Legal Basis: Law No. 6306 Article 6/6 | Implementing Regulation Article 13/9ğ

Had their house demolished, signed a contract with the contractor, moved out into rented accommodation — then the contractor went bankrupt. The construction was left unfinished, the construction site fell silent, the company closed down. This nightmare scenario deeply affected thousands of families in Turkey; years of grievances in Fikirtepe and similar projects are the most striking examples of this. To address this very problem, the building completion insurance regulation, added to Law No. 6306 and its Implementing Regulation, is the strongest legal safeguard established against contractor bankruptcy in urban transformation. This article examines what the insurance is, whom it covers, whether it is mandatory, the relationship between coverage and insurance, how the process works when the insurance is activated, and other legal avenues that can be used in contractor bankruptcy, all within the framework of current 2026 law. (Law Art. 6/6 — Reg. Art. 13/9ğ)

What is Building Completion Insurance?

Building completion insurance; in pre-paid housing sales and urban transformation projects, is a type of surety insurance that guarantees beneficiaries will receive the amount they paid back with legal interest, or that the construction will be completed, in the event of the construction company’s bankruptcy, death, or inability to fulfill its commitment for any other reason. It is considered within the scope of surety insurance as an insurance branch and is legally defined as an equivalent collateral instrument to bank letters of guarantee. (Reg. Art. 13/9ğ)

The primary function of the insurance is as follows: If the contractor fails to fulfill its obligation, the insurance company intervenes and either completes the construction or refunds the amount paid by the beneficiaries up to that date. Therefore, there are two types of assurance for the owner: physical assurance — the completion of the building — and financial assurance — the refund of the amount paid.

Legal Basis: Obligation in Law and Regulation

Article 6, paragraph 6 of Law No. 6306 contains the main regulation on this matter: 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 construction work to obtain building completion insurance or provide other guarantees and conditions determined by the Presidency before obtaining the building permit. (Law Art. 6/6)

Subparagraph (ğ) of the ninth paragraph of Article 13 of the Implementation Regulation specifies this obligation: In the event that the contractor procures building completion insurance instead of other guarantees determined by the Presidency, the condition regarding the provision of the guarantee stipulated in the regulation is not required. In other words, building completion insurance and the obligation to provide a ten percent cash guarantee are alternatives to each other; both cannot be made mandatory simultaneously. (Imp. Reg. Art. 13/9ğ)

In accordance with these regulations, for all risky building, risky area, and reserve building area projects under Law No. 6306, before obtaining a construction permit, one of the following options must be fulfilled: either a building completion insurance policy is arranged, or cash equivalent to ten percent of the approximate cost of the construction or cash-like collateral is deposited with the Administration. (Imp. Reg. Art. 15/b)

For Whom is the Insurance Valid, and Whose Obligation Is It?

The insurance obligation entirely belongs to the contractor. The rights-holder owner is not responsible for paying the insurance premium. The contractor enters into an agreement with the insurance company, pays the entire premium, and submits the policy to the Administration before applying for a construction permit. (Law Art. 6/6 — Imp. Reg. Art. 13/9ğ)

The persons in the position of “beneficiary” who will benefit from the insurance are the rights-holders — i.e., owners who transfer their land or sign a flat-for-land agreement — and, if any, housing buyers who make advance payments. The name of each rights-holder and the amount of their interest are also specified in the insurance policy.

The insurance company’s liability is not passive. The insurance company has the right to supervise all stages of construction throughout the project; when the developer fails to fulfill its responsibilities, it can terminate the policy by notifying the Ministry. This active supervisory function transforms insurance from a mere compensation tool into an assurance system where the project is monitored.

Scope of Insurance: Which Situations Are Covered?

Building completion insurance comes into effect in the following cases:

The seller — the construction company or contractor — officially going bankrupt; the death, repudiation of inheritance, or declaration of absence of a real person seller; and the seller’s failure to complete the residence within twelve months following the delivery date committed in the contract, provided that it is not among the cases excluded from coverage in the general conditions, constitute the basic scope of building completion insurance. (Art. 13/9ğ)

Situations excluded from insurance coverage are: cases beyond the contractor’s fault such as natural disasters — earthquake, flood —, war, nuclear risks, or the public halting the project. Construction all-risk insurance can be considered separately for these risks. (Art. 13/9ğ)

Natural disaster coverage can be included in the policy as an optional additional coverage; taking this additional coverage is especially recommended for projects in Istanbul and other major cities facing earthquake risk.

