Franchise Agreement Adaptation Due to Inflation and Economic Hardship in Turkey

Introduction

Long-term franchise agreements are particularly vulnerable to inflation, exchange-rate volatility, supply-chain disruption and unexpected increases in operating costs.

A franchise relationship may continue for five, ten or more years. During that period, the franchisee may be required to pay fixed or minimum royalties, purchase imported products, contribute to an advertising fund, maintain specified staffing levels, use licensed software, complete renovations and meet an agreed outlet-development schedule.

The franchisor may also face economic hardship. A fixed Turkish-lira management fee may lose a substantial part of its real value, imported support services may become more expensive and the cost of providing training, technology, marketing and quality control may increase sharply.

Türkiye has continued to experience a high-inflation environment. According to the Turkish Statistical Institute, the consumer price index increased by 32.11% annually in June 2026. This economic context makes price-adjustment and risk-allocation mechanisms especially important in long-term commercial agreements. However, the existence of high inflation does not automatically entitle either party to judicial adaptation.

The fundamental rule of Turkish contract law is that agreements must be performed as concluded. Commercial parties ordinarily bear the foreseeable risks associated with their contractual decisions.

An exception may arise where an extraordinary and unforeseeable event changes the basis of the transaction so seriously that requiring performance under the original terms would be contrary to good faith.

Article 138 of the Turkish Code of Obligations regulates this doctrine under the heading of excessive difficulty of performance. It permits a party, where all statutory conditions are satisfied, to request judicial adaptation of the agreement. Where adaptation is impossible, the affected party may withdraw from the contract or, in a continuing contractual relationship, ordinarily terminate it. The provision expressly applies to foreign-currency debts.

A franchise agreement is typically a continuing and complex commercial contract. Adaptation may therefore involve much more than changing a single payment. It may require adjustment of minimum royalties, supply conditions, development targets, renovation deadlines, territorial obligations, technology costs or the allocation of extraordinary regulatory expenses.

This guide explains when a franchise agreement may be adapted due to inflation or economic hardship in Turkey, the evidence required, the available remedies and the contractual mechanisms that franchisors and franchisees should use to manage economic uncertainty.

The Principle of Pacta Sunt Servanda

Turkish contract law begins with the principle that contracts are binding.

A party cannot ordinarily escape a commercially unfavourable bargain merely because performance has become more expensive, less profitable or more difficult than anticipated.

Article 26 of the Turkish Code of Obligations allows the parties to determine the contents of their agreement freely within the limits established by law. This contractual freedom includes the freedom to allocate inflation, currency, supply, financing and market risks between the parties.

In a franchise relationship, ordinary commercial risks may include:

• Lower-than-expected sales;
• Rent increases;
• Wage increases;
• Normal inflation;
• Ordinary exchange-rate movements;
• Increased competition;
• Changes in customer preferences;
• Higher delivery-platform commissions;
• Expected seasonal fluctuations;
• Routine supplier price adjustments.

The fact that a franchise outlet is unprofitable does not by itself establish excessive difficulty of performance.

The franchisee ordinarily bears the entrepreneurial risk of the outlet unless the agreement transfers a specific risk to the franchisor. Similarly, the franchisor cannot automatically increase a fixed fee merely because it later considers the original economic terms inadequate.

Article 138 is an exceptional remedy. It is designed for a fundamental collapse of the transactional balance, not for the correction of every poor commercial decision.

The Legal Basis: Article 138 of the Turkish Code of Obligations

Article 138 permits adaptation where an extraordinary event that was neither foreseen nor reasonably foreseeable at the time of contracting arises for a reason not attributable to the debtor.

The event must alter the circumstances existing when the contract was made so severely against the debtor that demanding performance would be contrary to good faith.

The debtor must also either not yet have performed the obligation or must have performed while expressly reserving the rights arising from the excessive difficulty.

Where these requirements are satisfied, the debtor may ask the court to adapt the contract to the new circumstances. If adaptation is not possible, the debtor may withdraw from the contract. In continuing contracts, termination is ordinarily used instead of retrospective withdrawal. Article 138 expressly confirms that these rules apply to foreign-currency debts.

