Lessor’s Liability for Defects in Turkish Law – Atty. Ozan Soylu

One of the most important obligations of the lessor in a lease agreement is liability for defects. As a result of the lease agreement being a continuous performance contract, the lessor is held responsible for defects before delivery as well as defects after delivery. In Turkish law, the lessor’s liability for defects is regulated in Turkish Code of Obligations, Articles 304-308.

What conditions must be met for the lessor to be held liable for defects?

For the lessor to be held liable for defects, the following conditions must be met: the leased property must be defective, the lessee must not be aware of the defects in the leased property, there must be no non-liability agreement, and the defects must not originate from the lessee.

How is the notification of defects regulated in the lease agreement?

In the lease agreement, unlike in sales and work contracts, inspection and notification are regulated as an obligation, not as a burden. As a result of this regulation, failure to notify results in the lessee’s liability for damages.

Is it necessary for the lessor to be at fault for liability for defects?

The lessor does not need to be at fault to be held liable for defects. In Turkey, the lessor’s liability for defects is regulated as strict liability. This regulation prevents the lessee from being disadvantaged by having to continue the contract despite the defect, even if the lessor proves their lack of fault.

How can the concept of defect be defined?

A defect can be defined as the absence of qualities that affect the use of the leased property, qualities that should be present, or qualities that the lessor has promised to be present. In Turkish law, the concept of defect is only defined in the sales contract, and it is preferred to use this definition in other contracts as well.

How are types of defects classified?

Types of defects can be classified as follows:

1. According to nature: Material, moral, legal, and economic defects
2. According to the time of existence: Initial and subsequent defects
3. According to degree of importance: Significant and insignificant defects
4. According to whether the defect is immediately noticeable: Apparent and hidden defects

What is a significant defect?

A significant defect is a substantial defect that significantly reduces or eliminates the intended use of the leased property as stipulated in the contract, and which objectively cannot be expected for the lessee to accept the leased property. For example, a house in a cold climate not being suitable for adequate heating, a residence being excessively damp to the point of being uninhabitable for health reasons, the leased property lacking an occupancy permit, or the leased property not being earthquake-resistant can be considered significant defects.

What is a moral defect and in what situations does it arise?

A moral defect is a disturbing situation that, while not physically affecting the use of the leased property, morally hinders its intended use as specified in the contract. The source of a moral defect can be the lessor, other tenants, or third parties. For example, making noise, spreading smoke odor, the lessee being subjected to insults and threats, or leaving a frightening animal loose at the entrance can be examples of moral defects.

What is a legal defect?

A legal defect is the presence of public law restrictions that reduce or eliminate the possibility of using the leased property for the purpose specified in the contract. For example, the inability to obtain a business license due to deficiencies in the property, or the lack of an occupancy permit can be examples of legal defects.

When and how should the lessee notify defects?

The lessee is obliged to notify the lessor without delay of defects that they are not responsible for remedying. Otherwise, they are liable for the resulting damage. Defect notification can be made verbally, via email, or in writing. However, it is beneficial to make it in writing for ease of proof. In a Turkish Supreme Court decision, it was ruled that “(… ) If the lessee accepts (approves) the leased item as it is or waives their rights, the lessor’s liability is eliminated. There is also a case of approval if the lessee renews the lease agreement unconditionally despite knowing about the defect. (… )” This ruling emphasizes the importance of the lessee’s defect notification.

What rights does the lessee have in case of delivery of the leased property with significant defects?

In case of delivery of the leased property with significant defects, the lessee is granted two rights:

1. The ability to refuse the defective delivery of the leased property and resort to the provisions of debtor’s default
2. The ability to resort to optional rights arising from the leased property becoming defective later

What optional rights does the lessee have if they resort to the provisions of debtor’s default in case of delivery of the leased property with significant defects?

When the lessee resorts to the provisions of debtor’s default, they have the following optional rights:

1. Demanding specific performance and compensation for delay
2. Withdrawing from the contract and demanding compensation for negative damages

The right to abandon specific performance and demand compensation for positive damages is not applicable due to the nature of the lease agreement.

What optional rights does the lessee have if the leased property becomes defective later?

If the leased property becomes defective later, the lessee has the following optional rights:

1. The right to demand the remedy of the defect
2. The right to demand a reduction in the rent
3. The right to demand replacement of the leased property with a non-defective equivalent
4. The right to demand compensation for damages
5. The right to terminate the contract in case of significant defects

How is the right to demand the remedy of the defect exercised?

The lessee can demand from the lessor that the defect in the leased property be remedied within a reasonable time. If the defect is not remedied within this time, the lessee can have the defect remedied at the lessor’s expense and deduct the resulting claim from the rent, or demand the replacement of the leased property with a non-defective equivalent. The right to demand the remedy of the defect is in the nature of specific performance and is a path that must be exhausted before using other optional rights.

How is the right to demand replacement of the leased property with a non-defective equivalent exercised?

For the right to demand replacement of the leased property with a non-defective equivalent to be exercised, the defect must not have been remedied within the reasonable time given to the lessor. This right can be exercised regardless of whether the nature of the defect is significant or not. There is a dominant view in the doctrine that for the lessee to exercise this right, the leased property must be a fungible good.

How is the right to demand a reduction in rent exercised?

The lessee can demand a proportional reduction in rent for the period from when the lessor learns of the defects affecting the use of the leased property until the defects are remedied. The right to demand a reduction in rent is a secondary optional right and does not require the defect to be significant.

How is the rent reduction calculated?

In what situations can the right to terminate the contract be exercised?

The right to terminate the contract can be exercised in case of delivery of the leased property with significant defects or if the defect eliminates or significantly hinders the suitability of the leased property for the intended use and cannot be remedied within the given time. The declaration of termination is a unilateral declaration of will that does not depend on acceptance and, as a rule, is not subject to any formal requirements.

How is the right to demand compensation for damages exercised?

The lessee can demand compensation for damages suffered due to the defective nature of the leased property. This right can be exercised together with or separately from other optional rights. To be able to demand compensation for damages, the damage must result from the lessor’s breach of obligation (fault). The lessor is obliged to pay the lessee for damages arising from the defective nature of the leased property unless they prove they are not at fault.

What are the optional rights granted to the lessor?

The optional rights granted to the lessor are:

1. The right to replace the defective leased property with a non-defective equivalent instead of remedying the defect
2. The right to immediately provide the lessee with a non-defective equivalent of the leased property and compensate for the damage suffered by the lessee

How is the lessor’s right to replace the defective leased property with a non-defective equivalent instead of remedying the defect exercised?

The lessor can replace the defective leased property with a non-defective equivalent within a reasonable time instead of remedying the defect. The exercise of this right by the lessor is possible in situations where remedying the defect would be costly, time-consuming, and therefore, replacing the leased property with a non-defective equivalent would be more appropriate than remedying the defect.

How is the lessor’s right to immediately provide a non-defective equivalent of the leased property and compensate for the lessee’s damage exercised?

The lessor can prevent the lessee from exercising their optional rights by immediately providing a non-defective equivalent of the same property and fully compensating for the damage suffered. To exercise this right, it is essential to immediately provide a non-defective equivalent of the leased property and fully compensate for all the damage suffered by the lessee due to the defective nature of the leased property.

What type of damage can the lessee claim from the lessor due to the defect?

The lessee can claim positive damage from the lessor due to the defect. Positive damage is the difference between the value of the creditor’s assets if the obligation had been performed and the current value of the creditor’s assets due to the non-performance of the obligation. This damage includes values such as the decrease in the value of the leased property, repair costs, and loss of earnings.

What conditions are required to claim compensation due to a defect?

The following conditions are required to claim compensation due to a defect:

1. There must be a defect in the leased property.
2. The lessee must have suffered damage due to the defect.
3. The lessor must be at fault.
4. There must be an appropriate causal link between the defect and the damage.
5. The lessee must have fulfilled the obligation to notify the defect in accordance with Turkish Code of Obligations Article 318.

The lessor can be relieved of liability by proving they are not at fault for the damage caused by the defect. However, if the lessee also has fault in the occurrence of the defect, the compensation will be reduced in accordance with Turkish Code of Obligations Article 52.

What is the legal nature of the lessor’s liability for defects?

The dominant view in the doctrine is that the lessor’s liability for defects is a special manifestation of the improper performance of the obligation, namely poor performance. Although this view does not fully align with the fact that the debtor’s fault is sought in the improper performance of the obligation while the lessor’s liability for defects is strict liability, it has gained more acceptance than other views.

Can a non-liability agreement be made in a lease contract?

A non-liability agreement can be made in a lease contract, but there are some limitations:

1. In residential and roofed workplace leases, a non-liability agreement stating that the lessor will not be responsible for defects cannot be decided against the lessee.
2. In ordinary lease contracts, the non-liability clause should not be included in the general terms and conditions.
3. The other limit of the non-liability agreement that can be made in ordinary lease contracts is the Turkish Code of Obligations Art. 115 is that agreements made in advance stating that the debtor will not be responsible for gross negligence are absolutely null and void.

In a Supreme Court decision, it was ruled that “(… ) Although the property was leased by the tenant from the former owner as a workplace, due to the lack of parking in the zoning plan, a business opening and operating license could not be obtained. For this reason, the tenant notified the new owner of the defect and requested that the defect be remedied within a reasonable time. Although the tenant’s termination of the contract due to the defect not being remedied is justified, compensation cannot be claimed from the new owner lessor.” This ruling has defined the limits of the non-liability agreement.

 

 

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