought with a request that the rent be redetermined according to the new circumstances, or that the terms of the contract be adapted, where the economic balance of the contract has been upset by extraordinary developments that emerged after the contract was concluded and that the parties had no possibility of foreseeing.

This route, too, does not bring the contract to an end. Where continuing on the existing terms is irreconcilable with the rule of good faith, the aim is that the rent or the other conditions be reconstructed in an equitable manner.

The adaptation action is a remedy that gains weight in practice in periods when economic conditions change out of the ordinary. For the details, reference may be made to our note titled The Rent Adaptation Action.

Definition and Statutory Basis

The basis of the action is the institution of excessive difficulty of performance regulated in Article 138 of the Turkish Code of Obligations No. 6098.

Under that provision, where performance has become so much more onerous — by reason of an extraordinary development that emerged after the contract was concluded, that could not be predicted in advance by the parties and that does not originate from the obligor — that carrying out the obligation on the existing terms would conflict with the rule of good faith, the adaptation of the contract to the new situation may be sought.

Lease agreements are also assessed within this scope; it is therefore possible for the rent to be redetermined according to current economic conditions.

The Purpose of the Action

The essential function of adaptation is to restore the balance upset by extraordinary developments arising after the contract was concluded.

Within this framework the action is brought for the purposes of repairing the contractual balance shaken by extraordinary economic changes, preventing the obligation of one of the parties from becoming unbearably onerous, enabling the contract to be maintained in conformity with the rule of good faith and, where necessary, bringing the rent down to an equitable level.

Field of Application

Adaptation comes into play in situations where extraordinary developments that emerged after the conclusion of the contract and that were unforeseeable have upset the balance.

The typical pictures encountered in practice are the following:

• The occurrence of a change of an extraordinary nature in economic conditions
• The rent becoming excessively onerous by reason of unforeseeable high inflation or an economic crisis
• Sudden and serious rises in exchange rates upsetting the balance in the lease relationship
• The balance in long-term lease agreements being upset to an excessive degree against one of the parties

The Principal Differences Between the Two Actions

Although both actions are directed at the redetermination of the rent, they differ significantly from one another in terms of their legal bases, the conditions for bringing them and their fields of application.

While the determination action aims at fixing the rent according to statutory criteria, the adaptation action aims at restoring the balance upset by extraordinary developments arising after the contract was concluded.

The table below summarises the two types of action on a comparative basis:

A Practical Assessment

One of the misconceptions most frequently met in the field is the idea that the adaptation route may be taken directly in every case in which the rent has remained low. Yet the rent falling below the market does not in itself constitute a ground for adaptation; in such a picture the action to be brought is, as a rule, the rent determination action.

By contrast, where extraordinary economic developments that emerged after the contract was concluded and could not be predicted by the parties have made maintaining the contract in its existing form contrary to the rule of good faith, the adaptation action then comes into play.

In Which Cases Is a Determination Action Brought?

The determination action is brought where the conclusion is reached that the rent paid while the lease relationship is running does not reflect current market conditions. The aim is for the rent to be fixed according to ordinary market data; the action therefore arises for the most part in long-running lease relationships.

The principal situations resorted to in practice are the following:

• An assessment that the rent paid has fallen below comparable rents
• The lease agreement having completed 5 years or having been renewed after five years
• The existence of a dispute between the parties as to the rate of increase
• A rate of increase having been agreed in the contract, yet that rate not corresponding to market realities
• The need arising to bring a rent that has long remained fixed into line with current conditions

Once it is recalled that in agreements that have completed five years the court may take comparable rents as its basis without being confined to the CPI rate, it becomes clear why the determination action is one of the most preferred routes of updating in long-term lease relationships.

In Which Cases Is an Adaptation Action Brought?

The adaptation action is brought in cases where extraordinary developments that emerged following the conclusion of the contract and that the parties had no possibility of foreseeing have upset the economic balance. What is aimed at here is not the updating of the rent according to ordinary market movements; it is the reordering of the conditions at the point where maintaining the contract on the existing terms conflicts with the rule of good faith.

In this respect the adaptation action departs from the determination action and rests not on ordinary market fluctuations but on changes of an extraordinary nature.

In practice the action arises in particular in the following pictures:

• The occurrence, after the contract was concluded, of extraordinary economic developments that could not be predicted by the parties
• Facts such as high inflation, an economic crisis or a serious jump in exchange rates upsetting the balance of the lease to a significant degree
• Payment of the rent on the existing terms becoming excessively onerous for one of the parties
• Maintaining the contract as it stands becoming irreconcilable with the rule of good faith
• The balance disappearing altogether in long-term agreements as a result of a fundamental change in economic conditions

It must be emphasised that the rent being low or high relative to the market does not, on its own, justify a request for adaptation. For the request to be granted, the existence of an extraordinary situation that arose after the conclusion of the contract and that could not be foreseen by the parties is required.

The Consequences of Choosing the Wrong Type of Action

One of the errors most frequently fallen into in disputes concerning the rent is the choice of a type of action that does not match the nature of the case at hand. A failure to grasp the legal distinction between the two actions correctly may end in the dismissal of the request or in the expected outcome not being reached.

The price of a mistaken choice is not confined to the time lost; additional costs and legal risks also arise.

The principal consequences encountered in practice are the following:

• Risk of dismissal: if the legal conditions of the action brought do not fit the case at hand, the court may dismiss the request.
• Obligation to bring a fresh action: in the event of a mistaken choice, the dispute may have to be taken back to court by way of the correct type of action.
• Prolongation of the process: resorting to the wrong route lengthens the proceedings and delays the updating of the rent.
• Burden of costs and counsel’s fees: where the request is dismissed, the costs of the proceedings and the opposing party’s counsel’s fees may be imposed on the claimant.
• Economic loss: in periods when inflation runs high, prolonged proceedings may cause direct pecuniary loss because the updating is delayed.

For this reason, in disputes concerning the redetermination of the rent, the selection of the correct type of action after weighing the particular circumstances of the case is of decisive importance. Where the rent needs to be brought into line with market conditions the determination action should, as a rule, be brought; where extraordinary developments arising after the contract have upset the balance, the adaptation action should be brought.

The Independent Legal Assessment

The choice between the two actions is not a technical detail but a strategic decision that determines the fate of the file. The essence of the distinction may be gathered into a single question: is the present level of the rent the result of ordinary market movements, or of an extraordinary development that no one could have foreseen when the contract was concluded? The first answer points to the determination action, the second to adaptation.

As regards requests for adaptation, the threshold applied by the courts is high. Since the inflationary environment is itself often not regarded as unforeseeable, requests resting solely on the rent having become more onerous struggle to find acceptance. In the determination action, by contrast, the five-year threshold and the quality of the file of comparables directly affect the outcome.

In a concrete dispute, we recommend that the following headings be clarified first:

• Establishing the commencement date of the lease relationship and whether the five-year threshold has been passed
• Determining at the outset whether the fact to be relied on is an ordinary market movement or an unforeseeable development
• Where adaptation is to be requested, grounding the element of unforeseeability on concrete data
• Compiling comparable lease agreements before the action is brought and checking that they are genuinely comparable
• Planning the time of bringing the action with regard to the lease period in which the request will take effect
• Calculating in advance, against the possibility of dismissal, the risk of the costs of the proceedings and the opposing party’s counsel’s fees

Independent Legal provides advisory and litigation services throughout the whole of the process in disputes concerning the redetermination of the rent, from the selection of the correct type of action to the conclusion of the proceedings.