ABSTRACT
This article aims to address this uncertainty by evaluating the fate of rental agreements concluded in foreign currencies in light of recent court decisions.
I. INTRODUCTION
In recent years, various regulations have been introduced to protect the value of the Turkish currency, particularly against foreign currencies. In this context, the Decision No. 32 on the Protection of the Value of Turkish Currency (“Decision No. 32”), which was issued pursuant to Article 1 of the Law No. 1567 on the Protection of the Value of Turkish Currency (“Law No. 1567”), the Presidential Decree No. 85 on the Amendment of Decision No. 32 on the Protection of the Value of Turkish Currency (“Decree No. 85”), and the communiqués issued by the Ministry of Treasury and Finance based on Decision No. 32, are among the primary regulations. However, despite the prohibition on contracting in foreign currencies, the fate of contracts concluded in violation of this prohibition has not been explicitly regulated. Specifically, in the context of rental disputes, which are among the most common types of disputes brought before the courts, there is no clarity on the fate of rental agreements concluded in foreign currencies.
Pursuant to Article 1 of Law No. 1567, Decision No. 32, which was adopted and entered into force in 1989, states in its first article that the purpose of Decision No. 32 is to protect the value of the Turkish currency against foreign currencies1. Since its entry into force in 1989, Decision No. 32 has undergone changes at different times, and particularly in recent years, due to the rapid decline in the value of the Turkish currency, it has had a more comprehensive impact on various areas. However, this impact has brought to light certain problems and uncertainties in the application of the provision. One of the most notable of these is the uncertainty regarding the fate of contracts in which the contract price or other payment obligations arising from the contract are denominated in foreign currency, contrary to the prohibition. While the regulations have had an impact on many types of contracts, the impact on lease agreements, which are frequently encountered in Court of Cassation decisions, has been more comprehensive in terms of application. There has been a great deal of debate about what will happen to lease agreements that are concluded in a way that is against the prohibition because it is unclear how this will be handled and there are no established court rulings on the subject. Should the parties to a lease agreement that is concluded in a manner contrary to the prohibition be punished with an administrative fine, and the lease agreement still be upheld? Or should the lease agreement be considered partially or entirely null and void due to its contravention of the economic public order? In contrast to the provisions of Law No. 1567, it is evident that there is a legislative gap concerning the fate of lease agreements in which the contract price or other payment obligations arising from the contract are denominated in foreign currency. While it would be most appropriate for the legislator to fill this gap, the matter must be addressed in light of court decisions until the legislative gap is closed. Indeed, pursuant to Article 1/2 of the Turkish Civil Code No. 4751, “If there is no applicable provision in the law, the judge shall decide according to customary law, and if there is no customary law, the judge shall decide as if he were the legislator”2.
II. PROHIBITION ON CONTRACTING IN FOREIGN CURRENCY
A. Evaluation Pursuant to The Turkish Code of Obligations No. 6098
Pursuant to Article 26 of the Turkish Code of Obligations No. 6098 (“Law No. 6098”), “The parties may freely determine the content of a contract within the limits prescribed by law”3. The freedom of contract, which is the cornerstone of the law, serves as the foundation for this clause. However, the legislator has the authority to impose restrictions on this freedom of contract within the frameworks specified in special laws. At this point, the regulations enacted for the protection of the Turkish currency are provisions that limit the freedom of contract.
Again, Article 27 of the Law No. 6098 states that “Contracts that are contrary to the mandatory provisions of the law, morality, public order, personal rights or are impossible are absolutely null and void”4. This provision stipulates that contracts that are contrary to any of these limited number of circumstances will result in absolute nullity. However, the second paragraph of the same article states that, “The invalidity of some of the provisions of the contract does not affect the validity of the others. However, if it is clearly understood that the contract would not have been made without these provisions, the entire contract is absolutely null and void”5. As stated, not every case of absolute nullity will result in the complete invalidity of the contract. Thus, the aim is to protect the parties’ intentions, provided that they remain within the legal framework.
