“Industrial properties are not just about a rental relationship; they are often areas where millions of liras in investments are made and where the heart of the business beats. For this reason, such contracts should not be mundane, but strategic in nature.” With this important emphasis by Attorney and Mediator Melis Ilgaz, we discussed the problems encountered in rental contracts for industrial properties and the legal aspects that need to be considered in this month's law column of PLASFED Magazine.
Industrial properties, which house the core activities of industrialists such as production, storage, and logistics, have such critical importance that they cannot be evaluated within the scope of an ordinary rental relationship. However, in practice, many industrialists can face serious problems by signing rental contracts without sufficient legal, technical, and financial assessment. These problems, which arise in a wide range from infrastructure inadequacies to licensing issues, from risks of early eviction to heavy penalties, can disrupt the operations of businesses. They can lead to high costs and legal disputes. In this interview, we talked with Legal Advisor and Attorney Melis Ilgaz about the points that should be considered in rental contracts for industrial properties, common legal problems experienced, and the risks encountered in long-term rental relationships. In our interview, we covered all aspects of the points to consider when renting industrial properties, the risks encountered in long-term contracts, and alternative models such as land leasing.
In general, what kind of problems does an industrialist face in rental contracts in the real estate sector?
Industrialists can face various problems in the real estate sector, especially within the scope of rental contracts. These problems can include both legal and commercial risks. At the top of these are rental contracts signed without necessary legal, financial, and technical research. Infrastructure and common area usage problems (parking lots, loading areas, etc.); the failure to examine issues such as the zoning status, environmental permits, operating licenses, and the inadequacy of electricity, water, and natural gas infrastructure of the rented property cause serious problems. Furthermore, the fact that rental contracts are not detailed and do not respond to future needs also emerges as a problem. Industrialists can face high compensation or penalties in case of termination of the rental contract due to reasons such as changes in production capacity, the need for relocation, or economic fluctuations.
When all these problems are evaluated, rental contracts from the perspective of an industrialist are not just about accommodation, but a subject directly related to production, storage, and commercial activities… Therefore, should a special rental contract be drawn up for industrial properties?
Definitely yes. Rental contracts specifically drawn up for industrial properties have a much more critical importance than classic residential or office rentals. This is because such properties are places where the industrialist carries out not just "accommodation" but basic activities such as production, storage, shipping, trade, and workforce management. Therefore, rental contracts for these properties should also have a detailed and technical structure suitable for this. One of the most important reasons for this is that the investments made by the industrialist in the facility, such as infrastructure, machine assembly, and security systems, are high-cost. These investments must be protected and their fate at the end of the contract must be clarified. The purpose of use (manufacturing plant, warehouse, workshop, factory) must coincide with the zoning status and operating license of the property, and it must meet the infrastructure and energy requirements. Such technical details are not required in residential rentals but are critical for industry. Also, it should be specified in the contract who will provide this infrastructure (the landlord or the tenant?). Since the continuity of the rental contract will also be important for the industrialist, the sudden evacuation of the property where the tenant produces could mean losses of millions of TL. For this reason, eviction conditions, early termination provisions, and penalties should be regulated specifically.
How can the suitability of the rented property for industrial activities be checked?
Checking whether a rented property is suitable for industrial activities is a very critical step for the industrialist to prevent both legal and actual risks. This suitability should be evaluated not only by the physical state of the building but also by its official documents and compliance with legislation. For this, the zoning status document, building occupancy permit, municipal license and workplace opening permit, title deed record and floor ownership status, energy and infrastructure, as well as compliance with fire and occupational safety regulations must be evaluated. I think that along with legal assistance, support should also be obtained from experts in the field regarding this matter.
What are the essential elements that must be included in rental contracts?
I can list the issues that must be included in contracts made for industrial facilities under general headings. I would like to remind you that since the needs of each industrial company and the features of the rented place will be different, it should be regulated by being specifically evaluated and researched. But at least when looked at in terms of headings, I think it can help them create a draft contract. To state them as headings; it should include elements such as the identity and contact information of the parties, the address, description, and purpose of use of the rented property, permits, the start date and termination conditions of the rental contract, rental price, payment terms, rental increase rates, deposit (guarantee) amount, return conditions, maintenance, repair, renovation, additions, construction and expenses, eviction conditions and the status of the tenant's departure, termination and notice provisions, and insurance obligations.
If it is necessary to leave before the rental period ends, what legal risks are encountered?
Leaving the rented property before the rental period ends, i.e., early eviction, can create some significant legal and financial risks for the tenant. These risks depend largely on how the rental contract is drawn up. If the tenant leaves before the contract ends without a justified reason, Article 325 of the TCO (Turkish Code of Obligations) comes into play. According to this article, "If the tenant gives up the rental relationship before the contract period expires, the landlord can demand the rental price for a reasonable period until they find a new tenant." In other words, if the tenant leaves early, the landlord has the right to demand the rental price until they find a new tenant. In other words, if the landlord pays for advertisements, commissions, or real estate agents to find a new tenant due to early exit, or suffers loss of income during the time the rented place remains vacant, they can also demand these damages from the tenant. Also, there might be a penalty clause in the contract. In this case, the industrialist tenant might have to pay this penalty amount because they are a merchant within the scope of the Turkish Commercial Code. However, if an eviction arises from the rented place, i.e., in cases of termination for a justified reason, for example; if the landlord delivers a defective property, or in cases of force majeure (fire, pandemic, natural disaster), then early exit will be considered "termination for a justified reason."
