I. Introduction

The co-working areas have been very recently exported into the Turkish daily business life as a result of business globalization, considering the rising home-office practice in the world. The business models pertaining to the co-working areas, which provide standard office opportunities such as reception, stationery, and secretariat et cetera in return of a fee calculated on a daily or even hourly basis, welcome both the employees' expectations by providing them a more social and available-for-networking environment and also the employers themselves by lowering the operational costs and responsibilities.

On the other hand, in cases where the co-working area service provider had executed a lease agreement for the co-working area to provide such services, the users of the co-working areas (i.e. beneficiary of the relevant services who also use the working area) frequently bear the risk of being affected due to termination of that contractual relationship due to any reason. This article is to examine the legal actions that can be taken by the Users of co-working areas in the event of termination of the lease agreement, party of which is not the user, due to COVID-19 pandemic, which would ultimately require the user to evacuate of the leased property.

II. Contract Structure of Co-working Areas

There is a tri-legged relationship between the landlord, the co-working area service provider and the user of the co-working area ("the User"); details of which will be explained below:

a. The contract between the co-working area service provider and the landlord

Turkish contractual system has defined several typical contract typologies along with sui generis contract, regulations of which are not specified but subject to the general provisions of the Turkish Code of Obligations ("TCO") pertaining to the contractual relationships. On the other hand, the standard types of contracts have also been regulated as per the specific characteristics of such relationships in daily life. Among others, lease contracts have been defined as such in Article 299 of TCO: "The lease agreements are contracts where the lessor leaves something to be used and benefited from by the tenant while the tenant pays an amount of rent.". In addition, Turkish contract law also embraces that neither the title chosen by the parties nor the legal qualification made by them for the contract in hand, has any effect on the determination of the provisions applicable to such contract, as long as it has the characteristics of a particular type of contract.

Accordingly, regardless from the parties' naming or the qualification of the contract, the legal relationship between the landlord and the co-working area service provider can be regarded as a lease relationship. Such relationship characteristically allows the co-working area service provider to make a third person use and benefit from the lease property, provided that the landlord has given written consent in that regard.

b. The contract between the User and the co-working area service provider

The legal action that can be taken by the User would depend on the legal characteristics of the relationship between the co-working area service provider and the User. Unlike the relationship between the landlord and the co-working area service provider, the contract between the User and the co-working area service provider can arguably create different legal relationships. However, in light of the precedents and legal doctrine, it can be said that the contract between the User and the co-working area service provider is classified as a "sublease agreement".

As mentioned before, provision of private offices is a relatively new concept under Turkish law, but the case-law1 and legal doctrine's standpoint suggest that such contracts should be regarded as sublease agreements, considering that the relationship between the co-working area service provider and the landlord has been characterized as a lease agreement and the co-working area service provider subleases the property based on its own lease contract.

Indeed, Turkish Lease Law allows executing a sublease agreement, provided that the tenant of the main lease agreement has written consent for sublease. As is commonly acknowledged and implemented, the sublease contracts are a type of lease contract. The High Court of Appeals explicitly states that sublease contracts are subject to terms of "lease contracts".2 Accordingly, the sublease contracts are actually subject to the same provisions of TCO but with certain exceptions, which will affect the termination of the sublease agreement, as will be explained below.

III. Effects of Termination of the Lease Agreement regarding the Co-working Areas

Although it is debated in the legal doctrine, the established jurisprudence of the High Court of Appeals sets forth that validity of a sublease contract is contingent on validity of the main lease contract. Accordingly, in case of termination of the main lease contract, the sublease contract will "automatically" be deemed as terminated as well. This issue has been criticized3 methodologically though. This is because under Turkish Law, "any" person can legally execute a lease agreement with respect to any property, since a valid lease agreement does not require a power of disposition or a legal authority to do so. Nonetheless if the person who executed a lease agreement regarding a property, on which s/he does not have legal authority to have it leased, s/he will bear the responsibility of default and compensation. Therefore, it is argued that the sublease agreement should remain valid even if the main lease agreement is terminated; but the sub-lessor, i.e. the co-working area service provider, should be kept liable due to the failure to execute a lease agreement for a period that would allow fulfillment of the obligations stemming from the sublease agreement (i.e. failure to keep the leased property available for use).

Regardless the theoretical discussions among the scholars, the User is not even required to take further action in this regard, once the main lease agreement between the landlord and the co-working area service provider, as per the settled practice of High Court of Appeals. This is because the Contract will be deemed as "terminated" on the termination date of the main lease agreement between landlord and the co-working area service provider. However, to avoid future conflicts, it is still advisable to send a written notice to the co-working area service provider, pertaining to the termination of the sublease contract due to termination of the main lease contract between landlord and the co-working area service provider. Also, this notice might be utilized as a way to convey compensation claims as well, scope of which will be explained hereunder.

Consequently, the parties of a sublease contract bear all rights and obligations arising from lease contracts. Accordingly, the co-working area service provider has certain obligations towards the User, such as keeping the leased property available for use, as well as warranty against defects and quiet enjoyment. Thus failure of co-working area service provider to fulfil its obligations throughout the contract term will constitute a breach of the contract. The User then has the right to claim damages due to the breach of co-working area service provider of its contractual obligations arising from the contract.

Indeed, in its case-law4, the High Court of Appeals establishes that a sub-lessor, who causes a sublease contract to end before its term by terminating the main lease contract, is liable for the damages of the User in that regard. The High Court of Appeals also states that liability to damages will arise regardless of the intention to cause damage to the User. On the other hand, it should also be noted that if co-working area service provider is not the party who had the main lease contract terminated; it will not be liable for the User's damages stemming from the termination of the Contract.

