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Pandemic and its Effects on Contracts

Pandemic and its Effects on Contracts

Tolga Poyraz 2 N 2

We would like to share our reviews on the effects of COVID-19 pandemic which started in China at the end of the year of 2019 and have spread to the whole world including Europe and Turkey, on contracts signed between private and public persons and institutions.

1. What will happen when there is a quarantine declared in my workplace or the district where my workplace is located in?

Although the Turkish Code of Obligations do not specifically include a regulation on force majeure including pandemic or act of god, it regulates termination of performance of obligation in case that performance of obligation has been precluded in the manner that obligor is not liable for such preclusion. Therefore, in order for a force majeure to preclude performance of an obligation, such force majeure is not resulted from actions of obligor, and performance of obligation is precluded due to that specific force majeure. Thus, if delivery of goods on a specific date hare precluded due to declaration of quarantine in your workplace, you will not be held liable for non-performance of obligation since quarantine is not resulted based on your actions and precludes performance of delivery of goods. The quarantine abovementioned is a quarantine resulted based on an administrative decision. Closing of a workplace without an administrative decision due to the pandemic will not be considered as a force majeure.

2. What will happen when my employees get COVID-19?

As said above, pandemic shall preclude performance of obligation. Thus, a number of employees getting COVID-19 will not be considered as a force majeure unless such case causes a quarantine declared in your workplace. In terms of employment law, you can review our memorandum on pandemic?s effects on legal relation between employer and employees.

3. What should I do in case of preclusion of performance of obligation?

Force majeure is usually regulated under contracts signed between parties. If there is a clause on force majeure then you should act accordingly. If there is not a clause on force majeure in your contract, then you should notify counter party immediately of how to proceed via a notary public or a registered letter with return receipt. You will not be held liable in case of non-performance of obligation due to COVID-19 pandemic.

4. What should I do in case that pandemic is not considered as a force majeure in my contract?

Even if there is not a clause regulating force majeure in your contract you can refer to regulation on preclusion of performance of obligation in the Turkish Code of Obligations. In this case, the points above mentioned shall be applied even if there is not a clause regulating force majeure in your contract. In this manner, clauses on that pandemic is not considered as a force majeure, in your contract shall be contrary to the law and invalid.

5. What should I do when counter party is not able to perform his obligations although I am ready to perform my obligations?

If counter party is not able to perform his obligations due to the COVID-19 pandemic although you are ready to perform your obligations, for example; goods that you will export to Italy cannot be cleared from the customs due to quarantine in Italy, then you should confirm whether counter party follows his obligations accordingly in case of force majeure if there is a clause regulating force majeure in your contract, for example notifying you of force majeure. If there is a clause regulating force majeure in your contract, then it should be followed. It should be evaluated based on applicable law if there is not a clause regulating force majeure in international contracts. In case that the applicable law is Turkish law, you will not be able to claim compensation for your damages since pandemic and quarantine resulted from it is not resulted based on counter party?s actions of counter party, and they preclude performance of obligations by counter party.

6. Are payment obligations considered as precluded due to the pandemic?

As said above, there should be a causal link between pandemic and non-performance of obligation in order for force majeure to preclude performance of an obligation. In this manner, it should be evaluated based on payment method agreed in contract. For example, if wire transfer is agreed as the payment method, we can safely say that pandemic does not preclude such payment obligation. Yet, this obligation can be performed via internet banking too.

7. Do I have to pay rent for my workplace which quarantine is declared in?

The Turkish Code of Obligations only regulates lessee?s obligation to pay rent in case that he cannot use leased property based on his own actions. Since the Code regulates lessee?s obligation to pay rent in case that he cannot use leased property based on his own actions, rent and common costs are not paid during the quarantine if lessee cannot use leased property due to quarantine declared in his workplace or in district where his workplace is in. In this case, if there is a clause regulating force majeure in your lease contract, then it should be followed for future steps. Closing of a workplace without an administrative decision on quarantine due to the pandemic will not be considered as a force majeure, therefore rent and common costs should be paid during closing of workplace.