The doctrine is closely connected with Article 2 of the Turkish Civil Code. That provision requires everyone to act in accordance with good faith when exercising rights and performing obligations and denies legal protection to the manifest abuse of a right.

The conditions of Article 138 are cumulative. A party that proves only a substantial cost increase but cannot establish unforeseeability, lack of fault, severe imbalance and preservation of rights may not obtain adaptation.

The First Condition: An Extraordinary Event

The first requirement is an extraordinary event arising after the franchise agreement was concluded.

The event must be more significant than ordinary commercial fluctuation. It must materially affect the economic or legal foundation on which the agreement was established.

Possible events may include:

• An exceptional currency shock;
• Extraordinary inflation exceeding the assumptions built into the contract;
• A sudden legal prohibition affecting the franchise model;
• Government restrictions preventing operation or importation;
• A severe and unexpected supply-chain collapse;
• War, sanctions or international payment restrictions;
• An extraordinary energy or commodity-price shock;
• An unexpected public-health restriction;
• A regulatory change radically altering the cost structure.

The event must be examined in the context of the particular franchise system.

A 30% increase in one cost item may be manageable for a high-margin business but devastating for a low-margin franchise required to purchase all inputs from one foreign supplier.

Similarly, a legal restriction may be irrelevant to one network but may destroy the commercial foundation of another.

Judicial practice demonstrates that regulatory intervention can be materially different from ordinary market fluctuation. In one reported Court of Cassation decision, a legal prohibition affecting foreign-currency sales was treated as a circumstance capable of significantly impairing the relevant sales and marketing activity and requiring a proper examination of adaptation.

The Second Condition: Unforeseeability

The extraordinary event must not have been foreseen, and it must not have been an event that the parties could reasonably have been expected to foresee when signing the agreement.

This is one of the most difficult conditions in inflation and currency cases.

Türkiye has experienced inflation and exchange-rate movements over many years. Courts may therefore consider some level of inflation and currency volatility to be part of the ordinary commercial risk that a prudent merchant should take into account.

A franchisee that voluntarily signs a ten-year agreement containing a US-dollar minimum royalty while earning all revenue in Turkish lira should expect to be asked why it did not negotiate a currency cap, adjustment mechanism or natural hedge.

Similarly, a franchisor accepting a fixed Turkish-lira fee for a long contractual term should consider whether the contract provides an adequate indexation mechanism.

Foreseeability does not mean that every conceivable economic development must be predicted. The correct question is whether the scale, speed and effect of the event were reasonably foreseeable in the circumstances existing on the signing date.

A gradual and historically familiar increase may be treated differently from an exceptional regulatory decision or sudden disruption that fundamentally changes the commercial model.

The contract date is therefore critical. An event may be unforeseeable under an agreement signed before the first warning signs but foreseeable under a contract signed after the relevant crisis had already begun.

The Prudent Merchant Standard

Franchisors and franchisees generally operate as merchants.

Article 18 of the Turkish Commercial Code requires every merchant to act as a prudent businessperson in all commercial activities. The same article regulates formal notices concerning default, termination and withdrawal between merchants.

The prudent-merchant standard makes the unforeseeability assessment stricter in commercial franchise disputes.

A merchant is expected to:

• Analyse historical inflation;
• Review currency exposure;
• Test alternative financial scenarios;
• Examine supplier dependency;
• Maintain reasonable working capital;
• Consider regulatory risk;
• Negotiate contractual safeguards;
• Obtain professional advice.

However, merchant status does not create an absolute prohibition on adaptation.

Article 138 does not exclude merchants. Academic analysis of Court of Cassation decisions also concludes that a merchant may benefit from Article 138, although the foreseeability requirement is assessed more strictly because of the merchant’s heightened duty of care.

Some Court of Cassation decisions have rejected adaptation claims where the claimant was a merchant and the relevant currency or market risk should have been anticipated. For example, a reported decision of the Third Civil Chamber rejected a claim after considering the claimant’s commercial status and concluding that the statutory conditions had not been established.

The correct conclusion is therefore not that merchants can never obtain adaptation. The issue is whether the particular event exceeded the risks a prudent commercial operator should reasonably have anticipated and managed.