At this point, one of the most notable restrictions on the parties’ free will is the prohibition on making a contract in which the contract price or other payment obligations arising from the contract are denominated in foreign currency, as per the Law No. 1567 and the general and regulatory transactions made pursuant to it, namely Decision No. 32, Decision No. 85, and the relevant communiqués. This prohibition has introduced certain restrictions on the freedom of contract envisioned by the Law No. 6098. However, the rule is that the contract price or other payment obligations arising from the contract must be determined in Turkish currency for all contracts, including lease agreements, although this rule is not absolute, and it is possible to determine the contract price or other payment obligations arising from the contract in foreign currency in a limited number of cases specified in Decision No. 32, Decision No. 85, and the relevant communiqués.
B. Exceptions to the Prohibition
Pursuant to the Law No. 1567 and the general and regulatory transactions made pursuant to it, namely Decision No. 32, Decision No. 85, and the relevant communiqués, it is not possible for persons resident in Türkiye to determine the contract price or other payment obligations arising from the contract in foreign currency in lease agreements for real estate located in Türkiye, including residential and commercial properties, among themselves. The exceptions to this rule for real estate lease agreements are as follows:
i. In lease agreements involving Turkish residents who are not citizens of the Republic of Türkiye, the contract price or other payment obligations resulting from the contract may be determined in foreign currency.
ii. It is possible to determine the contract price or other payment obligations arising from the contract in foreign currency in lease agreements related to the rental of real estate for the operation of accommodation facilities that have been certified by the Ministry of Culture and Tourism of the Republic of Türkiye.
iii. It is possible to determine the contract price or other payment obligations arising from the contract in foreign currency in lease agreements related to the rental of real estate for duty-free shops.
iv. It is possible to determine the contract price or other payment obligations arising from the contract in foreign currency in lease agreements to be concluded by companies in which persons resident abroad have a direct or indirect shareholding of 50% (fifty percent) or more, or have joint control and/ or control, as well as by companies in free zones within the scope of their activities in free zones, for the rental of real estate in Türkiye, including branches, representative offices, offices, and liaison offices.
Therefore, except for the exceptional cases mentioned above, the contract price (rental fee) and other payment obligations arising from the contract (common expenses, usage expenses, etc.) in real estate lease agreements to be signed will be determined in Turkish currency in any case.
III. CONTRACTS MADE IN CONTRAVENTION OF THE PROHIBITION
A. Contracts Concluded Before the Effective Date of Decision No. 85, September 13, 2018
The 2nd article of Decision No. 85 states that the contract prices determined in foreign currency in many contracts, including real estate lease agreements, concluded before the effective date of Decision No. 85, shall be re-determined in Turkish currency by the parties within 30 days from the effective date of Decision No. 85. Indeed, this matter is reiterated in Article 8, paragraph 27 of the Communiqué on Decision No. 32 on the Protection of the Value of Turkish Currency (Communiqué No: 2008-32/34), which states that “It is mandatory for the parties to re-determine in Turkish currency the prices in contracts where it is not possible to determine the contract price and other payment obligations arising from these contracts in foreign currency, within the scope of the provisional article 8 of Decision No. 32”6. In the event that the parties cannot reach an agreement on the re-determination of the contract price or other payment obligations in Turkish currency, which were previously determined in foreign currency, the method of determining these prices in Turkish currency is specified in the first paragraph of Article 8, paragraph 28 of the Communiqué on Decision No. 32 on the Protection of the Value of Turkish Currency (Communiqué No: 2008- 32/34), which states that “If the parties cannot reach an agreement on the re-determination of the contract price and other payment obligations in Turkish currency, which were previously determined in foreign currency, in accordance with this article, the prices determined in foreign currency or indexed to foreign currency in the contracts shall be calculated using the indicative exchange rate of the Central Bank of the Republic of Turkey on January 2, 2018, and then increased by the monthly change rates of the Consumer Price Index (CPI) determined by the Turkish Statistical Institute for each month from January 2, 2018, to the date of re-determination of the prices”7. Additionally, a special regulation has been introduced for residential and commercial property rents in the second paragraph of the same article.
