Introduction

While there was no separate legislation on financial leasing in Turkish law before, a legal basis was established with the adoption of the Financial Leasing Law No. 3226 in 1985. Later, this law was repealed and the Financial Leasing, Factoring, Financing and Savings Finance Companies Law No. 6361 ("FFFL") was adopted.

If the financial lease is to be made from abroad, the principles determined by the Association of Financial Institutions ("Association") pursuant to Article 21 of the FFFL should also be taken into consideration.

I. Definition of Financial Leasing and its Difference from Operational Leasing

The definition of financial leasing is given in FFFL 3/1/ç. According to the relevant provision, a financial leasing is a leasing transaction that provides any of the following conditions: the lessor transfers the ownership of a good to the lessee at the end of the lease term for the purpose of providing financing, provided that it is based on a financial leasing agreement; the lessee is granted the right to purchase the good at the end of the lease term at a price lower than the fair value of the good; the lease term covers more than eighty percent of the economic life of the good; or the sum of the present values of the lease payments to be made according to the finance lease agreement constitutes a value greater than ninety percent of the fair value of the good.

Article 18 of the FFFL contains the definition of a financial leasing agreement. According to the relevant provision, a financial leasing agreement is an agreement whereby the lessor, for the purpose of financial leasing, upon the request and election of the lessee, purchases or otherwise obtains from a third party or from the lessee itself, or transfers to the lessee the possession of a property that it has previously taken into its ownership, in exchange for a lease fee, in order to provide all kinds of benefits.

The main difference between financial leasing and operational leasing is that the purpose of the financial leasing is to provide financing and it is decided to transfer the goods to the lessee at the end of the agreements, the lessee is granted the right to purchase the goods, the lease period covers a part of the economic life of the goods greater than eighty percent, or the sum of the present values of the lease payments to be made according to the financial leasing agreement constitutes a value greater than ninety percent of the fair value of the goods.

II. Elements of the Agreement and Form of the Agreement

There are some elements that must be included in a financial leasing agreement.

First of all, there must be a good subject to the agreement. This good may be any movable or immovable property other than the goods prohibited by Law No. 6361.

In addition, a price must be agreed within the scope of the agreement. The legislation does not limit the amount of the consideration.

There must be a lessee and a lessor in the agreement. The lessee may be any person, while the lessor must be a financial leasing company. Article 5 of the FMLR sets forth the conditions for the establishment of a financial leasing company. These companies must be established as a joint stock company.

The agreement must contain a declaration of will of the lessee and the lessor in accordance with the requirements of the financial leasing relationship explained in the previous section.

Certain formal requirements are stipulated for this type of agreement. Pursuant to Article 22 of the FFFL, a financial leasing agreement shall be executed in writing or through an information or electronic communication device, which the Banking Regulation and Supervision Board ("Board") determines to be a substitute for the written form by using remote communication tools, and the procedures and principles regarding this shall be determined by the Board. However, the validity conditions of financial leasing agreements made from abroad are determined in accordance with Article 4 of the Circular on the Registration of Agreements Regarding Financial Leasing Transactions ("Circular"). Pursuant to the said article, in financial leasing transactions from abroad, agreements for aircraft, ships, medical devices and high-tech goods must be made before a notary public, provided that the average annual rent is more than USD 100,000.

III. Registration or Annotation Regarding the Leasing Agreement

The registration or annotation of the agreement is regulated under Article 22/1 of the FMLR. Pursuant to the relevant provision, agreements relating to immovable property shall be recorded in the annotations section of the land registry where the immovable is located. Agreements relating to movable goods that have their own special registry shall be registered in the registry where these goods are registered and the lessor shall also notify the Association.

Regarding the registration of financial leasing agreements to be made from abroad, Article 4 of the Circular regulates the principles regarding the registration of agreements. According to the said article, in financial leasing transactions, agreements for aircraft, ships, medical devices and high-tech goods will be registered by the Association, provided that the average annual rent is more than USD 100,000.

There is no consensus in the doctrine as to whether the registration or annotation of such agreements has a constitutive effect or an explanatory effect. The dominant view is that the registration or annotation has a constitutive effect.

IV. Termination of the Agreement and Whether the Purchase of the Goods is Mandatory

The termination of the agreement is regulated under Article 30 of the FFFL. Pursuant to the said article, unless otherwise agreed in the agreement, the agreement shall terminate automatically in the event of expiration of the term of the agreement, bankruptcy, death or loss of capacity of the lessee.

Pursuant to the same article, if the lessee enters into liquidation or liquidates the business to which the leased property is allocated without entering into liquidation, the agreement may be terminated before its term upon the request of the lessee, unless otherwise stipulated in the agreement.

Pursuant to the same article, each party to the agreement may request the extension of the agreement with the existing or new conditions, provided that it is notified at least three months before the expiration of the term.

Conclusion

While there was no separate legislation on financial leasing in Turkish law before, the legal basis was created with the adoption of the Financial Leasing Law No. 3226 in 1985. Later, this law was repealed and FFFL was adopted.

Today, many commercial organizations carry out financial leasing activities for various reasons. Some special rules have been introduced regarding this type of leasing. Within the scope of this article; the concept of financial leasing and the difference between financial leasing and operational leasing, the formal requirements for financial leasing agreements, the issues regarding the annotation or registration of financial leasing and the termination of the financial leasing agreement are analyzed.

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.