The Third Condition: The Event Must Not Be Attributable to the Claimant

The economic hardship must arise for a reason that is not attributable to the party seeking adaptation.

A franchisee cannot create its own financial crisis and then rely on Article 138.

Adaptation may be refused where the hardship results primarily from:

• Inadequate working capital;
• Excessive borrowing;
• Poor management;
• Unauthorised discounts;
• Failure to follow the business system;
• Failure to obtain insurance;
• Delayed opening caused by the franchisee;
• Selection of unsuitable premises;
• Failure to hedge a risk expressly assumed;
• Failure to maintain required licences.

Similarly, a franchisor should not be able to demand adaptation of its support obligations where the cost increase results from its own inefficient restructuring or voluntary assumption of unnecessary expenses.

The court will examine whether the alleged extraordinary event was the genuine cause of the hardship.

This requires a comparison between external economic effects and internal management failures.

For example, if sales fell by 40%, the court may investigate whether the decrease resulted from an economic crisis, local construction works, poor service, new competition or the franchisee’s failure to follow the system.

The Fourth Condition: A Fundamental Imbalance Contrary to Good Faith

The change must make the original performance so burdensome that requiring it would be contrary to good faith.

A cost increase alone is insufficient.

The economic balance between the parties must have been altered substantially.

In a franchise dispute, the court may examine:

• The original investment model;
• Profit margins at signing;
• Current profit margins;
• Royalty structure;
• Supply costs;
• Exchange-rate exposure;
• Rent and employment costs;
• Sales trends;
• Franchisor support;
• Ability to pass costs to customers;
• Duration remaining under the agreement;
• Risk-allocation clauses;
• Benefits retained by each party.

No universal percentage determines excessive difficulty.

A 50% cost increase does not automatically establish the statutory condition, and a lower increase may be sufficient where it eliminates the complete economic basis of performance.

The assessment should consider the agreement as a whole.

For example, a foreign-currency royalty increase may be offset by increased sales prices or higher turnover. Conversely, a seemingly modest royalty increase may be unbearable where mandatory imported supplies, rent and labour costs have already eliminated the operating margin.

Article 138 is concerned with the collapse of the contractual equilibrium, not with one isolated number.

The Fifth Practical Requirement: Non-Performance or Reservation of Rights

Article 138 states that the debtor must either not yet have performed the obligation or must have performed while reserving the rights arising from excessive difficulty.

This requirement is extremely important in franchise relationships because fees are usually paid monthly.

A franchisee that continues paying the full foreign-currency royalty for a long period without objection may face difficulty seeking retroactive adaptation of amounts already paid.

The affected party should therefore notify the other party promptly and expressly reserve its rights.

A reservation may state that payment is being made to avoid default, without accepting the continued fairness or enforceability of the existing amount and without waiving the right to seek adaptation, restitution or other remedies.

The notice should identify:

• The extraordinary event;
• The affected obligations;
• The date on which hardship began;
• The financial effect;
• The requested adjustment;
• The reservation of rights;
• The proposal for negotiation.

Because the parties will normally be merchants, a formal and provable communication method should be used. Article 18 of the Turkish Commercial Code recognises notarial notice, registered mail, telegram and registered electronic mail using a secure electronic signature for specified commercial notices.

Illustrative Reservation Wording

A reservation notice may include wording similar to the following:

The payment is being made solely to prevent default and interruption of the franchise relationship. It does not constitute acceptance of the continued economic balance of the agreement or waiver of any right arising under Article 138 of the Turkish Code of Obligations. All rights to request negotiation, adaptation, restitution, judicial relief and termination are expressly reserved.

The wording must be adapted to the actual agreement and should not be used mechanically.

The notice should not falsely claim that the payment obligation has disappeared. Unless the parties agree otherwise or a competent court grants relief, the original agreement generally remains effective.

Inflation Alone Does Not Automatically Justify Adaptation

Inflation can be relevant to Article 138, but it is not an automatic adaptation trigger.

The claimant must demonstrate why the inflation experienced after the signing date was extraordinary and unforeseeable in scale and why the agreement allocated neither the relevant risk nor an adequate adjustment mechanism.

