Arbitration Clause in Lease Agreements

Disputes arising from lease agreements have become more frequently brought before the judiciary due to changing economic conditions, inflation, and the 25% rent increase limit. To alleviate the burden on the judiciary, mandatory mediation began to be implemented. Unfortunately, far from relieving the judicial burden, it became a condition that prolonged the process for parties already inclined to disagree. With the increasing caseload, courts started setting hearing dates further in the future, with hearings scheduled minutes apart within a day. As a result of prolonged judicial processes, even the simplest eviction due to necessity can now be decided years later. Since most lease agreements envisage general judicial remedies for the resolution of disputes, this spiral continues to intensify. A possible solution might be to foresee an arbitration clause in lease agreements to be made currently.

What is Arbitration?

Arbitration is an alternative dispute resolution method where parties, through an arbitration clause in their agreement or a separate arbitration agreement, leave the resolution of any disputes arising from the contract or non-contractual legal relationship to an independent arbitrator or panel of arbitrators instead of state courts. Disputes are often resolved more quickly through arbitration than in courts. They are resolved by arbitrators who are competent in the relevant field of disputes. Additionally, particularly in contracts involving a foreign element, parties can agree on which law will be applicable, excluding certain areas.

How Long Does Arbitration Take?

By law, the duration of arbitration proceedings is one year. However, this period can be shortened or extended by the parties through the arbitration agreement. Due to less caseload in arbitration compared to courts, the process inherently takes a shorter time. If the dispute is subjected to expedited arbitration, a final decision can be reached within three months.

The Nature of Decisions Made in Arbitration

While arbitration decisions are final, it is possible to file an annulment case against the decision. However, filing for annulment will not suspend the execution of the decision. Considering that many decisions cannot be executed until they are finalized in court proceedings, the decision obtained through arbitration can be executed directly. Therefore, it is not expected to wait long periods to obtain the benefit. This is a significant advantage.

It is also important to mention the issue of security separately. Even if the decision is subject to an annulment lawsuit, if one of the parties provides a security that covers the amount of money or the value of the property adjudged by the arbitration, the execution of the decision may be suspended.

Eligibility for Arbitration

Two conditions are prescribed for eligibility for arbitration. If both of these conditions are met and the parties agree to arbitration as the dispute resolution authority, there may be an issue eligible for arbitration. However, even if the parties wish to resolve an eligible dispute through arbitration, it will not be heard in arbitration. Even if an issue not eligible for arbitration is decided through arbitration, the decision will not be binding nor will it have the capability of execution. Moreover, since the annulment of a decision on a matter not eligible for arbitration will be possible, it will only result in a waste of time, process, and expenses. Therefore, adherence to conditions is important. These two conditions are as follows:

1)Not Related to Real Rights over Immovable Property

According to the explicit provision of the law, disputes regarding changes to be made in the land registry cannot be resolved through arbitration. For example, while a monetary debt arising from a work contract can be resolved under arbitration, the resolution of the dispute related to the registration and eviction of the immovable property in the same contract is not eligible for arbitration. However, arbitration agreements can be made on matters not related to real rights and where the law allows freedom of contract. This matter is expressed in the decision of the Supreme Court 4th Civil Chamber No. 1974/2094 and 1974/2496:

"Unlike the law of obligations, the freedom of contract is more limited in family law and real rights. Especially in the field of real rights, parties can freely contract only within the types and conditions prescribed by the law. Although it is controversial in the doctrine (See: Postacıoğlu, 1970 pp. 644 - 647; Kuru, 1968, pp. 732 - 734; Aydın Aybay, taksim, 1966 pp. 52 - 54; Alangoya, The Nature of Arbitration, 1973, pp. 84; Week pp. 73 - 76); it is necessary to accept that parties can make arbitration agreements only on matters where they can freely transact concerning real rights."

2)Not Arising from Matters Beyond the Parties' Will

The will for arbitration can only be effective in matters that can be influenced by the parties' will. Although the principle of contractual freedom is fundamental in our law, there are certain limits to this principle. These limits are particularly the provisions referred to as imperative by law, public order, personality rights, and contracts with impossible subject matters. The definition of public order is important as understood from the Supreme Court 18th Civil Chamber No. 2013/16914 and 2014/5145:

"The basic values of Turkish law, the general sense of decency and morals of Turkish society, the fundamental sense of justice and general policy on which Turkish laws are based, the fundamental rights and freedoms in the Constitution, the rules based on the principle of good faith applicable internationally in public and private law, the moral principles and sense of justice embraced collectively by civilized societies, and legal norms that express these are the basis of our national legal public order."

