Law Numbered 6361 On Financial Leasing, Factoring And Financing Companies
Introduction
Until December 13, 2012, financial leasing, factoring, financing and loan activities were regulated by the Financial Leasing Law No. 3226 (the “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 (the “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 Companies[i] (the “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.
[i] Pursuant to the Law numbered 6361, the Association shall be established within six months as of the entry into force of the law.
All rights of this article are reserved. This article may not be used, reproduced, copied, published, distributed, or otherwise disseminated without quotation or Erdem & Erdem Law Firm's written consent. Any content created without citing the resource or Erdem & Erdem Law Firm’s written consent is regularly tracked, and legal action will be taken in case of violation.
Other Contents
The Turkish automobile and light commercial vehicle market left the 2000s behind with steadily rising sales figures and the 2010s with high and stable sales figures as well. In this period, the growth of the market was driven not only by high purchase power but also by easy access to credit and product diversity...
Turkish Commercial Code No. 6102 ("TCC") provides the right to exit from the company to the shareholders of limited liability companies and the right to squeeze out the shareholder from the company, unlike the structure of joint stock companies, with the exit and squeeze out institutions specially regulated for...
Turkish Commercial Code No. 6102 (“TCC”) preserves the rule that the board of directors shall manage and represent joint stock companies. The TCC regulates how the power of representation shall be exercised, the registration and announcement of the persons authorized to represent, the transfer of the...
Ordinary partnerships are regulated under Turkish Law between Articles 620 and 645 of the Turkish Code of Obligations No. 6098 (“TCO” or the “Code”). The Law defines an ordinary partnership contract as a contract where two or more persons undertake to combine their labour or property to achieve a common...
Merger and acquisition processes are one of the legal processes that most seriously affect the identities and legal status of companies. After the completion of legal, tax, financial and operational due diligence reports, the parties initiate the negotiation process in case they reach an agreement on proceeding with the...
A popular business model for expanding market reach and brand recognition worldwide is franchising. Despite being less common than distribution agreements in the form of mono-brand store agreements, franchising is another significant method for extending luxury brands' distribution networks. Luxury brands use...
In the decision dated 14.06.2022 and numbered 2019/149 E. 2022/894 K., the Court of Cassation General Assembly (“CCGA”) evaluated the theory of piercing the corporate veil in the context of the relationship between the guarantor and the borrowing company in a dispute arising from a loan agreement...
The European Union continues to be an important investment center for foreign investors. According to data from the European Commission's "Second Annual Report on the monitoring of foreign direct investment in the European Union", the European Union received €117 billion worth of foreign direct investment in...
Transfer of shares is arguably the first legal transaction that comes to mind among the legal transactions regarding the shares of a capital company, and the most common transaction in practice. However, the shares of a capital company may also be subject to various transactions, other than share purchase...
Law No. 6563 on the Regulation of Electronic Commerce (E-commerce Law or Law) has recently undergone a radical change in order to regulate the behavior of the players in the rapidly growing and developing e-commerce sector. The new regulations that came into force as of January 1, 2023 envisage important...
On 11 June 2021, the German Federal Parliament approved the German Supply Chain Due Diligence Act (Lieferkettensorgfaltsgesetz) (“Act”) which affects not only German entities but also their suppliers in foreign countries (including Turkish entities). The main focus of the Act, which entered into force on...
On 21 December 2007, the Federal Council approved the draft revision of the Swiss Code of Obligations, which also includes amendments to company law. On 28 November 2014, the Federal Council referred the draft revision for consultation. Following extensive discussions and a long enactment process, the...
The Turkish Commercial Code No. 6102 ("TCC") regulates maritime trade contracts under the fourth part of the fifth book of the Code. Among the types of contracts regulated in this section, the most frequently used contract in international maritime transport practice is the freight contract regulated under...
Prohibition on hidden income shifting is one of the most important issues that is broadly regulated under Capital Markets Law No. 6362 (“CML”). In conjunction with CML Article 21, which has a broader context than Article 15 of the abrogated Capital Markets Law No. 2499, another significant step has been taken...
As a result of developing commercial activities and large-scale investments, especially concluded in the fields of construction, energy and mining, companies are seeking to participate in these investments by uniting their powers and expertise to take advantage of financial opportunities together. This tendency...
The Turkish Commercial Code (“TCC” or “Law”) has enabled companies to apply different structural models and to implement new legal formations by including spin-off provisions to its Article 159 et seq. In accordance with the provisions of the law, companies may transfer a certain element, or elements, of their...
The International Federation of Consulting Engineers is a professional association established in 1913, known as the FIDIC (Fédération Internationale Des Ingénieurs-Counseils). Its members are duly elected from consultant-engineer associations of various countries, and membership to the association is...
Incoterms are a set of rules introduced by the International Chamber of Commerce (ICC) to explain the commercial terms that are widely used in international trade. The purpose of Incoterms rules is to facilitate and expedite international trade in a safe and secure manner...
The regulation applicable to all Turkish ports prepared by the Ministry of Transport, Maritime Affairs and Communications that entered into force after being published in the official gazette on October 31, 2012 (˝the Regulation˝), consolidates all the bylaws, regulations and instructions in a single Regulation...
As a rule, rights and obligations arising from an agreement have legal consequences only between the creditor and the debtor which are parties to the agreement. This principle is referred to as "privity of contract." In general, contracts for the benefit of third parties, where the fulfillment of an...
The rules of e-commerce, which grow and develop with the digitalizing world, are changing. E-commerce has become the driving force of the digital economy. However, considering the growth rate of e-commerce and the transformation it has undergone in a short time, it is obvious that some...
The dissolution of a company is a specific type of dissolution, which results in the cancellation of the legal personality which was gained by registration at incorporation. The specific proceeding which leads to the dissolution, and thus, the termination of a company upon the constitutive decision...
Companies in which shares or authority to manage is held by members of a family are considered to be “family businesses”. Family members can hold shares that control the company, as well as retain management authority. Having a family business means opportunity, security and income for...
Turkey ratified the Convention on the Contract for International Carriage of Goods by Road (“CMR”) in accordance with Act No. 3939 dated 7 December 1993, and the CMR entered into force in Turkey on 31 October 1995. In accordance with Article 1 / 1 of the CMR, the carriage of goods by road...
Ordinary partnerships are governed by Article 620 et seq. of the Turkish Code of Obligations No. 6098 (“TCO”). An ordinary partnership agreement is defined as an agreement whereby two or more persons undertake to join efforts and/or goods to reach a common goal...
The concept of disguised profit transfer in joint stock companies, in its broadest meaning, covers the transfer of company assets to related parties and may occur in different ways. This concept is regulated in detail under capital markets legislation...
Share subscription agreements, which are commonly encountered in start-up investments, set out the terms and conditions of an investor’s participation in a company as a shareholder by subscribing the new shares issued in a capital increase...
The electronic signature, which has the same legal consequences as wet signatures if it meets certain conditions, has taken its place in many legal systems and has enhanced commercial life. Although there are various types and applications in different legal systems...
INCOTERMS are a set of rules introduced by the International Chamber of Commerce (ICC) to explain the commercial terms that are widely used in international trade. The purpose of the Incoterms rules is to contribute to and facilitate the safe and swift conduct of international trade...