1. Why should the owner who does not give a land share obtain security from the contractor?

In construction projects against land share, the owners’ natural guarantee consists of independent sections not yet transferred to the contractor. In case of incomplete work or delay, these sections can be held as a security unit.

The decision of the 6th Civil Chamber of the Court of Cassation, dated 21.11.2024, numbered 2023/2850 E. – 2024/4269 K., clearly demonstrates this practice: “if there is a deficiency, the independent section equivalent to the cost of this deficiency should be left with the landowners as a security unit, and the lawsuit should be accepted for the remaining independent sections” and “if the landowners are entitled to compensation for delay, an independent section equivalent to their compensation should be left with the landowners as a security unit, and the lawsuit should have been accepted for the remaining independent sections; however, rendering a judgment with the written justification was not deemed correct”.

However, in the lump-sum contract model, since no independent section is transferred to the contractor, this mechanism does not work at all. The risk is reversed: If the owner makes payments and the contractor abandons the work, the owner is left with a half-finished building and an uncertain receivable. Therefore, security should not be established by blocking an independent section, but rather in the form of a letter of guarantee, cash blocking, or deductions from progress payments.

2. Can the contractor request payment without providing a letter of guarantee?

In contracts giving rise to mutual debt, the rule is that the party demanding payment must first fulfill its own obligation:

In its decision dated 14.11.2023, numbered 2022/4272 E. – 2023/3831 K., the 6th Civil Chamber of the Supreme Court stated, based on this provision, that performance cannot be demanded from the other party in contracts imposing mutual obligations without submitting a letter of guarantee.

The reflection of this precedent on the contract should be as follows: “The contractor cannot demand any progress payment or advance unless they deliver the definitive letter of guarantee agreed upon in the contract; late submission of the guarantee does not extend the work period, and the elapsed time is considered the contractor’s delay.” Thus, the guarantee ceases to be a mere promise given during negotiation and becomes the first link in the payment chain.

3. How should the definitive letter of guarantee be drafted?

• Amount: Should be determined as a specific percentage of the contract price; it should be evaluated along with the size of the work and the payment plan.
• Nature: Must be definitive, unconditional, and payable upon first written demand; the letter issued by the bank in favor of the “addressed owners” must be written in a way that it can be cashed by a majority decision of the owners or through their authorized representatives.
• Term: Must be valid until the occupancy permit is obtained and final acceptance is made; if it is time-limited, it must be stated that the contractor has an obligation to renew the letter before it expires, and if not renewed, the letter can be cashed.
• Return: It should be stated that it will be returned gradually, if necessary, only after the occupancy permit has been obtained and the list of deficiencies has been closed.

Is this collateral the same as the 6% collateral in Law No. 6306?

No. Article 13/9 of the Implementing Regulation of Law No. 6306 regulates that, in applications covered by the Law, a collateral of 6% of the current estimated construction cost for risky buildings must be provided by the contractor to the Administration before obtaining the building permit (According to temporary Article 5 added with the amendment dated 04.02.2026, collateral in permits issued from 1/1/2024 onwards can also be re-regulated according to this rate upon the request of the construction contractor). This collateral is a means for the administration to secure the completion of the work; it does not cover the owners’ claims for price, delay, and advance payments arising from the contract. For details: Is Urban Transformation Collateral Provided Before or After the Building Permit?.

4. Can a check or promissory note be accepted as collateral?

Yes, it can be. In the judgment of the Istanbul Anatolian 3rd Commercial Court of First Instance, dated 11.02.2021, case no. 2020/589 E. – 2021/230 K., it is seen that a check was received from the contractor as collateral for the performance of obtaining the occupancy permit. The following annotation has been made on the check: “Since this check is given as collateral for the performance of obtaining the occupancy permit ——–, it shall not be endorsed or assigned under any circumstances.”

The court also determined “Article 780 of the TCC enumerates the essential elements that a check must contain” and evaluated whether the security document had the characteristic of a negotiable instrument. According to Article 780/1 of the Turkish Commercial Code No. 6102, a check contains the following elements:

If the document does not contain the essential elements, the instrument is generally not considered a check (TCC Art. 781); this creates the risk of closing the fast enforcement path specific to negotiable instruments.

What are the risks of collateral with checks and promissory notes?

• Stating the purpose of the collateral both on the check and in the contract prevents disputes regarding whether the check has been misused.
• The risk of being dishonored is higher compared to a letter of guarantee; if the contractor’s financial situation weakens, the check may also become worthless.
• The conditions under which the collateral can be used (e.g., failure to obtain an occupancy permit by a certain date) must be clearly and measurably stated.

5. How is the advance payment given to the contractor recovered?

In the judgment of the Istanbul Anatolian 2nd Civil Court of Commerce, dated 17.05.2018, case no. 2016/40 E. – 2018/568 K., the parties tied the return of the advance payment to a condition and collateral: “in the event that the 15,000 USD advance payment cannot be signed with at least 2/3 of all floor owners of the land share construction contract, it will be returned by the defendant company to the plaintiff company, and if the amount is not returned, the collateral note will become valid”.

