Turkey: Financial Leasing Agreements

Introduction

Until December 13, 2012, financial leasing, factoring, financing and loan activities were regulated by the Financial Leasing Law No. 3226 (“Abrogated Law”), the By-Law regarding Money Lending Activities No. 90 and the relevant secondary legislation. The Financial Leasing, Factoring and Financing Companies Law No. 6361 (“Law No. 6361”) which was promulgated by the Turkish Grand National Assembly on November 21, 2012, entered into force through publication in the Official Gazette dated December 13, 2012 and numbered 28496. Law No. 6361 regulating all companies engaging in the abovementioned activities repeals and replaces the Abrogated Law and the decree No. 90.

Law No. 6361 introduces important changes to the financial leasing agreements. In this month’s newsletter article, the financial leasing agreements and the material changes introduced with the new provisions shall be analyzed.

Execution of the Agreement and Property Rights

The Financial leasing agreement is an agreement under which the lessor transfers possession of a good they provide to the lessee in exchange for a leasing price. Pursuant to Law No. 6361 investment, participation and development banks as well as financial leasing companies may be party to a financial leasing agreement as the lessor. Thereby, the limitation under the Abrogated Law that only a financial leasing company could be the lessor is no longer preserved. Further, under the Abrogated Law it was not clear whether the lessor could purchase the good from the lessee first and then lease it under a financial lease agreement. Article 18/1 of Law No. 6361 now explicitly enables the lessor to purchase the leased good from a third person or even from the lessee.

The leased good may be movable or real-estate. Law No. 6361 enables, for the first time, reproduced copies of computer software to be leased under a financial leasing agreement. Any good which individually constitutes an asset may be leased under this agreement.

Contrary to the Abrogated Law, financial leasing agreements are not required to establish a minimum period in which it may not be terminated.

It is no longer required for the agreement to be executed by a public notary. The financial leasing agreement may be executed in writing. Real estate and movable goods leased under financial leasing agreements shall be annotated or registered to the land registry, to the special registries for movable goods, if any, and be notified to the Association of Financial Leasing, Factoring and Financing Companies1 (“Association”). Movable goods not registered to a special registry shall be registered to the special registry to be kept by the Association. The registry to be kept by the Association shall be accessible to the public; and therefore persons not party to the financial leasing agreement may not allege that a lease annotation was unbeknownst to them.

Rights and Obligations of the Parties

The lessor and the lessee undertake reciprocal obligations by entering into a financial leasing agreement. The lessor undertakes to transfer the possession of the good, and the lessee undertakes to pay the leasing price. Law No. 6361 also regulates other obligations and certain rights of the parties.

Under this section, the provisions of Law No. 6361 governing the rights and obligations of the parties shall be analyzed.

The Rights and Obligations of the Lessee

The lessee is obliged to pay the leasing price. The financial leasing price and the terms of payment shall be regulated under the agreement. The provision under the Abrogated Law requiring the annual leasing price for financial leasing from abroad to be at least equivalent to 25,000.- US Dollars is not preserved in Law No. 6361. The Association shall regulate the procedures and principles of financial leasing from abroad.

Pursuant to another important change introduced by Law No. 6361, even if the leased good is not yet produced or its possession is not yet transferred, it may be regulated in the agreement that the lessee shall commence payment of the lease as of the date of the agreement.

As under the Abrogated Law, the lessee shall be the possessor of the leased good. It shall use the good in compliance with the agreement and with diligence and it may benefit from the good. The leased good must be insured and the lessee shall pay the premiums. Unlike the Abrogated Law, Law No. 6361 does not specify the insurer; it shall be regulated under the agreement.

The lessee may be granted a purchase right under the agreement.

The lessee shall be responsible for all loss and damages on the good for the duration of the agreement. The lessor shall not be responsible for any defects on the good.

The Abrogated Law included a provision which stated that the lessee could not transfer possession of the leased good. In 2007 new provisions were introduced enabling the lessee to transfer possession (a) by obtaining the written approval of the lessor for leasing transactions for the purpose of providing housing to consumers and financing investments, (b) solely by notifying the lessor of leasing transactions regarding housing finance and (c) in accordance with the provisions of the leasing agreements for other types of leasing transactions.

Law No. 6361 facilitated the transfer of possession of the leased good and even the change of the lessee. Accordingly, even if there is no contractual provision enabling such transfer, the lessee may transfer its rights and obligations under the agreement or the agreement itself with the written approval of the lessor. There is no obligation to obtain the approval of the lessor for transfers under lease agreements in relation to housing finance; the lessee may transfer possession of the good to a third person by notifying the lessor of the transfer.

