The deposit taken when a lease agreement is concluded is a security serving to guarantee the sums that may fall due to the landlord over the term of the agreement. Once the agreement has come to an end, the leased property has been returned and the tenant’s obligations arising from the lease relationship have been discharged, the return of that sum is the rule.
The picture frequently encountered in practice is, by contrast, a different one: although the lease relationship has ended, the deposit is held back for months or withheld without any concrete ground being shown. The conditions on which the return depends, the limit of the period allowed to the landlord and the items that may be set off against the deposit are among the most keenly debated topics in lease disputes.
In this briefing note we consider the time at which the deposit falls to be returned, the cases in which a deduction may be made, and the legal avenues available where the return does not take place, within the framework of the relevant legislative provisions and the principles settled in practice.
Legal Basis of the Deposit and Governing Principles
The deposit is a security given in order to guarantee that the debts and losses that may arise out of the lease relationship will be met. By reason of that character it is not a resource the landlord may use as it pleases; it is a limited instrument of security that may be resorted to only where a justified claim exists. The provisions of the Turkish Code of Obligations No. 6098 on the security deposit are intended to prevent that sum from being withheld arbitrarily and to protect the tenant against the loss of its rights.
The Deposit as Security
The deposit is a security afforded to the landlord against the possibility that the tenant will fail to perform its obligations under the agreement or that damage will occur to the leased property. In that respect it bears a legal character distinct from the rent and cannot be regarded as an item of income for the landlord.
Put another way, the landlord does not acquire a right over the deposit of its own accord. That sum may be resorted to only where there exists a genuine and provable claim arising out of the lease relationship; the extent of the security is limited to that claim.
Return the Rule, Deduction the Exception
The return of the deposit is the natural consequence of the ending of the lease relationship. Once the agreement has come to an end and the tenant has returned the leased property in conformity with the agreement, the landlord must pay that sum. That obligation follows directly from the function of security attributed to the deposit.
Whether a deduction may be made, on the other hand, depends on the existence of a concrete claim such as unpaid rent, accrued service charges or damage occurring to the leased property. Retaining the sum without any ground being shown beyond that is not legally defensible. In practice, accordingly, return is the rule and deduction the exception.
Conditions Required for the Return of the Deposit
The return of the deposit is not a mechanism that operates of its own accord upon the termination of the agreement. For that sum to find its way back to the tenant, certain fundamental conditions arising out of the lease relationship must have been satisfied. Those conditions show that the landlord comes under an obligation to return only where it has no justified claim.
Termination of the Lease Agreement
Before a request for return can arise, the lease relationship must first have come to an end. So long as the agreement remains in force, the deposit continues to perform its function of securing the landlord’s claims. A request for the return of the sum while the relationship continues is therefore, as a rule, not possible.
Termination may rest on a variety of grounds, such as the expiry of the term, agreement between the parties to that effect, termination by notice or eviction. The date on which the agreement came to an end forms the starting point to be taken as the basis in assessing the obligation to return.
Return of the Leased Property and the Keys
For the obligation to return to arise, the leased property must have been physically given up to the landlord and the keys handed over. If use of the property is continuing, or if the keys are still in the tenant’s hands, the lease relationship cannot be said to have ended in fact.
The obligation to return the deposit therefore arises for the most part upon the vacation of the property and the handover of the keys. In practice the handover of the keys is regarded as one of the strongest indications that the lease relationship has come to an end.
No Outstanding Rent or Ancillary Charges
For the deposit to be returned, the tenant’s debts arising under the agreement must have been discharged. Where there are unpaid instalments of rent, accrued service charges or other financial obligations assumed under the agreement, the landlord may set those items off against the deposit.
It is therefore usual for an account to be taken between the parties before the return is made. Where the tenant has discharged in full its debts in respect of rent and ancillary charges, the landlord’s obligation to pay arises.
No Damage to the Leased Property
A further condition of the return is that the property be given back in conformity with the agreement and undamaged. If damage attributable to the tenant’s fault is established, the landlord may make a deduction from the deposit with a view to making good that damage.
The tenant cannot, however, be held liable for the deterioration that emerges over time as a result of careful and ordinary use of the property. Wear and tear that is the natural consequence of normal use is not accepted as a ground justifying a deduction.