As can be seen, for many contracts, including real estate lease agreements, concluded before the effective date of Decision No. 85, in which the contract price or other payment obligations arising from the contract were determined in foreign currency, a partial nullity consequence has been deemed more suitable than an absolute nullity consequence, and it has been decided that the prices determined in foreign currency should be re-determined in Turkish currency by the parties to the relevant contract.
Indeed, the Court of Cassation, in a dispute arising from a real estate lease agreement concluded before the effective date of Decision No. 85, in which the contract price was determined in foreign currency, ruled that “...according to these articles, the prices determined in foreign currency in contracts concluded between the parties before the effective date of this decision shall be re-determined by the parties, except for the specified exceptions, and if the parties cannot reach an agreement on the re-determination, the rent shall be determined according to the above-mentioned regulation”8. By this ruling, the Court of Cassation did not conclude that the real estate lease agreement, in which the contract price was determined in foreign currency and concluded before the effective date of Decision No. 85, would result in absolute nullity.
In another decision; “the Court of Cassation ruled that, in contracts that do not fall within the scope of exceptions to the prohibition, the prices determined in foreign currency must be re-determined in Turkish currency within 30 days from the effective date of Decision No. 85, and that, in the disputed real estate lease agreement, since the rent determined in foreign currency was not re-determined by the parties within the specified period, the court should have re-determined the rent in Turkish currency in accordance with the procedure set out in paragraphs 27 and 28 of Article 8 of the Communiqué on Decision No. 32 on the Protection of the Value of Turkish Currency (Communiqué No: 2008-32/34) as amended by the Communiqué on the Amendment of the Communiqué No. 2008-32/34 (Communiqué No: 2018- 32/52)”9 In this decision, the Court of Cassation ruled that “Since the rent determined in foreign currency in the lease agreement concluded between the parties, which was still in effect as of the date of the lawsuit, must be re-determined in Turkish currency, and since the parties did not reach an agreement on this matter, the first instance court should have evaluated the matter in accordance with the relevant legislation and, if necessary, obtained an expert report from a specialist in the field, and re-determined the rent in Turkish currency, which was previously determined in foreign currency, and rendered a decision accordingly, instead of dismissing the lawsuit due to incomplete examination”10.
Accordingly, it can be said that the Court of Cassation tends to uphold contracts concluded before the effective date of Decision No. 85, which are not within the scope of exceptions, but in which the contract price or other payment obligations arising from the contract are determined in foreign currency, by converting the prices determined in foreign currency or indexed to foreign currency into Turkish currency, either by agreement of the parties or by court decision if the parties cannot reach an agreement.
B. Contracts Concluded After the Effective Date of Decision No. 85, September 13, 2018
The fate of real estate lease agreements concluded in contravention of the prohibition on determining the contract price or other payment obligations arising from the contract in foreign currency, as stipulated in Law No. 1567 and the general and regulatory transactions made pursuant to it, including Decision No. 32, Decision No. 85, and the communiqués issued by the Ministry of Treasury and Finance pursuant to Article 4 of Decision No. 85, is highly controversial, as mentioned above. This is because the only sanction stipulated in the legislation for contracts concluded in contravention of the prohibition is the administrative fine specified in Article 3 of Law No. 1567.
Although Law No. 1567 does not stipulate any sanctions other than administrative fines for contracts concluded in contravention of the prohibition, and furthermore, the general and regulatory transactions made pursuant to Law No. 1567, namely Decision No. 32, Decision No. 85, and the relevant communiqués, do not provide for any sanctions for non-compliance with the prohibition, there are opinions in the doctrine that contracts concluded in contravention of the prohibition may be subject to the sanction of absolute nullity, in addition to administrative fines. On the other hand, some authors argue that only the provisions of the contract related to the price may be null and void (partial nullity). According to the majority view accepted in the doctrine, if there is no clarity on whether the sanction to be applied in case of a contract being contrary to a legal rule is absolute nullity, the interpretation method that prioritizes the validity of the transaction should be preferred11. Therefore, the fate of contracts in which the price or other payment obligations arising from the contract are determined in foreign currency in contravention of the prohibition should be concluded with partial nullity, and the contract should be upheld.
