Where a bankruptcy decision is given in respect of the tenant while the lease relationship is continuing, this creates serious uncertainty for the landlord as regards the collection of the debt. The Turkish Code of Obligations No. 6098 has addressed this eventuality by a separate provision; in Article 332 it regulates the course to be taken by a lease relationship formed with a tenant who becomes bankrupt. The provision confers on the landlord the power first to demand security and, if security is not provided, to bring the agreement to an end.
The point on which error is frequently made in practice is this: the existence of a bankruptcy decision does not of itself extinguish the lease agreement and does not produce the result that the tenant is immediately removed from the leased property. The legislature has not made the survival of the agreement directly dependent on the fact of bankruptcy, but has interposed a stage concerning security. The power to terminate, and the consequent power to have the property vacated, arise only where that stage remains without result.
Below we assess, with a view to practice, the legal position of the lease relationship where a bankruptcy decision is given in respect of the tenant, the limits of the landlord’s power to demand security, and the termination and vacating process to be followed where security is not provided.
What Eviction Based on the Bankruptcy of the Tenant Means
This route to eviction rests on the principle that, faced with a tenant in respect of whom a bankruptcy decision has been given, the landlord may demand security in order to safeguard the rent claim and, where that demand goes unanswered, may bring the lease relationship to an end and seek to have the leased property vacated. It occupies a distinctive position among the grounds of eviction listed in lease law; for what is decisive here is not that the tenant has failed to pay, but a serious doubt as to the capacity to pay.
It must be emphasised once again that a bankruptcy decision does not of itself bring the lease agreement to an end and does not require the tenant to be removed from the leased property immediately. The power to have the property vacated arises where the demand for security addressed by the landlord goes unanswered within an appropriate period.
The Function of Article 332 of the Turkish Code of Obligations
That provision establishes a special mechanism designed to protect the landlord’s claim in a lease relationship continuing with a tenant who has become bankrupt. The wording of the provision is as follows:
Turkish Code of Obligations No. 6098, Art. 332
"If the tenant becomes bankrupt after delivery of the leased property, the landlord may request that security be provided for the rent that will accrue. The landlord shall grant the tenant and the bankruptcy estate an appropriate period, in writing, for the provision of security. If security is not provided within that period, the landlord may terminate the agreement immediately, without observing any notice period for termination."
As can be seen, the statute has not placed a direct power of termination in the landlord’s hands. First, adequate security is expected to be shown, by the tenant or by the bankruptcy administration, that the rent which will accrue will be met; only where that expectation is disappointed is the route opened to setting the agreement aside and having the leased property vacated.
Effect of Bankruptcy on the Lease Relationship
An adjudication of bankruptcy in respect of the tenant does not bring the lease agreement between the parties to an end. With the bankruptcy decision, the power of disposal over the tenant’s assets passes to the bankruptcy administration; the lease agreement, by contrast, continues to exist within the legal order.
The landlord’s power to terminate and to have the property vacated depends on that security not having been provided despite an appropriate period having been granted to the tenant or to the bankruptcy administration and security having been demanded.
Legal Position of the Lease Agreement After a Bankruptcy Decision
Since an adjudication of bankruptcy does not of itself bring the lease relationship to an end, the rights and obligations arising from the agreement are not extinguished. Even where the power of disposal over the tenant’s assets has passed to the bankruptcy administration, the agreement remains valid.
For that reason the landlord may not make a claim to have the property vacated as soon as the tenant’s bankruptcy becomes known. The sequence to be followed is settled: first, an appropriate period is granted to the tenant or to the bankruptcy administration to provide adequate security that the rent which will accrue will be met. Where that period passes without result, the landlord may terminate the agreement and seek to have the leased property vacated.
Does Bankruptcy Alone Lead to the Property Being Vacated?
It does not. An adjudication of bankruptcy leads neither to the lease agreement coming to an end of its own accord nor to the tenant being removed from the leased property immediately.
For the power to have the property vacated to arise, three steps are required to be taken together: the landlord must make a demand for security, must grant a suitable period for that demand, and adequate security must not have been provided within the period granted. Advancing a claim to have the property vacated directly, without these steps being completed, produces no legal effect.
Power of the Bankruptcy Administration to Continue the Lease
Where the tenant becomes bankrupt, the rights and obligations arising from the lease agreement may be exercised by the bankruptcy administration. If the bankruptcy administration is of the view that there is a commercial advantage, it may choose to continue the relationship; by ensuring that the rent is paid, it makes it possible for the agreement to survive.