IV. Termination of the Lease Agreement of the Co-working Area due to COVID-19

The businesses providing co-working areas to their Users have also been affected due to COVID-19 pandemic, due to economic difficulties, health concerns and quarantine conditions. Therefore, co-working area service providers may have had to evacuate their facilities, and their business considerations affected their Users most. Accordingly, we deem it fit to examine the legal outcome of the termination of the main lease agreement, specifically on the basis of COVID-19.

As is explained in above section, if co-working area service provider is not the party who terminated the main lease contract, the provider will not be liable for the damages. In other words, the liability of the co-working area service provider due to early termination against the User, whose sublease agreement has directly affected, depends on how the main lease agreement got terminated ended and whether or not the co-working area service provider took a part in such termination. The High Court of Appeal, as explained above, requires the sublessor, i.e. the co-working area service provider, to cause the termination for imposition of compensation liability. Therefore the liability of the co-working area service provider hinges on the question of whether the termination of the main lease agreement due to COVID-19 can be considered as caused by the co-working area service provider.

As is commonly acknowledged in the legal doctrine pertaining to the COVID-19 pandemic, COVID-19 alone does not allow the tenant of the lease agreement terminate the lease agreement; however, it might entitle the tenant to claim the adaptation of the lease agreement. As COVID-19 itself is not sufficient to terminate the lease agreement, if the co-working area service provider were to terminate the lease agreement due to COVID-19, it might be argued that the termination on such basis is caused by the co-working area service provider. Therefore, it can be evaluated that the co-working area service provider, who prefers to terminate the lease agreement due to COVID-19 conditions rather than adapting it, might be kept liable for the damages occurred due to the early termination of the sub-lease agreement.

V. Claimable Damages

As to the damages that the User can claim, the types of damages subject to compensation claims should be noted first.

Positive damages: Positive damage means the difference between the creditor's current assets (i.e. assets in consequence of the debtor's non-performance or ill-performance of its obligations) and assets that would have occurred if the debtor has duly performed its obligations. In other words, positive damage is the damage incurred by the creditor due to the debtor's non-performance or ill-performance of its obligations. "Loss of profit" is included in the scope of positive damages, along with "actual loss". In this regard, loss of profit refers to, inter alia, the loss incurred as a result of the creditor's need for entering into a new contract due to non-performance or ill-performance of the debtor. Moreover, as to lease contracts, the High Court of Appeals states that while calculating the loss of profit, it should be determined how long the lessee might lease another property under the same conditions.

Negative damages: Negative damage refers to the damages incurred by the creditor due to invalidity of a contract, which was believed to have its effects, or non-conclusion of a contract that was believed to be concluded. In other words, negative damage is based on one's reliance to validity/conclusion of a contract. It is the difference between the creditor's current assets (i.e. assets in consequence of cancellation of the contract) and assets that would have occurred if the parties had never entered into or negotiated such contract. So, actual loss and loss of profit might occur as negative damage, as well.

As the base of either damage is different, meaning that positive damages occur due to non-performance or ill-performance of a valid contract, whereas negative damages occur due to invalidity/non-conclusion of a contract, positive and negative damages cannot be claimed cumulatively. If there is a valid contract, which is not performed at all or not duly performed, the creditor may claim positive damages. On the other hand, if the contract is invalid or never actually concluded, the creditor may claim negative damages.

In conclusion, the User might be entitled to claim positive damages (both actual loss and loss of profit) occurred or will occur due to the breach co-working area service provider of its obligations under the sublease contract. In that sense, the costs for the office move and for registering a new address might be categorized as such "actual losses"; and if the lease amount of the new place that the User will move is higher than the one executed with the co-working area service provider, this can be claimed as an actual loss too.

VI. Conclusion

The co-working areas are a rising trend among white-collars and students because of its advantages, both professionally and socially. Synchronically, the legal doctrine and the precedents follow this new business model and characterize the contracts between the co-working area service provider and Users as a sublease agreement, subject to the lease agreement provisions of TCO; whereas the relationship between the landlord and the co-working area service provider is a typical lease agreement. Also, the High Court of Appeals precedents establish that the termination of the main lease agreement automatically ends the sub-lease agreement as well.

This study has aimed to evaluate the consequences of the termination of the main lease agreement due to COVID-19 pandemic and the liability of the co-working area service provider in case of such termination. Accordingly, it might be concluded that the co-working area service provider is liable against the User due to early termination of the sublease agreement, as long as the termination of the main lease agreement caused by the co-working area service provider. Also, as the COVID-19 pandemic is not sufficient to terminate lease agreement per se, the termination due to COVID-19 can be considered as such and the co-working area service provider will be liable accordingly. Finally, the User can claim positive damages within the scope of the liability of the co-working area service provider.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in June 2020. A link to the full Legal Insight Quarterly may be found here.

Footnotes

1 Istanbul 18th Commercial Court of First Instance's decision numbered 2019/238 E. 2019/587 K. and dated June 14, 2019

2 General Assembly of Civil Chambers of the High Court of Appeals' decision numbered 2001/653 E. 2001/672 K. and dated October 3, 2001

3 Ayşe Bengü Sevinç, "Alt Kira ve Kiranın Devri", İstanbul 2010, pg. 14; Gulmammad Safarov, "Yeni Türk Borçlar Kanunu'na Göre Konut Ve Çatılı İş Yeri Kirası", Ankara 2015 p. 232

4 6th Civil Chamber of High Court of Appeals' decision numbered 2013/7968 E. 2014/1048 K. and dated January 29, 2014; 6th Civil Chamber of High Court of Appeals' decision numbered 2015/10631 E. 2016/2504 K. and dated March 29, 2016

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.