The court may consider:

• Inflation at the signing date;
• Official forecasts;
• Historical volatility;
• Contract duration;
• Existing indexation clauses;
• Negotiation records;
• Currency of revenues and expenses;
• Ability to adjust retail prices;
• Whether the claimant is a sophisticated merchant.

An agreement concluded during an already visible period of high inflation will face a more difficult unforeseeability analysis than an agreement concluded during a stable economic period.

A party should also distinguish between nominal and real hardship.

An increase in expenses may be accompanied by an increase in sales prices and nominal turnover. The correct analysis should examine the complete economic effect rather than comparing one current figure with its historical nominal amount.

Foreign-Currency Franchise Fees

Article 138 expressly applies to foreign-currency debts.

This does not mean that every exchange-rate increase requires adjustment.

A franchisee that knowingly assumes a foreign-currency obligation while generating Turkish-lira revenue accepts a degree of currency risk.

The strength of an adaptation claim will depend on:

• The size and speed of the currency movement;
• The economic conditions at signing;
• The contract duration;
• Whether the risk was negotiated;
• Whether a cap or currency corridor exists;
• Whether the franchisee can increase local prices;
• Whether the franchisor’s own costs are in the same foreign currency;
• Whether the fee remains proportionate to the value received.

The parties must also examine Turkish foreign-exchange legislation.

The current framework under the Turkish Currency Protection regime restricts the denomination or indexation of certain contracts between persons resident in Türkiye, subject to detailed statutory exceptions. The classification of a franchise fee, service fee, licence payment, supply obligation or cross-border payment must therefore be assessed under the applicable regulation rather than assumed from the title “franchise agreement.”

A foreign franchisor and Turkish franchisee may fall within a different exception or structure from two Turkish-resident parties.

The agreement should specify separately the currency of:

• Initial franchise fees;
• Royalties;
• Imported products;
• Technology services;
• Training;
• Advertising contributions;
• Reimbursements.

Hardship Is Different from Impossibility

Economic hardship should not be confused with impossibility of performance.

Article 136 of the Turkish Code of Obligations provides that an obligation ends where performance becomes impossible for a reason for which the debtor cannot be held responsible.

Article 137 regulates partial impossibility.

Article 138 applies where performance remains legally and physically possible but has become excessively burdensome.

Paying a royalty will rarely become literally impossible merely because the exchange rate increased.

The relevant question is whether insisting on payment under the original terms would be contrary to good faith because the contractual foundation has collapsed.

The distinction affects the remedy:

• Impossibility may extinguish the relevant obligation;
• Hardship may justify adaptation;
• If adaptation cannot restore the balance, withdrawal or termination may follow.

Hardship Is Different from Force Majeure

Force majeure and hardship are related but distinct concepts.

Force majeure generally concerns an event that prevents performance or makes it legally or physically impossible.

Hardship concerns an event that leaves performance possible but radically more burdensome.

For example:

• A government order permanently prohibiting the franchised activity may create impossibility;
• A temporary closure may create force majeure or temporary impossibility;
• A sharp increase in imported product costs may create hardship;
• A fall in customer demand alone may remain ordinary commercial risk.

The franchise agreement should contain separate force majeure and hardship clauses.

Using one broad clause for every adverse economic development may create uncertainty about whether obligations are suspended, adapted or terminated.

The Effect of Contractual Risk Allocation

The contract is one of the most important sources for determining whether adaptation is available.

A court will examine whether the relevant risk was already allocated to one party.

Examples include:

• A fixed exchange-rate clause;
• A currency-adjustment corridor;
• CPI indexation;
• A supplier-price adjustment mechanism;
• A minimum royalty regardless of turnover;
• A clause allocating import taxes;
• A cap on annual fee increases;
• A hardship clause;
• A waiver or assumption of specific risks.

Where the agreement expressly and clearly assigns a defined risk, it may be more difficult for the affected party to argue that the same event was unforeseeable or outside the contractual allocation.

However, a general statement that the franchisee bears “all commercial risks” should not automatically resolve every exceptional event.

The clause must be interpreted according to its wording, purpose, negotiations and the scale of the change.