The same approach should be adopted for advance and progress payments to be transferred by floor owners to the contractor: that the amount paid will be refunded if certain stages such as obtaining a license, shell construction, and finish construction are not completed, and the guarantee for this refund should be written into the contract.

If there is no collateral, the recourse is unjust enrichment. In the judgment of Istanbul 5th Civil Court of Commerce, dated 13.03.2025, Docket No. 2022/648 E. – 2025/166 K., it was accepted that if the employer terminates the contract, what has been given can be reclaimed “based on the ceased cause” in accordance with Article 77/final of the Turkish Code of Obligations (TBK). However, litigation is both time-consuming and dependent on the contractor’s assets; therefore, an advance payment must always be given against an advance payment guarantee letter.

6. How are progress payment deductions, cash blocking, and the final installment established?

7. How should the Half From Us campaign and urban transformation loan be reflected in the contract?

In the judicial decisions we examined (Bakırköy 1. ATM 2023/808 E., İstanbul Anadolu 3. ATM 2020/589 E., Yargıtay 6. HD 2022/2336 E., Bakırköy 7. ATM 2021/806 E., Yargıtay 15. HD 2014/3231 E. et al.), no special assessment is included regarding how payments made from credit assistance, interest support, or the Half From Us campaign should be reflected in the contractor’s agreement. The decisions evaluate work and construction contracts based on general principles of law of obligations and zoning law. Therefore, official statements and contract drafting techniques are determinative in reflecting these supports in the contract.

What do official statements say?

• According to the statements of the Ministry of Environment, Urbanization and Climate Change, within the scope of ‘Half From Us’, per residence, 875,000 TL grant, 875,000 TL loan, and 125,000 TL relocation support are provided; for second and subsequent residences, a loan is applied instead of a grant.
• Payments are made on behalf of the beneficiaries directly to the contractor: 30% at the start of work, 30% upon completion of the load-bearing system, 30% at the plastering stage, 10% upon occupancy permit (Ministry statement, 12.08.2024).
• Conditions such as the new building not exceeding 1.5 times the size of the old building, excluding the parking lot and shelter, and license projects prepared after April 1, 2023, are sought.
• It was announced by the President that the campaign was extended until 31.12.2027. The World Bank-financed urban transformation loan of up to 3 million TL is subject to separate conditions.

Which clauses should be included in the contract?

1. It should be shown on an owner-by-owner basis how much of the lump sum will be covered by grants/loans and how much by the owners’ equity.
2. It should be stated whether the contractor can stop the work in case of delay or rejection of the support payment, and within what period the difference will be completed by the owners.
3. Payment stages should be established in harmony with the payment stages of the support program; otherwise, the contractor may request payment from the owners before the support.
4. It should be stated by whom and within what period operations such as application, document procurement, and uploading to the ARAAD system will be carried out.
5. If the loss of support due to non-compliance with project conditions (e.g., 1.5 times limit) is caused by the contractor’s fault, it should be stated that the resulting damage belongs to the contractor.

Since amounts and conditions may change with Ministry decisions, current conditions should be confirmed with the Ministry or provincial directorate before signing the contract. For combined use of rent assistance and interest support: Can Both Rent Assistance and Interest Support Be Received?.

8. If an owner does not pay their share, are other owners responsible?

According to Article 162 of the Turkish Code of Obligations (TCO), joint and several liability among multiple debtors arises only in cases stipulated by law or if explicitly agreed upon in the contract. Contractors may prefer to state in standard contracts that owners are “jointly and severally” liable. If this clause is accepted, the contractor may apply to other owners for the debt of an owner who fails to make payment.

• It should be clearly stated that each owner is only liable in proportion to their own share.
• A period can be granted for the non-paying owner, and if not paid within this period, it can be stipulated that other owners or the contractor may request security, such as a mortgage, on the new independent section belonging to that owner.
• It should be stated that a delay in payment by one owner cannot be used as a reason to stop the delivery of sections belonging to owners who have made their payments.

9. How is the collateral converted into cash if the contractor abandons the work?

To convert the collateral into cash, the breach of contract must first be documented: by giving a period via notary public notice, determining the progress level by the building inspection firm, and if necessary, obtaining evidence through court. Subsequently, the termination procedure written in the contract is followed, and the bank is invited to pay the letter of guarantee.

If the contractor fails to commence the work or delays it in a manner contrary to the contract, the contract can be rescinded without waiting for the delivery date, in accordance with Article 473 of the Turkish Code of Obligations (TBK). In projects involving risky structures, the administrative termination mechanism of Law No. 6306 may also become applicable. For details: How to Terminate a Contractor Agreement in Urban Transformation? and How to Administratively Terminate a Contractor Agreement in Urban Transformation?.