Can industrial equipment be installed on the rented property?
Industrial equipment can be installed on the rented property, but this situation must be managed carefully both legally and in practice because industrial installations are usually fixed investments. For example, electrical panels, ventilation systems, machine foundations, crane rails, infrastructure lines, etc., can cause serious disputes between the tenant and the landlord regarding ownership, return, and dismantling.
In an industrial facility, heavy machinery, ventilation systems, special electrical infrastructure, and steel constructions are often fixed to the property. Since these can be considered permanent investments in some cases, issues such as their use, their status at the end of the contract, and repair and insurance costs must be determined in the rental contract. Otherwise, the industrialist may face a "unauthorized intervention" claim from the landlord. As we mentioned earlier, technical criteria such as the electrical infrastructure, floor load capacity, and fire regulations of the rented structure must be suitable for equipment installation. The zoning plan, purpose of use, and occupancy permit of the structure must be compatible. Therefore, it should also be possible to obtain workplace opening and operating licenses and municipal permits.
Is special permission or a clause necessary for this? Also, is it possible to reclaim the investments made when the rental period ends?
I definitely recommend adding special clauses to the contract. An Investment Permission Clause and the status of the investments at the end of the rental must be regulated. If the status of the investments at the end of the rental is not regulated, according to the TCO, the provision that "the tenant can take back their own things without damaging the property" will apply. If the renovations and installations made are of a removable nature and can be removed without damaging the building, the tenant will have the right to reclaim them. However, if the investment has been fully integrated into the structure (e.g., a column cut, a wall broken), it may be considered part of the property. In this case, the landlord may claim that it will not be returned, saying "the fixed investment is now part of the structure." For this reason, I recommend that these issues be clearly regulated in the contract.
Are rental increase rates for commercial properties free or limited?
Contrary to popular belief, rental increase rates for commercial property rentals such as shops, warehouses, factories, and offices are not completely free. They are subject to certain limitations within the scope of the Turkish Code of Obligations (TCO). It is limited by a legal upper limit. This limit is determined by the 12-month average of the CPI (Consumer Price Index).
For how long should rental contracts be made?
As a result, the duration of the rental contract should be determined according to the needs of the parties and the purpose of use of the property. If both the tenant and the landlord have long-term plans, long-term contracts are more appropriate. Short-term contracts, on the other hand, offer more flexible and faster solutions. Since industrial companies are companies whose assets last for a long time and contribute to the economy for a long time, they generally prefer to make long-term rental contracts. However, sometimes they may also need short-term solutions. Generally, they can benefit from short-term rentals while the construction of their own production facility is ongoing.
Can a plot of land be rented instead of a property to establish an industrial facility?
Of course, it can be done, provided that the necessary legal, financial, and technical research is carried out.
What should be considered in the case of land leasing?
A land rental contract is made between the tenant and the landlord for a plot or land and should regulate the right of use over the land. The issues that need to be considered in the contract for property rental must also be considered here. However, issues such as whether the land is suitable for building an industrial facility, construction costs, and who the investment made belongs to at the end of the contract period will need to be regulated much more detailed here.
Can land be leased from public land as well as from private individuals?
Plots of land can be leased as belonging to private individuals or the public. State-owned plots of land have now been included in the scope of rental. Plots of land belonging to the state treasury can be rented to the public for a period of 10 years. The conditions for leasing public land vary according to the legislation of the relevant public institution (e.g., municipality, treasury, General Directorate of Foundations, Ministry of Environment, Urbanization and Climate Change, National Real Estate, etc.) and the nature of the property. Usually, a tender is held with an open or closed bid under the State Tender Law No. 2886. In some cases, a bargaining method can also be applied. For this reason, the tender conditions should be examined in great detail.
What should be considered in long-term rental contracts?
Long-term rental contracts (5 years, 10 years or more) are of critical importance, especially for the industrial, trade, and logistics sectors. However, such contracts also contain economic and legal risks that the parties cannot foresee. For this reason, when preparing the contract, some clauses must be regulated very carefully, with foresight, and in detail. I think it should be evaluated as problems that may be experienced during the contract period and at the end of the contract.
The determination of the rental price and increase rates during the contract period should be regulated in a clear and unambiguous way that will not cause disputes in the future. There should be provisions in the contracts for maintenance and repairs to be made during the contract period, as well as investments and changes, and additions to be made to the real estate. In case of contract termination, the status of investments and changes, additions to be made to the real estate, the rules to be followed in case of eviction and contract termination, and penalties should also be regulated in detail. For example, issues such as which additions and renovations will remain in the event of the evacuation of a 20-year-old industrial facility and how the evacuation will be carried out should be regulated. Another important issue is the problems that may be experienced in case of the sale of the real estate during the rental period. The new owner gains the right to file an eviction lawsuit due to need. For this reason, I especially recommend to our industrialists that if a long-term rental contract is signed, this contract should be annotated to the land registry.
This content has been translated using artificial intelligence technology.