Where such a choice is made, the landlord’s power to terminate and to have the property vacated does not arise. Conversely, if the demand for security addressed by the landlord goes unanswered within the appropriate period, the claim for termination of the agreement and for the vacating of the leased property arises once again.
The power of the bankruptcy administration to continue the agreement does not weaken the security of the landlord’s claim. In any event, the landlord may exercise the power to demand security in order to safeguard the rent claim that will arise.
The Power of the Landlord to Demand Security
Where a bankruptcy decision is given in respect of the tenant, the landlord may request that adequate security be shown by the tenant or by the bankruptcy administration so that the rent claim does not go unsatisfied. This power is not a possibility of setting the agreement aside at once; it is a protective instrument whose purpose is to safeguard the lease relationship.
The power to demand security arises together with the bankruptcy decision and constitutes a mandatory preliminary stage for the exercise of the power of termination. Put otherwise, a termination effected without security having been demanded and without a suitable period having been granted for it produces no valid legal effect.
Statutory Basis of the Power
The landlord’s power to demand security arises directly from Article 332 of the Turkish Code of Obligations No. 6098. The provision affords the landlord, where the tenant becomes bankrupt, the possibility of demanding adequate security that the rent which will accrue will be met.
The principal consequences of the rule as reflected in practice may be listed as follows:
- Where security is provided in due form, the lease relationship continues on its ordinary course
- Failure to provide the security demanded gives rise to the power to terminate and to the consequent power to have the property vacated
- An adjudication of bankruptcy does not on its own afford the landlord the possibility of setting the agreement aside
- Before the step of termination, the demand for security must without exception have been addressed to the other party
The power to demand security rests on a mandatory rule aimed at protecting the claims arising from the lease relationship.
Granting a Period for the Security
In making the demand for security, the landlord is obliged to give the tenant and the bankruptcy administration an appropriate period in writing for its provision. The statute does not prescribe a fixed period; a reasonable period must be determined having regard to the circumstances of the particular case.
The period determined is required to be wide enough to make it possible for the security actually to be obtained. Granting an unrealistically short period is incompatible with the purpose of the institution of demanding security and may render disputable the validity of a power of termination exercised in reliance on it.
The statute requires the granting of the period to be effected by a written warning notice.
What Happens If Security Is Not Provided?
If the security demanded is not provided by the tenant or the bankruptcy administration within the period granted, the landlord acquires the power to terminate the lease agreement. In consequence of that power, the vacating of the leased property may also be claimed.
However, the fact that security has not been provided does not mean that the agreement is extinguished of its own accord. For the lease relationship to come to an end, it is essential that the landlord manifest the intention to terminate by an express declaration.
A landlord who has completed this step may bring an action for the vacating of the leased property on the basis that the agreement has been terminated; and, where the conditions are met, may also have recourse to enforcement proceedings.
Termination of the Lease Agreement
Drawing Up the Notice of Termination
Where security is not provided, the exercise of the power of termination depends on that intention being conveyed to the tenant or to the bankruptcy administration. In practice the notice is most often drawn up in the form of a written warning notice.
The following points stand out as regards the notice achieving its purpose:
- The fact that the agreement has been brought to an end must be expressed with a clarity leaving no room for interpretation
- It must be apparent from the notice that a demand for security was previously made and that a period was granted for it
- The fact that the period granted has expired and that, despite this, the security has not been provided must be established in concrete terms
The notice of termination is not required to be made in writing; nevertheless, given the ease of proof, written form is preferred and the notice is sent through a notary so far as possible.
When the Claim to Vacate Arises
From the moment the lease relationship is terminated, the landlord acquires the power to demand that the leased property be vacated. Where the tenant or the bankruptcy administration does not leave the immovable property of its own accord, this claim is taken before the courts.
Three matters are decisive at this point: the power to have the property vacated arises where security is not provided and the agreement is thereupon set aside; the legal instrument in the landlord’s hands is an action directed at the vacating of the leased property; and a claim to have the property vacated made directly, with the step of termination omitted, is as a rule not accepted.
The sound progress of the process therefore depends on the demand for security being addressed, a period being granted, and the act of termination being completed in due form.
How Is an Eviction Action Brought on the Bankruptcy of the Tenant?
The action to be brought after termination is in the nature of an eviction action arising from the lease relationship. For the action to be entertained, the landlord must have made a demand for security, must have granted a suitable period for it, and the security must not have been provided within that period.
Completion of the mediation stage is compulsory before the action is brought; the proceedings themselves are subject to the procedural rules applicable to eviction actions generally.
Compulsory Recourse to Mediation
Since a claim to have the property vacated founded on the bankruptcy of the tenant is a dispute arising from the lease relationship, recourse to mediation before the action is essential. Mediation is here a procedural requirement; actions brought without this stage having been exhausted are dismissed on procedural grounds.
The matters to be taken into account in this framework are as follows:
- The final report drawn up at the end of the mediation process is annexed to the statement of claim
- The compulsory mediation stage must be exhausted before an action seeking the vacating of the property is brought
- If the parties cannot reach a settlement, the judicial route is opened once the final report is obtained
Courts with Subject-Matter and Territorial Jurisdiction
In an action of this kind seeking the vacating of the property, subject-matter jurisdiction belongs to the Civil Court of Peace of the place where the leased property is situated.
As regards territorial jurisdiction, two options arise as a rule:
- The court of the place of domicile of the party in the position of respondent
- The court of the place where the leased immovable property is situated
In practice the great majority of actions are brought before the court of the place where the property is situated.
Burden of Proof and Evidence
Since it is the landlord who asserts that the conditions for termination have arisen, the burden of proof also falls on the landlord.
The matters the landlord must establish are as follows:
- That a bankruptcy decision exists in respect of the tenant
- That the demand for security was addressed to the other party
- That a suitable period was granted for that demand
- That the security was not provided although the period had expired
- That the lease agreement was brought to an end by the intention to terminate
The documents most frequently relied upon in practice in establishing these matters are as follows:
- The court judgment relating to the bankruptcy
- The lease agreement between the parties
- The warning notice containing the demand for security
- The notice relating to the termination
- The records relating to service
These documents perform a decisive function in demonstrating the legal basis of the claim to have the property vacated.
Enforcement of the Eviction Judgment
For the judgment ordering the vacating of the property given at the end of the proceedings to be actually put into effect, recourse must be had to enforcement proceedings. If the tenant does not leave the immovable property of its own accord, the judgment is carried out through the enforcement office.
The matters that stand out at this stage may be summarised as follows:
- The judgment is applied through the procedure of enforcement based on a judgment
- The landlord applies to the enforcement office of the place where the judgment was given and makes a claim to have the property vacated
- An eviction order is served on the tenant by the enforcement office
- If the immovable property is not vacated within the period granted, the property is vacated by force
Must the Judgment Become Final?
As a rule, it is not required that the judgment ordering the vacating of the property become final before it may be made the subject of enforcement.
Nevertheless, where the tenant has recourse to a legal remedy, the suspension of the process depends on obtaining a decision for a stay of enforcement. Where such a decision is obtained, the enforcement proceedings are suspended until the review on the legal remedy is concluded.
The position in practice may be summarised as follows:
- The eviction may be suspended only by a decision staying the enforcement
- The judgment may be made the subject of enforcement proceedings even before it becomes final
- The fact that an appeal or an appeal on points of law has been lodged does not on its own prevent the vacating of the property
How the Enforcement Stage Operates
The application of the judgment ordering the vacating of the property is conducted within the framework of the provisions of the Enforcement and Bankruptcy Act No. 2004. During this process the enforcement office grants the tenant a period of grace within which to leave the immovable property.
The general course of the process is as follows: an application is made to the enforcement office on the basis of the judgment, the office sends the tenant an eviction order, the tenant is given a period within which to vacate the immovable property, and if that period passes without result the property is vacated by force.
At this final stage the vacating is carried out by the Enforcement Office accompanied by law enforcement officers, and the immovable property is actually delivered to the landlord.
Independent Legal Assessment
Eviction founded on the bankruptcy of the tenant is among the headings of lease law in which the technical aspect predominates. A significant proportion of disputes arises not from an argument going to the merits, but from the demand for security never having been addressed, or from the period granted not being found realistic. The most critical moment of the process is therefore not the day the statement of claim is drafted, but the day the first warning notice is drawn up.
The choice of the bankruptcy administration as to whether to continue the agreement should also be followed separately; for the stance of the administration directly shapes the options in the landlord’s hands. When a road map is drawn up in a specific file, we recommend that the following headings be given priority:
- Addressing the demand for security in writing both to the tenant and to the bankruptcy administration
- Determining and justifying the period granted to an extent allowing the security actually to be obtained
- Manifesting the intention to terminate by a separate notice, in a manner leaving no room for doubt
- Completing the compulsory mediation stage before the action and annexing the final report to the file
- Assembling the bankruptcy decision, the warning notice and the service records as a whole from the outset
- Assessing in advance the possibility of commencing enforcement proceedings without awaiting finality, and the risk of a stay of enforcement
Independent Legal provides advisory services and conducts litigation at every stage of the process, from the preparation of the demand for security to the enforcement of the eviction judgment, in disputes arising from lease relationships.