Unilateral amendment provisions also require caution.

Articles 24 and 25 of the Turkish Code of Obligations provide that standard terms granting the drafter unilateral power to introduce adverse changes may be treated as unwritten, and standard terms may not aggravate the other party’s position contrary to good faith.

A franchisor should therefore not rely on an unlimited clause allowing it to increase every fee whenever its own costs rise.

Which Franchise Obligations May Be Adapted?

Article 138 is not limited to royalty payments.

Depending on the circumstances, adaptation may concern:

• Fixed royalties;
• Minimum guaranteed royalties;
• Foreign-currency fees;
• Advertising contributions;
• Technology fees;
• Mandatory product prices;
• Development schedules;
• Outlet-opening deadlines;
• Renovation obligations;
• Minimum purchase requirements;
• Staffing commitments;
• Territorial development targets;
• Training costs;
• Contract duration.

A court may also need to coordinate several obligations.

Reducing the royalty while preserving an unrealistic minimum-purchase commitment may not restore the contractual balance.

Similarly, extending the development schedule may be more appropriate than reducing a monetary payment where the hardship concerns financing and premises availability.

The adaptation must remain connected to the purpose of the agreement and should interfere no more than necessary.

Adaptation May Be Requested by Either Party

Article 138 is not exclusively a franchisee remedy.

A franchisor may also face excessive difficulty.

For example, adaptation may be requested where:

• A fixed Turkish-lira support fee has lost extraordinary real value;
• New regulation requires expensive technology or compliance infrastructure;
• The franchisor must provide imported software or equipment at a fixed price;
• An extraordinary tax or regulatory charge changes the cost of support;
• The franchisee receives services whose cost has become radically disproportionate to the agreed payment.

The same statutory conditions apply.

A franchisor cannot increase fees unilaterally merely because inflation has reduced its expected profit.

It must rely on the contractual adjustment clause, reach agreement with the franchisee or establish the conditions required for judicial adaptation.

Possible Methods of Adaptation

The objective of adaptation is to restore a fair contractual balance while preserving the agreement where reasonably possible.

Possible methods include:

• Reducing or increasing a fixed fee;
• Converting a fixed royalty into a turnover-based royalty;
• Reducing the minimum guaranteed payment;
• Introducing an exchange-rate corridor;
• Applying partial CPI indexation;
• Extending payment deadlines;
• Deferring specified fees;
• Extending the contract term;
• Delaying renovation;
• Revising development targets;
• Permitting alternative suppliers;
• Sharing extraordinary import costs;
• Temporarily suspending minimum purchases;
• Reallocating online revenue.

The adaptation should not provide the claimant with a better bargain than it would reasonably have received under balanced conditions.

The court should attempt to preserve the commercial purpose of the agreement rather than rewriting the complete franchise system.

If no workable adaptation can restore the balance, Article 138 permits withdrawal or, for continuing contracts such as franchising, ordinarily termination.

Unilateral Suspension Is Risky

A party claiming hardship should not assume that it may stop performing immediately.

Unless the agreement grants a suspension right, the other party accepts temporary relief or a court orders protection, unilateral non-payment may constitute default.

This may expose the franchisee to:

• Default interest;
• Contractual penalties;
• Supply suspension;
• Termination;
• Trademark licence termination;
• Damages.

The safer process is generally:

1. Give formal notice;
2. Reserve rights;
3. Request financial information and negotiation;
4. Make a reasoned adaptation proposal;
5. Continue undisputed performance where possible;
6. Seek mediation, arbitration or judicial relief promptly.

A party should not allow the hardship to continue for years before taking action. Delay may weaken the argument that performance became genuinely intolerable.

Evidence Required for an Adaptation Claim

An adaptation claim requires detailed financial and contractual evidence.

The claimant should preserve:

• The original business plan;
• Franchise disclosure materials;
• Financial projections;
• Negotiation correspondence;
• Historical exchange rates;
• Official inflation data;
• Supplier invoices;
• Payroll records;
• Rent;
• Utility expenses;
• Sales records;
• Profit-and-loss statements;
• Cash-flow forecasts;
• Loan documents;
• Price changes;
• Formal notices;
• Board resolutions;
• Mitigation efforts.

