Guarantees in lease agreements

Lease Agreements, one of the most common agreements in practice, aims to transfer the right of use of an asset to the other party for a specified time in consideration of a specified rental amount. When the lease agreement is concluded, the parties risk some of their material and moral interests while they have certain rights and obligations. These risks taken by the parties can be prevented by guarantee agreements. Therefore, it is a common practice that different guarantee obligations are included in lease agreements. Statutory regulations in the lease agreement aimed at the proper performance of obligations by parties can be mostly applicable after the breach of obligation arises. However, there are also statutory provisions, with respect to in private the obligations of the lessee, aiming at guaranteeing the receivables of the lessor before the breach of obligation arises, i.e. at the stage when it is not clear whether the rental amount and other obligations will be fully and duly performed. Article 342 of Turkish Code of Obligations is one of such provisions, which requires the lessee to give guarantee. The said article stipulates, as the first statutory regulation, that the lessee should provide a guarantee in the form of money or securities for lease of residential and commercial premise. Apart from this specific provision for lease agreements, it is also possible to benefit from general provisions of Turkish Code of Obligations and Turkish Civil Code, which secure receivables. Eventually, in practice, it is seen that the parties employ certain guarantee agreements, in private agreement of surety and letter of guarantee, to prevent the risk that may arise out of lease agreements. Although relevant provisions of laws pertaining to guarantee agreements are applicable to each of these agreements, their applications in lease agreements are of particular interest because of different characteristics of lease agreements. In addition, recently, new guarantees peculiar to lease agreements have been introduced, in practice, especially by banks and insurance companies, considering the parties' needs for guarantee.