Change Of Control In Long Term Lease Agreements In Scope Of Competition Law

Kilinc Law & Consulting


Kilinç Law & Consulting established by Levent Lezgin Kilinç currently operates in Istanbul, Izmir and London. Our firm, provides services to clients in a wide range of complex matters including Project Finance, Corporate Law, M&A, Energy Law, Dispute Resolution, Maritime Law, IP Law, International Transactions as well as Litigation of the disputes.
Article 7 of the Law No. 4054 on the Protection of Competition ("Competition Law") prohibits mergers and acquisitions that are carried out in such a way as to create a permanent change...
Turkey Antitrust/Competition Law
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Article 7 of the Law No. 4054 on the Protection of Competition ("Competition Law") prohibits mergers and acquisitions that are carried out in such a way as to create a permanent change in control and that result in a significant lessening of effective competition in any goods or services market in the whole or part of the country, including the creation of a dominant position or the strengthening of an existing dominant position, therefore, the Competition Board ("Board") has subjected the transactions deemed as mergers and acquisitions to the obligation to obtain permission from the Board in case of a permanent change in control. Communiqué No. 2010/4 on Mergers and Acquisitions Requiring the Authorisation of the Competition Board ("Communiqué") regulates which types of mergers and acquisitions are subject to the authorisation of the Board in order to obtain legal validity. Within the framework of competition law, the concept of "control" can be provided through a contract, and in this context, it should be examined whether the relevant transaction is subject to the Board's authorisation in terms of long-term lease agreements. In the evaluations to be made for obtaining permission from the Board for the realisation of the relevant transaction, it is first necessary to determine whether the "long-term lease" transaction in question creates a permanent change in control.



Since lease agreements are agreements that leave the use and/or utilisation of a good to the lessee, but do not result in the transfer of ownership of the relevant good, they may create a situation affecting the competitive environment for the undertakings party to the agreement, depending on the subject, scope and duration of such lease agreement. For this reason, whether the lease agreement and the tenancy right constitute a "change of control" over the relevant property within the framework of the Competition Law is a matter that should be evaluated independently for each transaction.

With that respect, the second paragraph of Article 5 of the Communiqué defines control within the framework of the Communiqué as; "rights, contracts or other instruments which, separately or jointly, enable the exercise of a decisive influence over an undertaking, either de facto or de jure. These instruments are, in particular, ownership of all or part of the assets of an undertaking or a right to use the assets of an undertaking, rights or contracts that provide for a decisive influence on the composition of the organs of an undertaking or on its decisions. Control may be obtained by the holders of rights or by persons or undertakings who are authorised to exercise rights under a contract or who, although not having such rights or authorisation, have the actual power to exercise such rights."

In addition, when the "Guideline on the Cases Considered as Mergers and Acquisitions and the Concept of Control" ("Guideline") published by the Competition Authority along with the decision dated 05.04.2018 and numbered 18-10/195-RM(2) is examined, it is stated that in cases where control is acquired through a contract, the Board, while making an assessment within the framework of Article 7 of the Competition Law, considers that only long-term contracts may create structural changes in the relevant market; and that contracts must be long-term contracts and the party granting the rights arising from the contract must not be able to terminate the contract early. Since the "long term" and "non-terminability" conditions set forth in the Guidelines are compatible with the content and arrangements of many lease agreements concluded in commercial life, the direction provided in the Guidelines will not be enough by one self to assess whether a lease agreement is subject to the Board's authorisation.



In the decision dated 14.08.2008 and numbered 08-50/721-281, which is one of the decisions of the Board evaluating long-term lease agreements, the nature of the lease of the workplaces operated under the brand name "Maksi Market" to Migros was examined and an assessment was made as to which lease agreements would be subject to the Board's authorisation.

Namely, the relevant decision refers to the European Commission's declaration and states that the condition that "the asset must be an activity from which turnover can be obtained" is sought. In this framework, evaluation related to the attributable turnover to a particular undertaking is caried out as "the relevant asset must be a means of production or an essential element of the undertaking's activity." In this context, the aforementioned decision concluded that, in terms of the organised retail sector, stores are an essential element of the undertaking's activity, since they are the area where the undertaking reaches its customers. In the same decision, in the evaluation made in terms of the duration, 7 years of period, that stipulated in transaction subject to the application evaluated as "can create customer dependency in these regions and a certain ossified market share can be obtained" and decided that that transaction subject to the Board's authorization.

Therefore, as can be understood from the assessments made by the Board, the Board's authorisation assessment for long-term lease agreements will be based on the nature of the relevant product and service market. In this respect, the Board's decision dated 17.03.2022 and numbered 22-13/204-87 on ready-mixed concrete facilities and decision dated 17.11.2011 and numbered 11-57/1465-522 on jet fuel supply facilities have determined long-term lease agreements subject to Board authorisation.

Similarly, in the decision dated 22.11.2018 and numbered 18-44/699-343, long-term lease agreements for the lease of hotels were determined as subject to the Board's authorisation, since the relevant real estate and operating right is subject to a lease agreement and this right is an essential element of the undertaking's activity.

Based on the above-mentioned decisions of the Board, it can be seen that the sector in which the activity is carried out and the nature of the product market are particularly evaluated, especially when long-term lease agreements are taken into consideration. In this framework, it is important to note that transactions for the lease of a unit that attributable turnover on behalf of the undertaking which may be in the nature of "transfer of workplace" especially within the framework of the Competition Law, and therefore, in transactions of this nature, it is important to proceed with the transaction by taking into account the turnover of the parties to the transaction and the turnover of the asset subject to the transfer.



Based on the aforementioned decisions of the Board, in the sectors where units to which turnover can be attributed are leased for a long term, in cases where the related transactions involve a change of control, the obligation to notify the Board before the completion of the transaction may arise.

In this framework, since it is most probably that long-term lease agreements for factories that are production facilities will be considered as a change of control by the Board, it is important to consider the turnover of the contracting parties before the execution of the relevant agreements.

In a similar framework, as can be seen from the Board's previous decisions, lease agreements for hotels or stores, taking into account the product market, may also be subject to Board authorisation. Within this scope, especially those that have the characteristics of licence transfer due to the legislation it is generally recommended that making an evaluation regarding requirements of Board's permission, in order to minimise the transaction authority and the financial risks of the parties to the transaction.

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.

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