The analysis should separate the effect of the extraordinary event from unrelated business weaknesses.

An expert may need to compare:

• Original expected margin;
• Current margin;
• Turnover growth;
• Input-cost growth;
• Royalty burden;
• Sector averages;
• Alternative adaptation scenarios.

The claimant should explain why the requested adaptation is proportionate and how it would restore, rather than reverse, the contractual equilibrium.

Duty to Mitigate the Economic Effect

A party seeking adaptation should demonstrate that it took reasonable steps to reduce the impact of the event.

Possible mitigation measures include:

• Renegotiating supply conditions;
• Reducing non-essential expenditure;
• Adjusting lawful retail prices;
• Using alternative approved suppliers;
• Restructuring payment schedules;
• Applying for available support;
• Improving inventory management;
• Seeking financing;
• Reducing energy consumption;
• Renegotiating the lease.

The claimant is not necessarily required to destroy the business or assume unlimited new debt.

However, a court may be reluctant to adapt the agreement where the claimant ignored reasonable and commercially available solutions.

Adaptation Proceedings in Franchise Disputes

Where the parties are commercial enterprises and the dispute concerns their commercial businesses, the dispute will generally qualify as a commercial case. The Turkish Commercial Code classifies disputes connected with both parties’ commercial enterprises as commercial and generally assigns commercial cases to the commercial courts of first instance.

The exact competent court may be affected by:

• An arbitration clause;
• A court-selection clause;
• The location of the defendant;
• The place of performance;
• Related lease claims;
• International jurisdiction rules.

Whether pre-litigation mediation is mandatory should be assessed according to the relief requested.

A pure request to adapt contractual provisions is not identical to a claim whose subject is payment of a specific amount. However, adaptation proceedings frequently include restitution, compensation, negative declaratory or payment claims, and the mediation requirement must be reviewed before filing. The commercial mediation framework expressly covers specified commercial monetary and related claims.

The claimant should also formulate the requested adaptation precisely.

A vague request asking the court to make the agreement “fair” may be difficult to examine and enforce.

Arbitration and International Franchise Agreements

International franchise agreements often contain arbitration clauses.

An arbitral tribunal may determine whether the conditions of Article 138 or the selected governing law’s hardship doctrine are satisfied, provided that the dispute falls within the arbitration agreement.

The agreement should distinguish:

• Governing law of the franchise agreement;
• Law of the arbitration agreement;
• Seat of arbitration;
• Institutional rules;
• Interim relief.

A foreign-law clause does not necessarily eliminate mandatory Turkish rules affecting foreign exchange, competition, data protection, tax or local operations.

The parties should also determine whether the hardship clause requires negotiation or mediation before arbitration begins.

Urgent relief may be necessary where one party threatens termination while adaptation proceedings are pending.

Drafting a Hardship Clause

A well-drafted hardship clause can reduce uncertainty and help preserve the franchise relationship.

The clause should identify:

1. Triggering events;
2. Objective financial thresholds;
3. Excluded ordinary risks;
4. Notice requirements;
5. Supporting documents;
6. Mitigation obligations;
7. Negotiation period;
8. Temporary payment arrangements;
9. Adaptation methods;
10. Independent expert involvement;
11. Mediation or arbitration;
12. Termination rights if no solution is found.

Possible triggers may include:

• Annual inflation exceeding a defined threshold;
• Exchange-rate movement exceeding a specified percentage within a specified period;
• Mandatory supplier-cost increases exceeding a threshold;
• New taxes or regulations;
• Government restrictions;
• Extraordinary import interruption.

A mechanical threshold should not be the only condition.

The clause should also require that the event materially alter the contractual balance.

Sample Hardship Clause

The following is a general illustration and should be adapted to the transaction:

If, after the Effective Date, an extraordinary event beyond the reasonable control of the affected party materially alters the economic balance of this Agreement and causes the cost or burden of performance to increase to a degree that could not reasonably have been anticipated by a prudent commercial operator, the affected party shall notify the other party without delay.