The Rights and Obligations of the Lessor

The lessor is under the obligation to transfer the possession of the leased good to the lessee. Unless regulated otherwise under the agreement, the leased good shall be transferred to the lessee at the latest within two years as of the date of the agreement.

If the leased good may not be delivered to the lessee due to the lack of execution of an agreement by the lessor with the producer or the seller of the leased good in due time, the provisions of the Code of Obligations in relation to the rights of the non-violating party, in the event of non-execution of obligations of the other party, shall be applicable.

Law No. 6361 no longer preserves the provision stating that the lessor shall be the insurer of the leased good. Pursuant to the new provisions, the agreement shall specify the party who shall insure the leased good.

The agreement may grant the lessee a purchase right over the leased good. In the event the agreement regulates this opportunity, and provided a notice is served to the lessee, in the event the lessee fails to exercise its purchase right within thirty days starting from the generation of the right or to return the leased good to the lessor, the lessor may unilaterally realize any action necessary for the transfer of ownership of the good to the lessee.

Unless regulated otherwise in the financial leasing agreement, the lessor may transfer the property of the leased good to another lessor (as defined under Law No. 6361). The transfer must be notified to the lessee.

Termination of the Agreement

As was under the Abrogated Law, unless regulated otherwise, the agreement shall be deemed terminated at the end of its term, and in the event of bankruptcy, death or loss of legal capacity of the lessor. The parties may agree to extend the term of the lease agreement three months prior to the lapse of its term. The event of unsuccessful execution proceedings against the lessee is no longer preserved as grounds for termination. On the other hand, Law No. 6361 regulates that the lessee may terminate the agreement prior to its term in the event the lessee or its enterprise to which the leased good is allocated is in the process of liquidation.

In the event the lessor defaults in the payment of the leasing price and does not make the payment within the thirty-day period (this period may not be less than sixty days if the agreement grants a purchase right), which the lessor will grant to the lessee, the lessor may terminate the agreement. Law No. 6361 further regulates that if the lessee is issued notifications due to non-payment three times, or two times in a row within the same year, the lessor may terminate the agreement.

Law No. 6361 maintains the provision that if due to violation of one party it may not be expected for the other party to carry on with the agreement, the agreement may be terminated. Accordingly, the termination right shall arise only if one of the parties acts in violation of the agreement and if this violation results in a situation in which it may no longer be expected for the other party to be bound by the agreement. The issue as to whether a financial leasing agreement could be terminated due to a fundamental change of circumstances or based on just cause, which was not resolved under the Abrogated Law, is therefore not resolved with the provisions of Law No. 6361 either.

In any event, if the agreement is terminated, the lessee who does not exercise or who does not have a purchase right shall immediately return the leased good to the lessor.

The Abrogated Law regulated that in the event the lessor terminates the agreement, the lessee shall be obliged to return the leased good, pay all undue lease payments and compensate any exceeding damages. The Law No. 6361 did not preserve this provision. Pursuant to the new provisions, in the event the lessor (or the lessee, due to liquidation of the lessee or its enterprise) terminates the agreement, the lessee, who shall return the leased good, may additionally be obliged to make an additional payment. If the total amount of undue lease payments of the lessee and the exceeding loss of the lessor is less than the sale or lease price of the leased good to be sold or financially leased to a third person by the lessor, the lessee shall pay the difference to the lessor. Otherwise, the lessor shall pay the lessee the difference. If the lessee terminates the agreement (other than due to the liquidation of the lessee or its enterprise), the lessee may request compensation from the lessor of the damages it incurs.

The provision of the Abrogated Law stating that the agreement may not be terminated for a minimum period of four years is not preserved under Law No. 6361.

Conclusion

Law No. 6361 abrogated the Abrogated Law and the by-law No. 90 through its entry into force on December 13, 2012. This law regulates the financial leasing, factoring and financing companies and the agreements which fall under its scope. These regulations introduce certain material changes.

The definition of the lessor which may enter into financial leasing agreements is widened. The agreement may be executed in writing, and the leased good shall be annotated or registered to the land registry, to its own registry or to the special registry kept by the Association. A minimum term of validity of the agreement is not regulated.

The Lessee may transfer the agreement with the written approval of the lessor. The lessor may transfer ownership of the leased good to another lessor by notifying the lessee. If the agreement grants a purchase right, in the event the lessee does not return the leased good at the end of its term, subject to certain conditions, the lessor may unilaterally transfer ownership of the leased good to the lessee.

If the lessee defaults in the payment of the lease price and does not make the payment within the specified period, defaults in the payment three times, or two times in a row in a given year, the lessor may terminate the agreement.

Footnotes

1 Pursuant to the Law numbered 6361, the Association shall be established within six months as of the entry into force of the law.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Erdem & Erdem Law
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Erdem & Erdem Law
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions