Is contractor guarantee mandatory in urban transformation, and can a contractor obtain a building permit if they don’t provide a guarantee? All details in light of Law No. 6306 and current 2026 legislation.

One of the most critical yet least known safeguards in the urban transformation process is the guarantee that the contractor must provide to the administration before obtaining a building permit. The biggest fear of a property owner whose risky building has been demolished is that the contractor will abandon the construction halfway and disappear. This guarantee is precisely a mechanism mandated by the legislator to cover this risk. So, is this guarantee truly mandatory, and what happens if the contractor says “I will not provide a guarantee”?

Contractor Guarantee is a Legal Obligation

Law No. 6306 on the Transformation of Areas Under Disaster Risk has explicitly mandated a guarantee in transformation projects. According to the law, for projects to be carried out in areas and parcels within the scope of this Law, it is mandatory for the construction contractor undertaking the building work to obtain building completion insurance or provide other guarantees and conditions determined by the Presidency before obtaining a building permit (Law No. 6306, Article 8/6). This provision is of an imperative (mandatory) nature because it contains the phrase “is mandatory”; it cannot be abolished by agreement of the parties.

This framework provision of the Law has been concretized in the ninth paragraph of Article 13 of the Implementation Regulation. According to the Regulation, providing collateral is mandatory for implementations to be carried out in risky areas, reserve building areas, and parcels where risky structures are located (Implementation Regulation Article 13/9). As can be seen, both the law and the regulation mandate collateral in the same direction, leaving no room for discretion. This obligation should be evaluated together with other guarantees in the contract to be signed with the contractor; in this regard, the article on which financing model is more advantageous in urban transformation may be guiding.

What Happens if the Contractor Does Not Provide Collateral?

Collateral is legally a prerequisite for the building permit. Unless the contractor deposits the collateral, the administration cannot issue a building permit; because the collateral obligation has been defined as a condition that must be met “before obtaining the building permit” (Implementation Regulation Article 13/9-c). Therefore, the most concrete consequence for a contractor who does not provide collateral is the inability to legally start construction.

The practical meaning of this is: If the contractor says, “the letter of guarantee is costly, let’s not provide it,” this is often a sign that their financial capacity is insufficient to carry out the project. The guarantee also serves as a filter that allows the contractor’s financial solvency to be tested even before the project begins. From the property owner’s perspective, this situation should be considered a warning sign. Since administrative termination of the contract may come up in disputes with the contractor, how a contractor’s contract is administratively terminated in urban transformation should also be known at the beginning of the process.

Building Completion Insurance Can Be Used Instead of a Guarantee

Legislation has also defined an alternative to the guarantee. If the contractor takes out building completion insurance instead of providing cash or a letter of guarantee to the administration, the condition of providing a separate guarantee is not sought (Implementation Regulation art. 13/9-g). The scope and implementation principles of this insurance are determined by the Insurance and Private Pension Regulation and Supervision Agency (SEDDK), and its general conditions came into force on 10/06/2024. Therefore, the full answer to the question “is a guarantee mandatory?” is: It is mandatory for the contractor to either provide a guarantee or take out building completion insurance; one of the two must be provided.

How Does the Process Work Within the Entire Urban Transformation?

After the finalization of the hazardous building determination, it is a typical process for the owners to make decisions by simple majority and proceed to the contract phase with the contractor. Since deficiencies in the decision-making procedure can affect the entire process, how simple majority is calculated in urban transformation and for the general framework of the process, all steps of the urban transformation process should be examined separately. Presenting the guarantee obligation correctly to the relevant administration at each stage is a prerequisite for the process to proceed legally. The current text of official regulations can be accessed via the Legislation Information System, and the latest amendments via the Official Gazette.

Frequently Asked Questions (FAQ)

Is it mandatory to provide collateral in urban transformation? Yes. Pursuant to Article 8/6 of Law No. 6306 and Article 13/9 of the Implementation Regulation, it is mandatory to provide collateral or obtain building completion insurance in projects carried out in risky areas, reserve building areas, and parcels containing risky buildings.

Can the contractor obtain a building permit if they do not provide collateral? No. Collateral is a condition that must be provided before the building permit. The administration cannot issue a building permit without collateral being deposited (Implementation Regulation Article 13/9-c).

Can another guarantee be provided instead of collateral? Yes. If the contractor obtains building completion insurance, the requirement to provide separate collateral is not sought (Implementation Regulation Article 13/9-ğ).

Who receives the guarantee? In parcels with risky structures, the guarantee is given to the relevant Administration (municipality), and in risky areas, to the Urban Transformation Presidency (Implementation Regulation art. 13/9-a and c).

Why is Expert Legal Support Necessary?

Although the guarantee obligation may seem like a simple administrative procedure at first glance, it is a critical safeguard that protects the property owner’s entire investment. Improper structuring of the guarantee clause in the contract signed with the contractor can leave the property owner without a recourse if the contractor abandons the work. Urban transformation is a multi-layered process where administrative law, real estate law, and contract law intersect, and even a single procedural error can lead to significant loss of rights. For this reason, it is of great importance that the guarantee and contract phases are managed with the support of a specialized lawyer.

As 2M Law Office (Att. Meryem Günay), we provide services across Turkey, especially in Istanbul, where urban transformation is most intensive; including Istanbul’s priority transformation districts of Tuzla, Pendik, Kartal, Maltepe, Ümraniye, Ataşehir, Kadıköy, Sancaktepe, and Küçükçekmece, as well as the Gebze and Darıca regions of Kocaeli. As an Istanbul urban transformation lawyer and Tuzla urban transformation lawyer, we offer legal support to rights holders and contractors in guarantee, contract, and licensing processes.