Furthermore, matters related to criminal law and family law cases such as divorce and filiation, disputes related to the establishment of foundations or associations, disputes about the dissolution of a joint-stock company, and certain other areas of law are beyond the parties' will, hence not suitable for arbitration.

Can an Arbitration Clause be Included in a Lease Agreement?

This is an important question as there are various decisions from the Court of Cassation on this matter. While some decisions indicate that disputes can be subject to arbitration, others have stated that the arbitration clause is invalid and that disputes should be resolved through the courts. In assessing the suitability of a lease agreement for arbitration, disputes not arising from real rights over immovable property are considered suitable for arbitration in this aspect. However, an assessment needs to be made regarding the other condition, which concerns disputes arising from matters beyond the parties' will. This requires a case-by-case evaluation of potential disputes due to the differing opinions of the Court of Cassation on various matters.

Determination of Rent

The Court of Cassation's stance on the determination of rent is that such disputes cannot be resolved through arbitration, considering it a matter of public order. As stated in the 3rd Civil Chamber of the Court of Cassation's 2004/13018 Basis and 200413409 Decision:

"According to the established practices of the Court of Cassation, disputes regarding the determination of rent cannot be subjected to arbitration. Since the issue of rent determination concerns public order, the freedom of the parties to freely agree on the rent is possible only within certain measures and limits. Therefore, the parties' discretion in this matter is not unlimited. Moreover, the tenant is not obliged to pay the rent demanded by the landlord."

However, the concept of mandatory mediation in recent rent disputes is important. Within the scope of mediation, parties can determine rent amounts without adhering to these limits. Therefore, it seems appropriate for the arbitration clause to be valid even in the determination of rent. Many in the doctrine argue that rent disputes are entirely suitable for arbitration as the parties have the freedom to decide on the rent amount. Considering the institution of mediation to lighten the judiciary's burden and giving importance to the parties' will, advocating the invalidity of the arbitration clause would not be consistent.

Eviction of the Rented Property

There is no direct precedent or legal prohibition against resolving disputes arising from the eviction of rented property through arbitration. In fact, according to the 14th Civil Chamber of the Court of Cassation's 2010/11426 Basis and 2010/13965 Decision:

"The court dismissed the case, stating that the claims related to eviction, determination of rent, and collection of rent debt, among others, could be filed by the plaintiff and that there is no freedom of will in these matters. The plaintiff appealed the decision. The contracts between the parties dated 28.06.2007 and 29.06.2007 include a provision stating 'in case of any dispute arising from this contract, the parties declare and accept to seek resolution through arbitration.' The clause in the contract is related to the arbitration clause. However, the parties have not indicated the number and selection of arbitrators in their contracts, only preferring the arbitration procedure for settling disputes. According to Article 520 of the Code of Civil Procedure, 'unless explicitly stated otherwise in the contract, arbitrators shall be three in number and appointed by a competent judge...' In the concrete dispute, since the number and selection method of arbitrators are not indicated in the contract, three arbitrators must be appointed by the court. One party's notification of intent to file a lawsuit is sufficient for the appointment of arbitrators, and it is not necessary to specify the nature of the lawsuit. If the lawsuit requests resolution of a public order dispute by the arbitrators, the evaluation of this request is a matter for the arbitrator. Based on these findings, the court should have selected arbitrators with appropriate expertise for the nature of the case, and the dismissal of the case for the written reasons was not correct."

In this context, we believe that the arbitration clause regarding the eviction of the rented property will be valid and that disputes will be resolved through arbitration.

Rent Claims

There is no direct precedent or legal prohibition against resolving disputes arising from rent claims through arbitration. According to the 6th Civil Chamber of the Court of Cassation's 2012/9581 Basis and 2013/1334 Decision:

"The lease agreement commencing on 01.10.2005, in its 7th clause, decides that in case of dispute, arbitration will be sought with 2 arbitrators each from the Chamber of Commerce and the Chamber of Tradesmen. The defendant, in the legally timely response, objected by stating that in case of disputes between the parties, arbitration will be sought. Primarily, the clause of arbitration in the lease agreement and the defendant's objection should be evaluated under the articles 516 and subsequent of the Code of Civil Procedure 1086 and articles 412 and subsequent of the Civil Procedure Code 6100..."

In this context, we believe that the arbitration clause regarding rent claims will be valid and that disputes will be resolved through arbitration.

The Advantage of Including an Arbitration Clause in a Lease Agreement

As stated above, the arbitration process offers a faster resolution of disputes compared to the courts. Although some views argue the invalidity of arbitration clauses in some cases, it cannot ultimately be claimed that all disputes in the contract are invalid. In some cases, the validity of the arbitration clause and its suitability for resolving disputes is clear from the decisions of the Court of Cassation. If a faster resolution of disputes arising from the contract is desired, it would be appropriate to include an arbitration clause.

In disputes not eligible for arbitration, the arbitration clause will not be entirely invalid. It can simply be considered a contract clause that does not apply to a specific dispute arising from the contract and ineligible for arbitration. Although the Court of Cassation has stated that arbitration is not suitable for disputes concerning the determination of rent, arbitration has been deemed valid for disputes related to eviction and rent claims. Therefore, since it is accepted that the arbitration clause will not be entirely invalid, an arbitration clause can be included in the lease agreement for the resolution of disputes.

The Importance of a Lawyer in Preparing a Lease Agreement and Arbitration Proceedings

A lease agreement is an important legal document defining the rights and obligations between the tenant and the landlord. Therefore, the role of lawyers is significant in the preparation or signing phase of the agreement. Some of the important aspects that should be included in a lease agreement are the identity information of the parties, the address, nature, and independent section number of the rented property, the rent amount, payment method and timing, duration of the lease and extension conditions, deposit amount and return, the tenant's purpose of use and restrictions, maintenance and repair responsibilities, eviction terms and timelines. Additionally, the method of dispute resolution, especially the conditions for arbitration, should be considered and included in the agreement.

If these aspects are missing or incorrectly written, disputes may arise between the parties or lead to grievances. Therefore, consulting an experienced lawyer in lease disputes and arbitration, both before signing or preparing a lease agreement and in the event of a dispute, will be extremely beneficial.

Since the arbitration process differs from court proceedings, the risk of losing rights is more probable. Therefore, seeking support from a lawyer in the arbitration proceedings will prevent the loss of rights throughout the process.

Frequently Asked Questions

Can I include an arbitration clause in my ongoing lease agreement?

Yes, you can. The arbitration clause can be included as part of the lease agreement or through a separate agreement. In this case, you can include an arbitration clause by creating an Arbitration Agreement.

How long does arbitration take?

Legally, arbitration is stated to last one year. However, parties can extend or shorten this period if they wish. Additionally, if Expedited Arbitration has been agreed upon, the process will be much shorter.

Can I evict a tenant earlier by resorting to arbitration?

If you have agreed that disputes arising from your contract will be resolved through arbitration, a decision can be made in a shorter time compared to litigation in courts. Depending on the merits of your case, eviction may be possible.

The landlord is not paying for the expenses I've incurred in the house, can this be subject to arbitration?

If you have agreed that disputes arising from your contract will be resolved through arbitration, you can subject it to arbitration.

I rented a piece of land; can it be subject to arbitration?

Yes, if you have agreed that disputes arising from your contract will be resolved through arbitration, it can be subject to arbitration.

Can I subject my commercial rent claims to arbitration?

Yes, rent claims arising from commercial leases can also be subject to arbitration.

Can I handle an arbitration case without a lawyer?

Yes, having a lawyer in arbitration is not mandatory. You can personally follow up on your case.

Can I appeal arbitration decisions?

Yes, there is a judicial path envisioned for the annulment of arbitration decisions. However, the grounds for annulment are limited. Unless one of these grounds exists, the decision cannot be annulled.

My contract has an arbitration clause, but I want to file a lawsuit; is that possible?

No, if there is an arbitration clause in your contract, you must first resort to arbitration even if the dispute is not suitable for arbitration. Otherwise, any lawsuit you file will be dismissed.