Cases in Which a Deduction May Be Made from the Deposit
Since the deposit is given in order to secure the claims that may arise under the lease agreement, the landlord may have recourse to that sum only where it has a genuine and provable claim arising out of that relationship. Deduction is an exceptional step; the position in principle is that the sum returns to the tenant.
Unpaid Rent
Where the tenant has unpaid rent outstanding, the landlord may set that amount off against the deposit. Since payment of the rent is one of the fundamental obligations under the agreement, securing claims of that kind is among the principal functions of the deposit.
For a set-off to be made, however, the debt must genuinely have arisen and its amount must be ascertainable. Encroaching upon the deposit by advancing a claim that is contested or not yet settled is not accepted in law.
Damage to the Leased Property
Damage occurring to the property through the tenant’s fault is among the items that may be met out of the deposit. Such damage may arise where the leased property has been used in breach of the agreement, where fixtures have been broken or destroyed, or where harm exceeding the limits of ordinary use has occurred to the property.
In order to make a deduction, the landlord must establish the existence of the damage and its amount. In establishing the damage, recourse is most often had to evidence such as the handover record, photographs, a valuation report or examination by a court-appointed expert. An abstract allegation of damage having no concrete foundation is not regarded as sufficient for a deduction.
Set-Off of Service Charges and Ancillary Costs
Where the tenant has outstanding service charges and ancillary costs that it is obliged to pay under the agreement, the landlord may likewise set those items off against the deposit. The existence, in particular, of service charges, common expenses or similar obligations unpaid as at the date on which the lease relationship came to an end is counted among the grounds justifying a deduction.
Here too the existence and the amount of the debt must have been clearly established. A reduction cannot be made from the deposit on the strength of expenses that are not yet settled or that rest on estimation.
Ordinary Wear and Tear Cannot Be Deducted
The tenant is not liable for the deterioration that emerges over time as a result of careful and normal use of the property. Paintwork losing its colour over time, floor coverings wearing down in line with their period of use, and fixtures ageing as a result of natural use are all treated as falling within ordinary wear and tear.
Since changes of that kind do not rest on the tenant’s fault, they cannot be met out of the deposit. For a deduction to be made, the damage must be of a character exceeding the limits of ordinary use and attributable to the tenant’s fault.
Time of Return and the Landlord’s Obligation
The return of the deposit is an obligation that arises upon the termination of the lease agreement and the handover of the leased property. That obligation is not, however, expected in every case to be performed immediately at the moment the agreement ends. It is usual for the landlord to require a certain amount of time in order to establish whether it has any claim arising out of the lease relationship.
The notion of a reasonable time therefore becomes decisive as regards the return. The landlord is obliged to make payment within the reasonable time required for it to inspect the leased property, to establish any damage and to calculate the debts. Where that time is exceeded and payment is delayed without justified foundation, the landlord may fall into default and its legal liability may arise.
When Does the Obligation to Pay Arise?
For the deposit to be returned, the agreement must have come to an end, the leased property must have been handed over, and the tenant must have no remaining debts arising out of the lease relationship. The landlord’s obligation to pay arises upon those three conditions being satisfied together.
The date taken as the basis in calculating the time of return is, for the most part, the day on which the property was physically given up and the keys delivered to the landlord. That date is accepted as the beginning of the period allowed for the return.
Reasonable Time and the Measures Applied in Practice
The law lays down no fixed period for the return; in practice, by contrast, it is accepted that the landlord must make payment within a reasonable span of time. What is understood by a reasonable time is the time required for the leased property to be inspected, for any damage to be established and for any claims to be determined.
It is accepted that in most cases that time ought not to exceed a few weeks. Leaving the deposit unpaid for months, or holding it back without any step being taken, is not conduct that is legally defensible unless a justified ground is put forward.
Withdrawing a Deposit Placed with a Bank
Under the Turkish Code of Obligations No. 6098, where the deposit is given in money the rule is that the sum is to be placed with a bank by the landlord and cannot be withdrawn unless certain conditions are satisfied. The purpose of the provision is to ensure that the sum is safely preserved and that the tenant’s rights are protected.