Generally, it is claimed that the price agreed upon in a contract between parties is one of the essential elements of the contract, and therefore, a contract cannot be established without a price12. However, this situation can only arise if it is not possible to understand any amount from the parties’ intentions13. In fact, Article 233 of the Law No. 6098 goes even further and states that even if the sales quantity is not specified at all, the contract should be upheld and the price can be determined. Therefore, it is not necessary for a specific price to be determined in the contract, and if it can be determined later, the contract will be valid in any case14. In conclusion, the contract being deemed absolutely null and void due to the lack of a price element in the contract will only be applicable in cases where it is not possible to determine the contract price from the parties’ intentions or the circumstances of the case.
Therefore, even if the contract price does not gain legal validity due to the parties’ agreement, if the parties have expressed a common intention to agree on a specific or determinable amount, this amount will be adapted to the contract and the contract will be upheld. Consequently, according to the Presidential Decree No. 85 dated September 12, 2018, even if the contract prices concluded after this date are legally null and void, the parties have agreed on a specific amount. At this point, the court will need to adapt the contract prices determined in foreign currency to Turkish currency and ensure that the contract price gains legal validity in accordance with the parties’ common intention.
In a case where the Court of Cassation upheld the decision of the first instance court regarding a dispute arising from a lease agreement that was concluded in a foreign currency and fell within the scope of the prohibition, the first instance court ruled that “Although the defendant debtor claimed that the lease agreement became invalid due to the Temporary Article 8 of the Decision No. 32 on the Protection of the Value of Turkish Currency, this article does not grant the defendant debtor the right to use the leased property without making any rent payments. If the defendant debtor claims that the rent regulation is invalid according to the mentioned decision, then they must pay the rent amount that they have determined based on objective principles to the plaintiff creditor...”. The court thus stated that even if the lease agreement did not fall within any of the exceptions specified in the communiqués issued by the Ministry of Treasury and Finance pursuant to Article 4 of Decision No. 85, and therefore the rent could not be determined in foreign currency, the fact that the rent was determined in foreign currency in contravention of the prohibition does not mean that there is no contractual relationship between the parties15.
In another decision, the Court of Cassation ruled that “Since the contract that is the basis of the enforcement proceeding was concluded on June 1, 2020, which is after the date of the Presidential Decree No. 85 dated September 12, 2018, and the contract price is determined in foreign currency, the contract cannot be used as the basis for the enforcement proceeding and eviction cannot be requested...”16. The Court stated that a lease agreement in which the rent is determined in foreign currency, despite not falling within any of the exceptions specified in the communiqués issued by the Ministry of Treasury and Finance pursuant to Article 4 of Decision No. 85, cannot be used as the basis for an enforcement proceeding and eviction cannot be requested. However, it should be noted that this decision of the Court of Cassation has several shortcomings. Specifically, the decision only addresses the nullity of the contract price, but does not provide any explanation regarding the ongoing lease relationship between the parties. Additionally, it should be noted that the Court of Cassation’s decision is based on the idea that the limitation on contracting in foreign currency or indexing to foreign currency, as introduced by Law No. 1567 and the general and regulatory transactions made pursuant to it, including Decision No. 32, Decision No. 85, and the communiqués issued by the Ministry of Treasury and Finance, aims to protect the economic public order, and that according to Article 27 of the Law No. 6098, contracts that are contrary to the mandatory provisions of the law, morality, public order, personal rights, or are impossible, are absolutely null and void.
Similarly, in a recent decision of the 12th Civil Chamber of the Court of Cassation, it was ruled that “The legislation enacted to protect the value of the Turkish currency was amended in 2018 to limit the freedom to contract in foreign currency and indexing to foreign currency, with the aim of protecting the economic public order, and this situation must be taken into account by the courts ex officio.” The court stated that the determination of the rent in foreign currency in the disputed lease agreement constitutes a violation of the economic public order, but did not provide a clear statement regarding the fate of the disputed lease agreement (partial or absolute nullity)17.