Difference Between Insurance and Coverage

In projects falling under scope 6306, one of two different assurance instruments may be requested from the contractor. Cash collateral: This involves depositing cash or cash-equivalent collateral with the Administration, amounting to ten percent of the approximate construction cost. This amount is the first layer of assurance payable to owners in case of termination or bankruptcy. Building completion insurance, on the other hand, is a surety insurance that replaces this collateral and provides a much more comprehensive assurance. If insurance is taken out, the ten percent cash collateral is not required. (Reg. Art. 13/9g)

In practice, the choice between the two instruments is crucial. Cash collateral provides assurance only up to the deposited amount and may not cover the actual damage in large projects. Building completion insurance, on the other hand, protects the interests of the owners much more broadly as it offers assurance over the entire project cost. For this reason, it is in the owner’s best interest to insist on building completion insurance during contract negotiations.

Insurance Company Not Accepting the Contractor: A Hidden Assurance

Before issuing a policy, the insurance company thoroughly examines the contractor firm’s financial structure, past projects, and credit rating. If it finds the firm reliable, it issues the policy; if not, it doesn’t. This process serves as a “trust index” that the owner might overlook: Signing a contract with a contractor that an insurance company refuses to underwrite is a serious risk signal. Therefore, inquiring about the existence of a building completion insurance policy from the contractor before signing the contract should be an integral part of the preliminary review.

What Happens If the Contractor Goes Bankrupt?

The insurance mechanism is activated if the contractor officially goes bankrupt or exceeds the delivery date by twelve months.

First, beneficiaries apply in writing to the insurance company and claim the insurance compensation. The application must include: policy number and contractor information, a copy of the contract, documents showing the bankruptcy decision or delayed delivery, and a current record showing the title deed status.

The insurance company evaluates the application and chooses between two options. The first option is to ensure the completion of construction; the company completes the construction by contracting with another contractor. The second option is to refund the beneficiaries the entire amount they have paid up to that date, along with legal interest. Which option will be preferred is determined by the policy terms, the completion rate of the construction, and the realistic conditions for finishing the project.

If the insurance company fails to fulfill its obligations, a complaint can be lodged with the Insurance and Private Pension Regulation and Supervision Agency within the framework of relevant legislation, and a compensation lawsuit can be filed against the insurance company.

What Can Be Done If There Is No Building Completion Insurance in Case of Contractor Bankruptcy?

If a ten percent cash guarantee was deposited when the contract was signed but building completion insurance was not taken out, there are different legal avenues available to beneficiaries.

Collection of the Guarantee: The ten percent cash guarantee deposited with the administration can be collected on behalf of the owners. This amount may fall far short of the actual damage, especially in large projects; however, it provides some assurance. (Art. 15/b of the Regulation)

Application for Administrative Termination: The bankruptcy of the contractor also constitutes grounds for termination under Article 6/14 of the Law. By applying to the administration with a simple majority, the ex officio termination of the contract and the return of the title deeds can be ensured. (Art. 6/14 of the Law — Art. 13/11 of the Regulation)

Title Deed Return: Immovable properties transferred to the contractor are ex officio registered in the name of their former owners after termination, taking into account beneficiary determination studies. (Art. 6/14)

Registration of Claims with Bankruptcy Estate: In case of the contractor’s bankruptcy, beneficiaries can register with the bankruptcy estate as creditors and claim their receivables during the liquidation process. Although this method may yield results, it is time-consuming, and the collection rate is uncertain.

Compensation Lawsuit: A compensation lawsuit can be filed within the framework of the law of obligations, based on the contractor’s faulty conduct. The owner must prove their damages, and the lawsuit process can be long and costly.

Attachment Protection: Can the Contractor’s Third-Party Debts Threaten the Immovable Property?

Law No. 6306 provides significant protection to owners in this regard. Immovable properties transferred to the contractor cannot be restricted by attachment and precautionary measures due to the contractor’s debts to third parties, except in cases where a condominium servitude is not established within six months from the start of construction work. (Art. 6/10)

However, if a condominium servitude is not established within six months, this protection ceases, and the contractor’s other creditors can place attachments on the immovable properties. Therefore, the date of establishment of the condominium servitude must be clearly specified in the contract, and the contractor’s compliance with this deadline must be closely monitored.

Rental Assistance: Does it Stop Upon Contractor’s Bankruptcy?

The rental assistance committed by the contractor usually stops with the company’s bankruptcy or cessation of operations. However, the rental assistance paid by the state can continue independently for the period specified in the contract —in Istanbul, as of 2026, state contribution for the owner is up to 18 months—.

Rental assistance paid by the contractor until the termination date cannot be reclaimed from the beneficiaries; this is guaranteed under Article 6/14 of this Law. (Art. 6/14)

However, any interruption in rental assistance caused by the contractor can be secured by special clauses to be added to the contract, such as a “rent guarantee fund” or a “commitment to continue rent in case of delay,” in addition to building completion insurance. Such arrangements are not standard; they must be added to the contract through negotiation.

2026 Current Status: What Stage is the Obligation At?

In projects falling under Law No. 6306, it is mandatory to acquire building completion insurance or to provide other guarantees and conditions determined by the Presidency. This obligation was explicitly added to Article 6 of Law No. 6306 in 2023 by Law No. 7471.

Building completion insurance has also been included in urban transformation projects under Law No. 6306; aiming to close the era of “the contractor fled.”

In practice, some contractors opt for a ten percent cash guarantee instead of obtaining insurance. Although these two options may seem legally equivalent from the owner’s perspective, in practice, building completion insurance offers a much more comprehensive guarantee. During contract negotiations, an insurance policy should be preferred.

The insurance premium cost is determined by a special actuarial study for each project, and it typically ranges between approximately one to two percent of the construction cost. The premium is the contractor’s responsibility; however, it should be noted that this cost is reflected in the project prices.

Practical Tips

Before signing the contract, be sure to see the policy. Request a sample of the building completion insurance policy from the contractor. Verify the policy number, insurance company, coverage amount, and scope. The insurance company must confirm the policy’s validity.

If there is no insurance, insist on it or document an alternative. If the contractor opts for a ten percent guarantee instead of providing insurance, obtain the guarantee receipt and a document showing it has been deposited with the Administration. If neither is available, seriously consider not signing the contract.

Closely monitor the duration of the construction servitude. If the construction servitude is not established within six months of the commencement of construction, the lien protection expires. You can inquire at the land registry office whether the contractor has fulfilled this obligation.

Monitor the project throughout the construction period. While it is true that the insurance company supervises the project, it is also important for rights holders to periodically visit the construction site and document the construction’s progress with photographs. These documents can be used both in insurance applications and in potential legal processes.

Add the rental assistance guarantee to the contract. If the contractor has an additional rental commitment beyond the state rental assistance, ensure it is clearly stipulated in the contract how this commitment will be paid and whether it will continue in case of delay n.

Why is Expert Legal Support Necessary?

Contractor bankruptcy constitutes one of the most severe and complex legal dimensions of the urban transformation process. As 2M Hukuk Avukatlık Ofisi, in our urban transformation consultancy process carried out throughout Istanbul, especially in Tuzla, we observe the following:

Examining the insurance policy and evaluating its content before the contract is signed; determining under which conditions the assurance tool chosen by the contractor —whether building completion insurance or a ten percent guarantee— is more protective, and adding additional protective clauses to the contract are tasks that must be performed by an urban transformation lawyer.

When the contractor goes bankrupt, multiple legal processes must be managed simultaneously: an insurance application, an administrative termination request, the return of the title deed, and registration of claims with the bankruptcy estate. Without these processes being carried out in a parallel and coordinated manner, loss of rights becomes inevitable. As an Istanbul urban transformation lawyer, we provide effective legal representation in all these stages.

Monitoring the duration of the floor easement and ensuring the continuation of seizure protection is also an important part of the post-contract monitoring process. This monitoring service we offer within the scope of urban transformation consultancy detects potential risks early, preventing clients from suffering loss of rights. 2M Law Office, serving as a Tuzla lawyer, is by your side throughout Istanbul at every stage of urban transformation projects.

Conclusion

Pursuant to Article 6/6 of Law No. 6306 and Article 13/9ğ of the Implementation Regulation, in all urban transformation projects under Law No. 6306, the contractor must, before obtaining the building permit, either secure building completion insurance or deposit a guarantee amounting to ten percent of the construction cost with the Administration. Building completion insurance guarantees either the completion of construction or the refund of the amount paid by the rights holders with legal interest in case of contractor bankruptcy. In the absence of insurance, legal remedies such as administrative termination, return of title deeds, and registration of claims with the bankruptcy estate are available; however, these methods are time-consuming and their outcomes are uncertain. Requesting the insurance policy and examining its content before signing the contract is the most critical step in this process. (K. Md. 6/6 — Y. Md. 13/9ğ — K. Md. 6/12 — K. Md. 6/14)

This article has been prepared based on Law No. 6306 (Art. 6/6), the Implementation Regulation (Art. 13/9ğ), and current legal resources, insurance legislation, and sector data available as of April 2026. Since each specific situation may vary, it is recommended to seek support from a specialist urban transformation lawyer for legal processes.