Financial Leasing Agreements Under Turkish Law

Author: Atty Ahmet Berker 

Business owners may face economic challenges in acquiring movable and immovable assets. Financial leasing supports businesses during such times by providing medium- and long-term financing, allowing them to meet their needs without depleting cash resources.

A financial leasing agreement can be defined as an arrangement where the lessor purchases an asset identified by the lessee, retains ownership of the asset, and grants the lessee the right to use it in exchange for lease payments. The primary aim is for the lessee to derive all possible benefits from the asset.

Although this arrangement may seem bilateral, the agreement to lease the asset and the agreement for its procurement are legally distinct and independent transactions. As such, each party may only make claims against the other party based on the agreement they are directly a party to. However, this does not diminish the strong economic connection between the two agreements. In a financial leasing relationship, the lessee finances the necessary investment through the leasing agreement, which can mean obtaining a loan from the lessor. The defining characteristic of this loan is that the ownership of the asset remains with the lessor.

The lessee, requiring the investment, negotiates terms with the manufacturer or seller of the asset and subsequently approaches the financial leasing company. Following these negotiations, the lessee establishes a financial leasing agreement with the lessor to procure the asset from the third party under predetermined terms. In some cases, under a power of attorney or authorization granted by the lessor, the asset may be directly delivered to the lessee. In such instances, the lessor has no physical interaction with the leased asset, managing the relationship solely through documentation and official procedures.

If the sales agreement is rescinded before performance, the economic connection between the sales and leasing agreements may be undermined, potentially invalidating the financial leasing agreement. This is because the purpose of the financial leasing agreement is to provide the asset to the lessee for use via the lessor.

Conversely, in a decision concerning the impact of the financial leasing agreement on the validity of the sales agreement, it was ruled that the invalidity or existence of the financial leasing agreement does not affect the validity of a sales agreement concerning immovable property. However, this ruling pertains to a specific scenario involving the sale of an immovable property.

The relevant decision is as follows:

Court of Cassation, 11th Civil Chamber, Case No. 2021/2135, Decision No. 2022/8305, Dated 24.11.2022

“(…) Financial leasing agreements do not constitute the legal basis for immovable property sales, as they are aimed at enabling the use of the property. The existence or validity of financial leasing agreements does not impact the validity of immovable property sales agreements, which may be in the nature of a conditional transfer for security purposes…”   

In conclusion, while the sales agreement between the lessor and the seller and the financial leasing agreement are legally independent contracts, they are economically interconnected. The lessee plays a pivotal role in both agreements. In financial leasing agreements, the legal owner of the asset and its economic owner are typically different parties.