Terms and Consequences of Financial Lease Agreements

According to Article 18 of the Financial Leasing, Factoring, Financing and Savings Financing Companies Law No. 6361, financial lease agreement is the agreement which prescribes that lessee, upon request and selection of lessor, shall leave, in return for rent, to enjoy all rights, the possession of a property purchased from a third party or the lessor or acquired otherwise and title of which is vested upon it. In this study, the terms and consequences of the financial lease agreement will be discussed.

The Terms and Consequences of the Contract

The terms and consequences of the contract are regulated between Articles 23-29 of the Law No. 6361.

a. Rights and Obligations of the Parties

• The lessor is the owner of the property subject to the financial leasing during the term of the contract, as it is stated above and is the outcome of the financial leasing contract definition. As a result, person has the right to get any benefit from this property within the elements of the contract's aim.

• Lessee must use the leased goods with due care, in accordance with the terms and conditions stipulated in the agreement. (Law no. 6361 Article 24/2)

• Unless otherwise stated in the agreement, lessee shall be responsible for all maintenance and protection of the property, and maintenance and repair costs shall be borne by the lessee. (Law no. 6361 Article 24/3) As a result, unless the parties have made a different arrangement for the property's maintenance and repair, the lessee will be responsible for the property's maintenance and protection, as well as any related costs.

•  Leased property must be insured. The party which will insure the property shall be indicated in the agreement. Insurance premiums shall be paid by lessee. (Law no. 6361 Article 24/4) As stated by, it is a necessity to insure the property.

• According to the Law no. 6361 Article 24/5, lessee shall be responsible for damage and loss to the property during the lease term. This responsibility is limited to the amount exceeding the insurance proceeds paid, and the excess amount must be paid by lessee.

• Lessor shall not be held liable for the defective property obtained from third persons upon selection and request of lessee. The same provision shall apply in case the property is obtained directly from the lessee. (Law no. 6361 Article 24/6) As a result, if the products are defective, the lessor is not responsible if the products were provided by the lessee itself or were provided by a third party at the lessee's request and demand. Otherwise, the lessor will be responsible.

b. Non-Delivery of the Property to the Lessee

The debt of the lessor in the financial lease agreement is to transfer the possession of the property subject to the lease to the lessee.

According to the Law no. 6361 Article 25, In the event that the property which is the subject of the financial lease is not delivered to lessee due to failure of lessor to conclude a contract in due time with the manufacturer or seller of the property or due to failure to make the required payment or due to fault or negligence of lessor, then the provisions of Articles 123, 125 and 126 of the Turkish Code of Obligations No. 6098 dated 01/11/2011 shall apply. The debtor will be held responsible in accordance with the default provisions if the lessor fails to transfer possession of the property to the lessee in the manner specified in the article.

As a result, if in cases where the property subject to financial leasing is not delivered to the lessee; according to Turkish Code of Obligations Article 123 in contracts that impose a mutual debt, if one of the parties defaults, the other party may give a suitable period for the performance of the debt or may ask the judge to give an appropriate period. If the lessor does not deliver the debt within the given period of time in default, that is, if he does not perform his debt or if there is a situation that does not require a period to be given, the lessee is responsible for the performance of the debt and delay compensation or the compensation of the positive damage by giving up the performance of the debt or the negative damage by returning from the contract.

c. Transfer of Possession and Title of Lessee

According to the Law no. 6361 Article 26, lessee may transfer its title of lessee or rights or obligations arising from the agreement by obtaining the written permission of lessor. The change in lessee made in the financial lease agreement based on this transfer shall be registered or annotated according to Article 21 or 22, as appropriate. Lessee may transfer the possession of the leased property to another person, provided that the lessor shall be informed in financial lease agreements made for residence finance, and for other financial lease transactions provided that there is a provision in the agreement. (Law no. 6361 Article 26)

In this case, the lessee will only be allowed to transfer the tenancy rights with the lessor's written consent. Only if there is a provision in the contract may the possession of the property subject to financial leasing be transferred to another party. In financial leasing transactions made within the scope of housing finance, the lessor will be able to transfer the possession of the property to someone else by informing him.

d. Transfer of title

According to Law no. 6361 Article 27, unless otherwise stated in the agreement, lessor may not transfer title of the property to a third person. If such authority is granted in the agreement, transfer may only be made to another lessor. The transferee shall be obliged to comply with the provisions of the agreement. Such transfer will be effective upon lessee subject to notification to the lessee.

e. Bankruptcy of or Initiation of Execution Proceedings Against Lessee

The possession of the property to the financial leasing agreement belongs to the lessee. For this reason, what will happen to the property to financial leasing in case the lessee goes bankrupt or undergoes enforcement proceedings is regulated in Article 28 of the Law No. 6361.

With reference to:

• In the event of bankruptcy of the lessee the trustee in bankruptcy shall decide to segregate the properties which are the subject of the financial lease, before establishment of the office according to the first paragraph of Article 221 of Law No. 2004. Decision of the trustee in bankruptcy may be objected to within seven days.

In other words, in this case, the enforcement officer decides to exclude the property to financial leasing from the proceeding. Against this decision, an appeal can be made within 7 days. Based on this article, it is possible to file a complaint of non-attachment pursuant to Article 16 of the Bankruptcy and Enforcement Law no. 2004, or it is also possible for the third-party lessor to file a claim for compensation, according to Article 96 of the Bankruptcy and Enforcement Law.

Because the above provisions do not prevent the lessor from filing a lawsuit for compensation directly. Decision of the 12. Civil Chamber in 20.09.2011, 2011/802-16072, “… Debtor lessee and financial leasing lessor can apply to the internal and bankruptcy manager by taking advantage of this provision of the law. The provisions do not prevent the lessor from filing a lawsuit for compensation directly.”

• If execution proceedings are initiated against lessee, the trustee in bankruptcy shall decide to exclude the properties which are the subject of the financial lease from the scope of the proceedings. Decision of the trustee in bankruptcy may be objected to within seven days.

Such objections shall be resolved by the court of execution within a maximum period of one month.

f. Bankruptcy of or Initiation of Execution Proceedings Against Lessor

According to Article 23 of Law No. 6361, the property of financial leasing belongs to the lessor. However, the parties may decide in the contract that at the end of the contract period, the lessee will have the right to purchase the property.

• In the event of bankruptcy of the lessor, the agreement shall continue to be effective against the office until the end of the agreed term.

• If execution proceedings are initiated against lessor, the properties which are the subject of the financial lease may not be seized during the term of the agreement.

Zeynep Sude Sağlık

Bibliography

1. Financial Leasing, Factoring and Financing Companies Law Nr. 6361
2. Decision of the 12. Civil Chamber in 20.09.2011, 2011/802-16072
3. Kırmızı Mustafa, Jurisprudence and Annotated Rental Law, Volume First Edition, Bilge Publishing Ankara 2013, s.860-873