The “to let by transfer” notices frequently seen in shop windows or on the glass of business premises are one of the ordinary sights of commercial life. What is meant by that expression in practice is that the business is handed over to a new tenant together with the fixtures inside it and the existing order of operations. Depending on how the particular case is structured, that handover may be carried out through legal institutions that are quite distinct from one another, such as transfer of the lease relationship, transfer of a commercial enterprise or sublease.
Under Article 323 of the Turkish Code of Obligations No. 6098, the transfer of a lease relationship depends, in principle, on the written consent of the landlord being obtained. In the case of commercial leases, however, the law does not permit the landlord to withhold that consent at will; it has made the power to refuse conditional on the existence of just cause.
In this briefing note we examine the conditions required for the transfer to be valid, the legal route available to the tenant where consent is withheld without justification, the consequences the transfer produces for the parties, and the difference between it and a sublease relationship.
Can a Commercial Lease Agreement Be Transferred?
The transfer of a commercial lease agreement is, as a rule, legally possible. The validity of the transfer, however, depends on the written consent of the landlord. Under Article 323 of the Turkish Code of Obligations No. 6098, a tenant who wishes to pass the lease relationship on to a third party must obtain consent to that effect from the landlord.
The wording of the provision is as follows:
Turkish Code of Obligations No. 6098, Art. 323
“The tenant may not transfer the lease relationship to another person without obtaining the written consent of the landlord. In commercial leases, the landlord may not withhold that consent unless there is just cause.”
As can be seen, no scope has been allowed in commercial leases for consent to be refused arbitrarily. The law accepts that the landlord may withhold consent to a transfer only where just cause exists. Accordingly, where consent is withheld in the absence of any such cause, the tenant may apply to the court and request that the transfer be permitted.
Conditions Required Cumulatively for a Transfer
Whether the transfer can take effect depends on several conditions being satisfied together. For the purposes of Article 323 of the Turkish Code of Obligations No. 6098, a transfer takes effect not through a unilateral declaration of intention, but by virtue of a legal transaction concluded between the parties together with the landlord’s consent added to it. Within that framework, the following three elements must be present together.
Existence of a Lease Agreement in Force
Before a transfer can be spoken of, a legally valid lease relationship must exist between the parties. It is not necessary for the agreement to have been made in writing; a lease relationship established orally may also be the subject of a transfer. What is required is that, on the date of the transfer, the agreement has not come to an end and continues to have effect.
For this reason the transfer of an agreement that has expired, been terminated or otherwise ceased to exist is inconceivable. A transfer can be built only on a living and continuing lease relationship.
Agreement Between the Transferor and the Transferee
The second limb of the transfer is the meeting of the intentions of the existing tenant and the person who is to take his place. That agreement is mostly made in writing and is referred to in practice as a “transfer agreement” or a “business premises transfer agreement”.
This document between the parties evidences the intention to transfer; it does not, however, on its own bring about the change of hands of the lease relationship. For the transaction to be completed in law, the landlord must also consent to the transfer.
Obtaining the Landlord’s Written Consent
The most decisive element of the transfer is the landlord’s written consent. Unless there is an express and written declaration of intention by the landlord, the lease relationship cannot be transferred.
On the other hand, in commercial leases just cause must be shown in order to withhold that consent. Where permission to transfer is refused in the absence of just cause, the tenant may apply to the court and seek permission for the transfer. The judgment given in such an action takes the place of the landlord’s consent, and the lease relationship is deemed to have been transferred in law.
What Can Be Done When the Landlord Withholds Consent?
The fact that a transfer depends as a rule on the landlord’s written consent does not confer on him an unlimited power of obstruction. Under Article 323 of the Turkish Code of Obligations No. 6098, consent may be withheld only where just cause exists. Where consent is refused although no just cause can be shown, the tenant has the possibility of applying to the court with a request that the transfer be permitted.
Limits of the Power to Withhold Consent
The landlord is not obliged to accept every request for a transfer; in order to refuse, however, he must have a justified ground. The apparent inadequacy of the prospective transferee’s ability to pay, the fact that he will carry on an activity contrary to the purpose for which the premises were allocated, or the possibility that a situation contrary to the agreement will arise as regards the use of the leased property may be given as examples of grounds of that kind.
By contrast, an unwillingness to change the tenant, personal preferences or an expectation of raising the rent are not regarded as just cause. Withholding consent on such grounds may be regarded as unlawful.
The Action That Replaces Consent
Where consent to a transfer is withheld without just cause being shown, the tenant may apply to the court and request permission for the transfer of the lease relationship. This action is characterised in practice as an action for performance that takes the place of the landlord’s declaration of intention.
The court assesses the features of the file and examines whether the ground for withholding consent can be regarded as justified. If it concludes that there is no just cause, the judgment given takes the place of the landlord’s consent and the lease relationship is regarded as having been transferred in law.
Courts With Subject-Matter and Territorial Jurisdiction
In actions brought seeking permission for a transfer, subject-matter jurisdiction lies with the civil court of peace. As to territorial jurisdiction, the court of the place where the leased property is situated, or the court of the respondent’s domicile, has jurisdiction as a rule.
In actions of this kind it is decisive that the lease relationship is still continuing. Since no relationship capable of being transferred will remain once the agreement has come to an end, the legal basis of an action brought seeking a transfer also falls away.
Effects of the Transfer
The lease relationship does not end with the transfer; only the tenant party changes, and the agreement continues to run on its existing terms. Under Article 323 of the Turkish Code of Obligations No. 6098, the transaction has the effect of passing the right to use the leased property, together with the rights and obligations arising out of the agreement, to the transferee. At the same time, the law has also provided that the liability of the transferring tenant is to continue for a further defined period.
Change in the Capacity of Tenant
The most fundamental effect of the transfer is that the tenant changes. With the transaction, the new tenant becomes a party to the existing agreement and takes the place of the previous one. The agreement does not come to an end for that reason; the rent, the purpose of use, the term and the other stipulations retain their validity unchanged.
Put differently, a transfer is not a termination but the continuation of the agreement with a change of party. The transferee tenant assumes all the rights and obligations arising out of the agreement and becomes bound to use the leased property in accordance with the terms agreed in the agreement.
Continuing Liability of the Transferring Tenant
With the transfer, the previous tenant withdraws from the lease relationship as a rule. In commercial leases, however, in order to secure the landlord’s claims, the law has accepted that the liability of the transferring tenant is to continue for a further defined period.
Within that framework, the transferring tenant continues to be jointly and severally liable with the transferee for the obligations arising out of the agreement. The scope of that liability includes payment of the rent, meeting the common expenses and performing the other obligations arising out of the agreement.
Duration of Liability: Two Years at Most
Under Article 323 of the Turkish Code of Obligations No. 6098, in commercial leases the liability of the transferring tenant lasts until the end of the lease agreement and, in any event, for a maximum of two years. That period is calculated from the date on which the transfer took place.
Accordingly, if the agreement is to remain in force for a period exceeding two years after the transfer, the liability of the transferring tenant is limited to two years. If the agreement comes to an end before two years have elapsed from the transfer, liability lasts until the moment the agreement ends.
The purpose of the provision is both to secure the landlord’s claims and to prevent the transferring tenant from remaining bound for an indefinite period.
Distinction Between Sublease and Transfer of the Lease Relationship
The fact that business premises begin to be operated by someone else leads in practice to the concepts of transfer and sublease being confused with one another. Yet these two transactions are wholly different in terms of the effects they produce. It is therefore of great importance that the tenant establish correctly which legal route he is taking before handing the premises over to another person.
In a transfer, the existing tenant leaves the agreement entirely and his place is taken by the new tenant. In a sublease, by contrast, the principal tenant continues to be a party to the agreement and makes the leased property available for the use of a third party. For this reason, in the case of a sublease no direct lease relationship arises between the landlord and the subtenant.
The second important difference emerges in the field of liability. In a transfer, the liability of the transferring tenant continues but is limited to a defined period, whereas in a sublease the principal tenant remains liable for all the obligations arising out of the agreement. In cases such as non-payment of the rent or use contrary to the agreement, the landlord may proceed directly against the principal tenant.
The fundamental differences are summarised in the table below:
| Criterion | Transfer of the lease agreement | Sublease relationship |
|---|---|---|
| Party to the agreement | The transferee acquires the capacity of tenant | The principal tenant continues to be a party |
| Link between the landlord and the user | A direct lease relationship arises | No direct lease relationship arises |
| Liability of the previous tenant | Continues, limited to a defined period | Continues in respect of all the obligations |
To summarise the distinction in a single sentence:
In a transfer the identity of the tenant changes; in a sublease the tenant remains the same.
For this reason, where it is planned that business premises are to be operated by someone else, correctly determining at the outset whether the transaction to be carried out is a transfer or a sublease is decisive for preventing the liabilities and disputes that may arise later.
Related Topics
- What Is a Sublease and the Transfer of the Right of Use?
- Can a Lease Agreement Be Transferred?
- Grounds for Evicting a Tenant and Eviction Actions
Independent Legal Assessment
In transfers of business premises, the great majority of disputes arise from the parties attaching different meanings to the expression “to let by transfer”. The transferee mostly assumes that he has entered into a direct relationship with the landlord, whereas there may be no valid transfer at all because the landlord has not given written consent. In that situation the person actually carrying on the business finds himself in the leased property without contractual protection, while the landlord may resort to termination on the ground of use contrary to the agreement.
Where the transfer takes place together with the transfer of a commercial enterprise, the picture becomes more complicated still. Since in transactions of that kind the fate of the lease relationship, the transfer price and the obligations assumed by the transferee are all regulated in a single document, when and with what scope the landlord’s consent was obtained is as decisive as the structure of the agreement.
The headings that should be brought to the fore when preparing in this field are as follows:
- Characterising at the outset whether the transaction to be carried out is a transfer, a sublease or a transfer of the enterprise
- Obtaining the landlord’s written consent, with its scope defined, before the transfer agreement is signed
- Assessing, where consent is withheld, whether the ground put forward can be regarded as just cause
- Agreeing how the transferring tenant’s two-year joint and several liability is to be shared between the parties in their internal relationship
- Establishing the rent and common expense debts accrued up to the date of the transfer and recording them in a written record
- Examining whether the lease agreement contains any stipulation restricting or prohibiting transfer
Independent Legal provides advisory and litigation services in processes relating to the transfer of commercial enterprise and business premises lease relationships, from the preparation of the agreement to bringing consent disputes before the courts.