IV. CONCLUSION
The fate of contracts in which the contract price is determined in foreign currency, in light of Decision No. 32 and subsequent regulations, has not yet been fully clarified. Since the Court of Cassation has not yet established a clear and settled precedent on this issue, there is no explicit legal regulation regarding whether the sanction of absolute nullity or partial nullity will be applied in future disputes related to contracts concluded in contravention of the prohibition. However, it is clear from the purpose and scope of the regulation, as well as the legislator’s intention to require contracts with prices determined in foreign currency to be re-determined in Turkish currency, that the regulation does not aim to render such contracts entirely null and void. Indeed, as a result of the decisions mentioned in this article, it can be said that the Court of Cassation has applied the principle of re-determining the contract price in Turkish currency for lease agreements concluded before Decision No. 85, while the Court of Cassation’s decisions on this issue for contracts concluded after Decision No. 85 are not yet consistent. Ultimately, although there is no explicit legal regulation or settled judicial precedent on whether contracts concluded in contravention of Decision No. 32 and subsequent regulations will result in partial or absolute nullity, it would be appropriate and reasonable for such contracts to result in partial nullity, given the purpose of the regulations and the provision of an alternative to determine the price in Turkish currency.
BIBLIOGRAPHY
FİKRET EREN, Borçlar Genel Hükümler, 28th Edition, Ankara, 2023.
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FOOTNOTE
1 Decision No. 32 on the Protection of the Value of Turkish Currency, article1, 11.08.1989 dated, no 20249 Resmi Gazete.
2 Turkish Civil Code No. 4721 article 1, 08.12.2001 dated, no. 24607 Resmi Gazete.
3 Turkish Code of Obligations No. 6098 article 26.
4 Turkish Code of Obligations No. 6098 article 27.
5 Turkish Code of Obligations No. 6098 article 27.
6 32 Sayılı Karara İlişkin 2008-32/34 Sayılı Tebliğ’de Değişiklik Yapılmasına Dair Tebliğ (Tebliğ No: 2018-32/34), 16.11.2018 dated, no.30597 Resmi Gazete.
7 32 Sayılı Karara İlişkin 2008-32/34 Sayılı Tebliğ’de Değişiklik Yapılmasına Dair Tebliğ (Tebliğ No: 2018-32/34), 16.11.2018 dated, no. 30597 Resmi Gazete.
8 Yargıtay 12. H.D., T. 06.10.2022, E. 2022/6469, K. 2022/9954.
9 Yargıtay 3. H.D., T. 20.12.2023, E. 2023/2062, K. 2023/3857.
10 Yargıtay 3. H.D., T. 20.12.2023, E. 2023/2062, K. 2023/3857.
11 Umut Yeniocak, Murat Topuz, Türk Parası Kıymetini Koruma Hakkında 32 Sayılı Karar Çerçevesinde Döviz ile İşlem Yapma Yasağı ve Sözleşmelerin Uyarlanması, Ankara, 2019, p. 69.
12 Necip Kocayusufpaşaoğlu, Borçlar Hukuku Genel Hükümler, 7th Edition, İstanbul, 2017, p. 174-175; Fikret Eren, p. 232.
13 İpek Sağlam, Milletlerarası Mal Satımına İlişkin Sözleşmeler Hakkında Birleşmiş Milletler Antlaşması Uyarınca Sözleşmenin Kurulması, İstanbul, 2013, p. 36; Zhassualn Akhmetov, Milletlerarası Mal Satımına İlişkin Sözleşmeler Hakkında Birleşmiş Milletler Antlaşması’na Göre Sözleşmenin Kurulması, İstanbul, 2015, p. 49.
14 Haluk Nami Nomer/ Baki İlkay Engin, Türk Borçlar Kanunu Şerhi, Volume I, 7th Edition, Ankara, 2023, p. 66
15 Yargıtay 12. H.D., T. 02.05.2023, E. 2023/2761, K. 2023/2950.
16 Yargıtay 12. H.D., T. 16.05.2023, E. 2023/2188, K. 2023/3418.
17 Yargıtay 12. HD., T. 06.10.2022, E. 2022/6469, K. 2022/9954.