The notice shall describe the event, its financial effect, the obligations affected, the mitigation measures taken and the adaptation requested. The parties shall negotiate in good faith for thirty days with the objective of preserving the commercial purpose of the Agreement.

During the negotiation period, undisputed obligations shall continue to be performed. Payments made under an express reservation shall not constitute a waiver of rights arising from the hardship.

Adaptation may include adjustment of fixed fees, minimum royalties, payment periods, development targets, mandatory investment deadlines or supply conditions. If the parties fail to reach agreement, the dispute shall be resolved under the dispute resolution clause of this Agreement.

Nothing in this clause shall prevent either party from relying on Article 138 of the Turkish Code of Obligations or from requesting urgent interim protection where legally available.

The parties should decide whether the clause supplements or replaces contractual renegotiation rights. It should not accidentally exclude statutory remedies without careful legal review.

Inflation and Hardship Checklist for Franchise Agreements

Before signing or revising a Turkish franchise agreement, the parties should confirm that:

1. Fixed and variable fees are distinguished.
2. The royalty base is defined clearly.
3. CPI or another index is selected appropriately.
4. The adjustment frequency is stated.
5. Currency risk is allocated expressly.
6. Exchange-rate caps or corridors have been considered.
7. Minimum royalties have realistic adjustment mechanisms.
8. Mandatory supplier price changes are regulated.
9. Extraordinary import and tax costs are allocated.
10. Advertising and technology fees are adjustable under clear rules.
11. Development targets can be extended for defined events.
12. Renovation deadlines contain hardship protection.
13. Force majeure and hardship are regulated separately.
14. Notice and reservation procedures are clear.
15. Financial disclosure obligations are mutual and proportionate.
16. Mitigation duties are defined.
17. Negotiation periods have fixed deadlines.
18. Temporary payment rules are included.
19. Expert determination or mediation has been considered.
20. The agreement preserves Article 138 rights where intended.
21. Governing law and dispute resolution are coordinated.
22. Turkish foreign-exchange restrictions have been reviewed.
23. Franchise and lease adjustment clauses are coordinated.
24. Personal guarantees reflect the adapted obligations.
25. All amendments are documented formally.

Conclusion

Franchise agreement adaptation due to inflation and economic hardship in Turkey is governed principally by Article 138 of the Turkish Code of Obligations.

The provision does not allow a party to escape every unfavourable commercial result.

The ordinary rule remains performance of the agreement as concluded. Franchisors and franchisees are merchants and are expected to evaluate foreseeable inflation, exchange-rate, supply and financing risks before signing.

Judicial adaptation becomes possible only where an extraordinary and unforeseeable event that is not attributable to the claimant changes the contractual balance so severely that insisting on the original performance would be contrary to good faith.

The claimant must also have refrained from performing or must have performed under an express reservation of rights.

Inflation alone does not automatically satisfy these conditions. The contract date, historical economic environment, risk-allocation provisions, commercial sophistication of the parties and complete financial impact must all be examined.

Article 138 expressly applies to foreign-currency debts. Nevertheless, a franchisee accepting a foreign-currency obligation while earning Turkish-lira revenue assumes an ordinary degree of currency risk. Adaptation requires something beyond the normal consequences of that decision.

A franchise agreement may be adapted in several ways. The court or parties may adjust royalties, minimum fees, payment periods, supply obligations, development targets, renovation deadlines or contractual duration.

The purpose is to restore the balance, not to transfer the complete business risk to the other party.

Both franchisors and franchisees may seek adaptation. A franchisor may suffer extraordinary erosion of a fixed fee just as a franchisee may suffer an unsustainable increase in a foreign-currency royalty.

The affected party should act promptly, give a formal notice, preserve evidence, reserve its rights and make a proportionate adaptation proposal.

Unilateral suspension of payments creates substantial risk unless authorised by the agreement, accepted by the other party or protected by a court or arbitral order.

The most effective protection is contractual planning.

Long-term Turkish franchise agreements should contain clear inflation, currency and hardship clauses. These clauses should define triggers, documentation, negotiation, mitigation, temporary performance and the consequences of failure to agree.

A carefully designed adaptation mechanism protects not only the party facing hardship. It protects the long-term value of the entire franchise network by reducing insolvency, abrupt termination, supply disruption and unnecessary litigation.

Frequently Asked Questions

Can a franchise agreement be adapted because of inflation in Turkey?

Potentially. Inflation must satisfy all conditions of Article 138, including extraordinariness, unforeseeability, lack of fault and a severe contractual imbalance contrary to good faith.

Does high inflation automatically justify adaptation?

No. Inflation alone is insufficient. The claimant must prove its specific and exceptional effect on the agreement.

Can a merchant rely on Article 138?

Yes. Article 138 does not exclude merchants, but the unforeseeability condition is assessed more strictly because merchants must act prudently.

Can ordinary business losses justify adaptation?

Generally no. Poor management, inadequate capital, low sales or normal market competition are ordinarily commercial risks.

Does Article 138 apply to US-dollar or euro payments?

Yes. The statute expressly applies to foreign-currency debts.

Does every exchange-rate increase justify reducing a foreign-currency royalty?

No. Some currency risk is foreseeable and may have been accepted contractually.

Can a franchisor also request adaptation?

Yes. The remedy is not limited to franchisees. A franchisor may seek adaptation where its own performance has become excessively burdensome under the statutory conditions.

What is the difference between hardship and force majeure?

Hardship makes performance excessively burdensome. Force majeure generally prevents performance or creates legal or physical impossibility.

What is the difference between hardship and impossibility?

In hardship, performance remains possible but extremely burdensome. In impossibility, the obligation cannot be performed.

Can the franchisee stop paying royalties while requesting adaptation?

Not automatically. Unilateral non-payment may constitute default unless the agreement, the other party or a court authorises suspension.

Why is a reservation of rights important?

Article 138 requires the obligation not to have been performed or to have been performed while preserving the rights arising from excessive difficulty.

How should rights be reserved?

A formal written notice should state that payment is made without waiver and that adaptation and related remedies are expressly reserved.

Can amounts already paid without reservation be recovered?

This may be difficult. The statutory wording makes timely reservation particularly important.

Can minimum royalties be adapted?

Yes, where the statutory conditions are satisfied. Minimum royalties may be especially relevant where turnover has fallen substantially.

Can development targets be adapted?

Potentially. Article 138 is not limited to monetary obligations.

Can mandatory renovation be postponed?

Yes, where the renovation obligation has become excessively burdensome due to an extraordinary and unforeseeable event and the other statutory requirements are satisfied.

Does a hardship clause replace Article 138?

Not necessarily. The relationship between the contractual clause and statutory remedy depends on the wording and validity of the clause.

Can the agreement allocate all inflation risk to the franchisee?

The parties may allocate commercial risks, but an extremely broad clause may not resolve every extraordinary event. Standard-term and good-faith rules must also be considered.

Which court hears an adaptation dispute?

A franchise adaptation dispute between commercial enterprises will generally be a commercial case, subject to any valid arbitration or jurisdiction clause.

Is mediation mandatory before filing?

This depends on the relief requested. It must be assessed especially where adaptation is combined with payment, compensation, restitution or negative declaratory claims.

Can a court terminate the agreement?

If adaptation is impossible, Article 138 allows withdrawal or, in continuing agreements, ordinarily termination.

What evidence is required?

Financial statements, invoices, sales data, supplier prices, official economic data, original projections, notices and mitigation evidence will usually be important.

Can the court choose a different adaptation method from the claimant’s proposal?

The judicial remedy depends on the pleadings, statutory framework and circumstances. The claimant should present clear primary and alternative requests.

Should foreign-exchange legislation also be reviewed?

Yes. The legality of denominating or indexing payments in foreign currency must be assessed separately under the current Turkish currency-protection rules and applicable exceptions.

What is the best way to avoid an adaptation lawsuit?

The agreement should contain balanced indexation, currency-corridor, hardship, renegotiation and exit provisions from the beginning.

This article provides general legal information as of July 2026 and does not constitute legal, financial or tax advice. Adaptation claims must be assessed according to the signing date, contractual risk allocation, economic evidence, party status, performance history and legislation applicable to the specific franchise relationship.