Ruling on Leasing

What is leasing? Can you give information whether leasing is lawful or not?

Leasing, which actually means financial renting, is buying an item and renting it to people or companies who are in need of it. This gives an opportunity to invest without involving in interest. Leasing occurs either in a normal way or ends up in handing over the ownership of the item.

Normal leasing happens in a way that the asset is taken back when the actual rental time of the contract is completed. For example, the leasing company either builds or buys a factory building that the investor needs in his inquiry, and rents it to the investor for a period of 10 years. At the end of the contract, if the contract is not renewed, leasing company takes the factory building back. A pre-agreement can be made between the investor and the leasing company on this issue. In this case, both parties will be in a mutual commitment so that each one aligns with the contract. The contract can be made to prevent either side from causing loss to the other. Machines, equipment and the other technology needed for the completion of the factory can be bought and rented in the same way, too.

Second type of leasing is what participation banks and leasing companies do. It is a rental that ends up in transfer of the ownership. This is considered as a new agreement, which is a combination of two acts: renting and selling. According to this; if the rented asset is considered as 100 shares: the ownership cost of 1 share and the rent of remaining 99 shares are charged in the first installment. It means, for every payment due, some of the payment is the cost of ownership and some of it is charged as rent. The more the installments are paid, the more the share in ownership would increase. When this ownership share reaches 100%, the lessee gets the full right of ownership.

In our opinion, this is just a sale in an installment payment method (sale on credit). For this reason, legal rights should be arranged according to credit sale.

( Ref: Abdulaziz Bayindir, Ticaret ve Faiz, Suleymaniye Vakfi Yayinlari, Istanbul 2007, p: 265-266)

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Date: Jan 14, 2014