8. Do I have to pay rent for my workplace closed by an administrative decision?

Public places such as cafés, coffee houses, nightclubs, pubs, movie theaters and theaters are closed under the precautions taken against the COVID-19 pandemic by the decision of the Ministry of Interior. In case that a workplace is closed by an administrative decision in order to prevent the pandemic, lessee is not obliged to pay rent and common costs during closing of workplace. In this case, if there is a clause regulating force majeure in your lease contract, then it should be followed for future steps. Closing of a workplace without an administrative decision on quarantine due to the pandemic will not be considered as a force majeure, therefore rent and common costs should be paid during closing of workplace.

9. Am I able to terminate my contract due to the pandemic?

The COVID-19 pandemic cannot solely be considered as a reason for termination. In order to terminate contract due to the COVID-19 pandemic or therefore quarantine or curfew, these matters must preclude performance of obligations under contract. In this case, firstly if there is a clause regulating force majeure in your lease contract, then it should be followed for future steps. For example, if contract brings obligation to notify counter party and/or suspension of obligations for a period of time in case of force majeure contract cannot directly be terminated without performing the said obligations. If there is not a clause regulating force majeure in your contract, then it should be evaluated based on nature of obligation. If the subject obligation is a peremptory term obligation, in other words parties agree on that obligation can be performed only on a specific date, the subject obligation cannot be performed on another date. However, if obligation can be performed after force majeure ends and parties agree on this and contract is not terminated until that date by one of parties, obligation can be performed after force majeure ends. Nonetheless compensation for damages cannot be claimed from obligor due to non-performance of obligation even if contract is terminated.

10. How will force majeure affect contracts with public institutions?

Pandemic is given as an example for force majeure in the article 10 of the Public Procurement Contracts Law. Nonetheless in order for pandemic to be accepted as a force majeure by public administration for including but not limited to termination of contract, extension of term, pandemic should not be originated based on actions of contractor, and pandemic should preclude performance of obligations by contractor, and contractor is not able to abolish such force majeure, and contractor should notify public institution of force majeure in written in twenty days following occurrence of force majeure, and such force majeure should be authenticated by competent authorities. In case of termination of contract due to force majeure, contractor?s account is rectified pursuant to general provisions, and definite guarantees and additional definite guarantees if available are returned to contractor.

11. What should I do if performance of my obligations is not precluded, but get excessively harder due to the pandemic?

If performance of your obligations is not precluded, but get excessively harder due to the pandemic, for example, advertisement services, content, video provided online, then you should refer to the article of the Turkish Code of Obligations on excessive difficulty in performance. In order to refer to excessive difficulty in performance, the pandemic should change circumstances to obligor?s disadvantage in the manner that asking from obligor to perform his obligations is against good faith. For example, if you can perform your obligations in your house instead of your studio which is closed by an administrative decision or quarantine due to the pandemic and this situation does not create result to your disadvantage, then there is no excessive difficulty in performance. Nonetheless, if you have to buy valuable equipment to perform your obligations under contract and you are not able to have access to your equipment in your studio, then there is an excessive difficulty in performance. In order to refer to excessive difficulty in performance, the other condition is that obligation should not have been performed yet, or if obligation has been performed, then rights should have been reserved during performance. Therefore, if you have an obligation which has not been precluded, but gotten excessively harder due to the pandemic, and you are expected to perform it, you are advised to reserve your rights to surplus via notary public if possible, or in another way that could be proven if not possible. In case of excessive difficulty in performance upon fulfillment of the conditions above mentioned you are entitled to apply to court and to demand revision of contract pursuant to new circumstances. If this is not possible, then you are entitled to terminate contract. Please do not hesitate to contact us if you have further queries regarding the subject matter or regarding your business practice.

Tolga Poyraz N

Tolga Poyraz

Associate, LLM

tolga.poyraz@kurtandpartners.com

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