Contract Termination
"What are the grounds for contract termination under Turkish law?"
Quick Answer
Contracts may be terminated for breach, impossibility, mutual agreement, or as per termination clauses. Notice requirements and consequences vary by contract type. Common grounds include Common grounds include default by a party, failure to remedy a breach after notice, or hardship (excessive performance difficulty) under Article 138 of the Turkish Code of Obligations, which may lead to contract adaptation or, if adaptation is not possible, termination depending on the circumstances.
Legal Framework in Turkey
Contract Termination is governed primarily by the Turkish Code of Obligations No. 6098, which provides comprehensive rules for contractual relationships. Understanding these provisions is essential for drafting enforceable agreements.
It is important to distinguish between different termination concepts in Turkish law:
- Termination (fesih): Typically prospective (forward-looking) ending of continuing contracts (e.g., service or lease agreements).
- Rescission (dönme): May have retroactive effects depending on the legal ground and the nature of the contract, and is more commonly associated with non-continuing performance obligations.
- Avoidance/invalidity: Applies when there are defects of consent such as error, fraud, or duress, rendering the contract voidable.
Key Points to Remember
- Turkish Code of Obligations applies to most commercial contracts
- Termination rights may arise from statutory grounds (e.g., default/breach, impossibility, hardship) and from contract-specific termination clauses, each with different consequences
- Termination often requires proper notice and, in some cases, a cure period or formal written notifications depending on the contract and the legal ground
- In contracts with a foreign element, parties may choose the applicable law subject to the Turkish Private International Law and Procedure Act (MÖHUK) and mandatory rules/public policy limitations
Drafting Considerations
Effective termination clauses provide clarity and certainty when a relationship ends. Key elements to include are:
- Material breach definition: Clearly define what constitutes a "material" breach that triggers termination.
- Cure period and notice method: Specify the time allowed to fix a breach and how notice must be delivered (e.g., written notice methods agreed in the contract; in practice, parties may use notarized notices or registered mail depending on the circumstances).
- Immediate termination triggers: List specific events (e.g., insolvency, fraud) that allow for immediate termination without a cure period.
- Post-termination consequences: Address return of assets, confidentiality obligations, IP rights, and settlement of outstanding payments.
- Survival clauses: Explicitly state which provisions (confidentiality, dispute resolution) remain in effect after the contract ends.
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