Accordingly, where the sum has been placed with a bank, the tenant’s written consent or a finalised set of enforcement proceedings or a court judgment may be required before the money can be withdrawn once the lease relationship has come to an end. A unilateral withdrawal from the bank is not possible until those conditions are satisfied.
Payment of Interest Together with the Deposit
Where the sum is held at a bank, interest may accrue on it over that period. The interest that accrues belongs to the tenant, as the true owner of the deposit, and must be paid together with the principal.
Moreover, where payment is not made in time without justified cause, the landlord may fall into default and become liable to pay interest for the period of the delay. The timely return of the deposit is therefore not merely a contractual obligation but also a course of conduct that averts the arising of legal liability.
Legal Avenues Where the Deposit Is Not Returned
Where the deposit is not returned, the course taken in practice generally takes the shape of serving a formal notice, commencing enforcement proceedings or bringing an action directly. Which method is preferred is determined having regard to the features of the particular case, the nature of the dispute and the state of the claim.
Written Demand and Notice
The first step that may be taken where the return does not occur is to address a written demand to the landlord. That demand most often takes the form of a notice sent through a notary. By the notice a specified period for payment is allowed to the landlord, and it is stated that legal avenues will be pursued if the debt is not discharged within that period.
Serving a notice is not compulsory; it may, however, both contribute to the dispute being resolved before it reaches the stage of an action and be used as evidence in an action to be brought or proceedings to be commenced later. It may also be possible, by that means, to place the landlord in default.
Recovery Through Enforcement Proceedings
Where the deposit is not paid, the tenant may take the course of commencing enforcement proceedings directly in order to recover its claim. In that case enforcement proceedings without a judgment are brought against the landlord and payment of the claim is sought.
If the landlord does not object to the proceedings, they become final and the claim may be recovered through enforcement. Where the debt is disputed, on the other hand, the proceedings are stayed; an action may have to be brought if the claim is to be obtained.
Bringing an Action for Payment
If the contention between the parties continues, the tenant may bring an action with a view to recovering the deposit. That action is for the most part in the nature of an action for payment and rests on a claim for the return of the deposit.
The court decides whether a return is required by assessing together the parties’ claims and defences, the lease agreement, the handover records and the other evidence submitted to the file. If it concludes that the sum has been withheld without justification, it may order the return and, where the conditions are met, the payment of interest.
Burden of Proof and Available Evidence
In deposit disputes the burden of proof falls, as a rule, on the party asserting the claim. The tenant is therefore expected to establish that it paid the sum and that the lease relationship has come to an end.
The landlord, by contrast, is obliged to prove its assertion where it contends that there exists a debt or a loss requiring a deduction. The lease agreement, bank receipts, handover records, photographs, valuation reports and the correspondence between the parties are the principal items of evidence that may be taken as the basis for resolving the dispute at this point.
Independent Legal Assessment
In deposit disputes the element that determines the fate of the file is most often not the legal arguments but the documents. In files where the tenant cannot show by a bank record that it paid the sum, or where the landlord cannot support its allegation of damage with any finding, the outcome is shaped by the mechanical application of the rules of proof. The written records created at the beginning and at the end of the lease relationship therefore carry a value that cannot be produced retrospectively once a dispute has arisen.
Given the cost of the proceedings and of the time they consume, it should be said that in these disputes — comparatively small though they appear in amount — a settlement reached at the stage of the notice is in most cases in the parties’ favour. In drawing up a road map for a particular file we recommend that the following points be given priority:
- Documenting payment of the deposit by a bank receipt or by a record in the agreement; obtaining a written receipt where payment is made in cash
- Drawing up a handover record at the time of vacation and recording the condition of the property in dated photographs
- Being aware from the outset, where the sum has been placed with a bank, that the tenant’s written consent will be required for a withdrawal
- Distinguishing whether the items said to warrant a deduction are actual or estimated, and addressing the boundary of ordinary wear and tear
- Placing the landlord in default by a notarial notice once the reasonable time has expired, and settling the date from which interest runs
- Assessing together the likelihood of an objection and the time to recovery when choosing between enforcement proceedings and an action for payment
Independent Legal provides advisory services and the conduct of litigation across the whole of the process, from the drafting of lease agreements to the pursuit of deposit claims and the resolution before the courts of disputes arising out of eviction.