- The Obligation of the Lessee to Return or to Purchase the Leased Property under the Financial Leasing Agreements
- March 24, 2016
- Law Firm: Erdem Erdem Law Office - Istanbul Office
- The purchase right of the lessee under the financial leasing agreements is regulated under Article 23 of the Financial Leasing, Factoring and Financing Companies Law (“FFFL”). As per such provision, the parties may agree that the lessee will have right to purchase the leased property at the end of the term of the lease. The second part of the Article further stipulates an important provision, as follows:
“If the right of the lessee to purchase the movable which is subject to registration is not used by the lessee within thirty days after such right arises and if the leased property is not returned to the lessor pursuant to the article 32 of this Law, the lessor can carry out all necessary transactions in order to transfer the title of the leased property to the lessee provided that the parties agree on the same under the financial leasing agreement and a notification has been made or could not been made to the lessee as the lessee could not been found in his/her address. Any such request regarding the transfer of the title of the leased property to the lessee made by the lessor shall be carried out by the relevant registry in respect of such property.”
It is commonly agreed that if the lessee remains silent during the 30 day period as indicated under Article 23 of the FFFL, such silence is considered to be an implicit declaration of lessee to use its right to purchase the leased property under the financial leasing agreement. It is further accepted that once the conditions set forth under Article 23 of the FFFL is realized, it will be deemed as a sale agreement between the lessee and the lessor as executed and, thereafter, the lessee will have to pay the purchase price, and the lessor will be under the obligation to transfer the title of the leased property.
It is essential to point out that within the framework of the provisions of Civil Law (“CL”) the transactions in relation to the transfer of the title of the leased property can be carried out with the unilateral request of the lessor. It is clear that as per Article 763 of the CL, the transfer of a movable property can be effected by the transfer of the possession of such property. Further, in order for the proper transfer of the possession of a movable property, the parties must have agreed to such transfer. Except for the ships that are registered with the shipping registry, the registration of a movable property with its relevant registry does not constitute a disposable act regarding the transfer of such movable. As regards to a financial lease agreement, the lessee already holds the possession of the leased property, and as such, the transfer of the title of such movable can be carried out by way of direct delivery (kisa elden teslim) of the same. As the lessee already holds the possession as explained, above, in reality, there is no actual transfer of possession of the movable, but rather, such transfer of the title of the property is realized by way of the mutual agreement of the parties to this end.
Article 23/2 of the FFFL, however, sets out that even with the lack of such mutual agreement of the parties, the transfer of the title of the movable occurs by the unilateral request of the lessor to be made to the relevant registry. In any case, it is also important to point out that even when all conditions stipulated under the Article are realized, the movable is not deemed as being transferred to the lessee. In this respect, the wording of the Article as “the lessor can carry out all relevant transaction for the transfer of movable to the lessee,” clearly indicates that the lessor can transfer the movable without any involvement or consent of the lessee; however, it would be incorrect to say that the such transfer occurs even with the lack of the request of the lessor to this end. This Article 23 of the FFFL is criticized in doctrine because of changing one of the main rules of the CL without indicating any justification for such deviation.
There are essential differences between the FFFL and the Code of Obligations regarding the obligation of the lessee to return the leased property. The lease agreement solely provides the lessee with the right to utilize the leased property, and as such, the legal title of the asset still remains with the lessor as also is the case for financial lease agreements. However, the provision under the financial lease agreement stipulating that the lessee will have the legal title of the leased property at the end of the term of the lease affects the legal nature of the agreement, as the obligation of the lessee to return the leased property constitutes the essential part of the lease agreements.
It is important to point out that the lessee is granted with the right to purchase the leased property solely in cases where the lessee carries out all of its obligations under the financial lease agreement, it makes the lease payments, and the term of the financial lease agreement ends. In this respect, no such right is granted to the lessee under all of the circumstances terminating the financial lease agreement. In cases where the financial lease agreement ends due to such reason prior to the end of the term of the same, the lessor will take the leased property back from the lessee, and utilize it in a way that it deems it appropriate. Only under such circumstances can it be claimed that the fact that the legal title of the leased property remains with the lessor, an actual security is provided for the lessor under the financial lease agreement.
The leased property shall be returned to the lessor as a part of the obligation of the lessee to do so under the financial lease agreement. If the leased property cannot be returned, then the right for the lessor to compensate will replace such obligation of the lessee to return the leased property. As per Article 35 of the Code of Obligations, when the leased property is returned, it should be examined by the lessor, and in the case of the determination of any deficit or defect, the lessor shall notify the lessee, in writing. If such notification is not made, then the lessee cannot be held responsible for such deficits or defects. If the lessee does not return the leased property in the cases where the term of the financial lease agreement ends, it is accepted that the lessor can claim all of its damages it has incurred due to such non-compliance of the lessee. The lessor may claim such compensation under these circumstances, and is not solely comprised of the amount to be calculated based on the number of days that such property is not returned to the lessor, but rather, if the damage of the lessor is higher than such amount, the lessee should also compensate lessor for such damages.