10. What principles do court decisions establish on this matter?

11. Why is Expert Lawyer Support Necessary?

In urban transformation where land share is not transferred, the main tool protecting the owners’ money is a correctly established collateral system in the contract. The nature and duration of the letter of guarantee, the mechanism securing the return of the advance, the compliance of the guarantee check with TCC art. 780, progress payment deductions, and alignment with the “Half From Us” payment stages; each of these, if improperly drafted, can leave owners facing an uncollectible receivable. The preparation of these clauses with a lawyer specializing in urban transformation and construction law is of great importance, especially in buildings with multiple owners.

In situations such as the contractor abandoning the work, stopping work due to a price difference request, or delays in support payments, the collateral must be converted into cash in a timely and proper manner. Failure to execute the warning letter, evidence determination, termination notice, and the demand to the bank in the correct sequence can prevent the use of the collateral; in these processes, the follow-up by an experienced urban transformation lawyer is crucial.

2M Law Office; provides consultancy and litigation follow-up services to owners in contractor disputes, regarding collateral structuring, the “Half From Us” initiative, and the reflection of credit supports in urban transformation contracts in Tuzla, Pendik, Kartal, Maltepe, Ataşehir, Kadıköy, Üsküdar, Ümraniye, Sancaktepe, Sultanbeyli, as well as Gebze, Çayırova, Darıca, Dilovası, and Kocaeli.

12. Frequently Asked Questions

Is it mandatory to obtain collateral from a contractor to whom we have not assigned a land share?

Legally, there is no mandatory collateral for property owners; however, since an independent unit has not been transferred to the contractor, the collateral mechanism does not apply. To protect the owners, a letter of guarantee, progress payment deduction, or cash blockage should be included in the contract.

Are we obliged to pay progress payments to a contractor who does not provide a letter of guarantee?

In its decision numbered 2022/4272 E., the 6th Civil Chamber of the Court of Cassation stated that, in accordance with Article 97 of the Turkish Code of Obligations (TBK), performance cannot be demanded from the other party without the submission of the letter of guarantee stipulated in the contract.

Can a check be accepted as collateral from the contractor?

Yes. In the decision numbered 2020/589 E. of the Istanbul Anatolian 3rd Civil Court of First Instance, it is observed that a check was accepted as collateral for the occupancy permit obligation; the check must contain the mandatory elements specified in Article 780 of the Turkish Commercial Code (TTK); and the purpose of the collateral must also be stated in the contract.

How do we get back the advance payment we made to the contractor?

If the contract includes a clause for advance payment refund and an advance payment guarantee letter, the collateral is converted into cash. Otherwise, a lawsuit for unjust enrichment can be filed in accordance with Article 77 of the Turkish Code of Obligations (TBK); however, collection depends on the contractor’s assets.

Do the 6% collateral under Law 6306 cover the owners’ receivables?

No. The collateral under Article 13/9 of the Regulation is provided to the Administration and secures the completion of the work; it does not cover the owners’ receivables arising from the contract, such as advances, price differences, and delay penalties.

Who is paid the ‘Half from Us’ grant?

According to Ministry statements, the grant and loan are paid directly to the contractor on behalf of the beneficiaries; 30% at the start of the work, 30% upon completion of the load-bearing system, 30% during the plastering phase, and 10% upon obtaining the occupancy permit.

If one owner fails to pay, are the other owners responsible for the debt?

According to Article 162 of the TCO (Turkish Code of Obligations), joint and several liability arises only in cases stipulated by law or explicitly agreed upon in the contract. Therefore, it should be stipulated in the contract that each owner is solely responsible for their own share.

13. Legislation and resources

• Turkish Code of Obligations No. 6098 — Art. 77, Art. 97, Art. 162, Art. 473
• Turkish Commercial Code No. 6102 — Art. 776, Art. 780, Art. 781
• Implementation Regulation of Law No. 6306 — Art. 13/9 (including the amendment dated 04.02.2026)
• Ministry of Environment, Urbanization and Climate Change – Yarısı Bizden support amounts
• Anadolu Agency – 15 questions and answers regarding Yarısı Bizden (12.08.2024)
• Extension of the Yarısı Bizden campaign until 31.12.2027
• Ministry – details of the new urban transformation loan
• 6th Civil Chamber of the Court of Cassation, 21.11.2024 Date, 2023/2850 File No. – 2024/4269 Decision No. · 6th Civil Chamber of the Court of Cassation, 14.11.2023 Date, 2022/4272 File No. – 2023/3831 Decision No. · Istanbul Anadolu 3rd Civil Court of Commerce, 11.02.2021 Date, 2020/589 File No. – 2021/230 Decision No. · Istanbul Anadolu 2nd Civil Court of Commerce, 17.05.2018 Date, 2016/40 File No. – 2018/568 Decision No. · Istanbul 5th Civil Court of Commerce, 13.03.2025 Date, 2022/648 File No. – 2025/166 Decision No. · 6th Civil Chamber of the Court of Cassation 2022/2336 File No.
• It is recommended to confirm decision citations via UYAP before using them in a petition or publication.

This article provides general information; rights and obligations in your specific case may vary depending on the content of the contract and the condition of the structure. Legislation and case law information has been compiled as of September 2026.