Building Completion Insurance:
Guarantee Certificates for Beneficiaries

What Is Building Completion Insurance?

Building completion insurance (BTS) is a surety insurance product. In construction projects of every kind, and above all in urban transformation and pre-paid off-plan housing sales, the contractor or seller (the insured) signs an insurance contract with the insurer. Under that contract the insurer issues guarantee certificates in the names of the landowners or buyers, who are called the beneficiaries (lehtar, hak sahibi), and the certificates are how protection reaches them (SEDDK Guide).

The parties to the insurance contract are the contractor or seller and the insurer, but the protection runs to the beneficiaries through the certificates issued under the policy. BTS is built on a valid construction contract or pre-paid housing sale contract; without one it has no basis. BTS is not a construction all risks policy: it does not respond to physical damage during construction, but to the risk that the project is not completed and handed over, within the limits of GC arts. 7–9 and the policy’s special conditions. For example, failure to complete because of a natural catastrophe is outside cover by default, though it can be brought into cover by an additional agreement (GC art. 8).

Parties and Roles

Under GC art. 3 and the SEDDK Guide the roles are as set out below. The contractor or seller is both policyholder and insured; the beneficiary is not a party to the insurance contract but is the holder of the guarantee certificate.

How the Policy and the Guarantee Certificate Work

Three links make up the structure: (1) the construction contract or pre-paid housing sale contract between the beneficiary and the contractor or seller; (2) the insurance contract between the contractor or seller and the insurer; and (3) the individual guarantee certificate the insurer issues in the beneficiary’s name.

• Policy and maximum limit: The insurer issues the policy and states a maximum guarantee limit in it. The total of the guarantees in the individual certificates cannot exceed that limit (GC art. 7(2)–(4)).
• Under Law No. 6306: The policy is issued before the building permit, provided a condominium easement (kat irtifakı) is established, and is delivered to the contractor. Once the easement is established, the insurer immediately issues an individual certificate for each landowner on the value of the unit and sends it with the key information form (GC art. 7(3)). The insurer’s liability starts when the certificate is issued and delivered (GC art. 19(2)).
• Under Law No. 6502: The policy is issued before pre-paid sales start, for a project with a building permit or one approved by the relevant administration under legislation. After sales begin, and provided the documents are supplied in full, the insurer reviews them within a reasonable time and issues an individual certificate for each consumer on the sale price of the home (GC art. 7(2)). If the consumer has not used the right of withdrawal, liability takes effect from the date of the certificate and starts when the withdrawal period ends (GC art. 19(2)).
• Key information form: The form in GC Annex 1 is delivered to the beneficiary with the certificate (GC art. 19(7)).
• Verification: Certificates can be checked free of charge on the “Policies” tab of Sigortam360 on the SBM website (SEDDK Guide).

Obligation and Alternative Security Methods

The legal obligation relates to two laws, but under both of them BTS is not the only way to comply. The obligation and the alternative methods should be kept separate.

• Law No. 6306 (urban transformation law), Art. 8(6): For projects in areas covered by the Law, the contractor must, before the building permit is issued, take out BTS whose scope, conditions and application are set by the Ministry of Treasury and Finance, or provide other security and meet other conditions determined by the competent authority (Başkanlık). Under the Regulation implementing Law No. 6306 (art. 13(9)), that security is given at the rate the regulation sets on the approximate construction cost, and the values listed in Public Procurement Law No. 4734 are accepted; where BTS whose scope, conditions and application are set by SEDDK is taken out, the security requirement does not apply (art. 13(9)(ğ)). The SEDDK Guide describes the same framework.
• Law No. 6502, Art. 42: For projects above the size set by the Ministry on the basis of the number of homes or the project value, the seller must, before pre-paid sales start, take out BTS or provide other security and meet other conditions determined by the Ministry. Under art. 12(1) of the Regulation on Pre-Paid Housing Sales, that size is 30 or more homes, and the alternative methods are a bank letter of guarantee, a progress-payment system and linked-credit security; another method that guarantees all of the consumer’s payments may be accepted if the Ministry finds it appropriate (art. 12(2)). The SEDDK Guide states the same threshold and methods.
• Other construction projects: The General Conditions also regulate insurance contracts for construction projects outside Laws No. 6502 and No. 6306 (GC art. 4, art. 7(4)). Whether a legal obligation exists for such projects is assessed separately.

BTS in Urban Transformation and in Pre-Paid Housing Sales

BTS works differently in its two main applications. The comparison below is based on the General Conditions and the SEDDK Guide; in both, liability is limited by the guarantee certificate and the maximum limit in the policy, and rent paid under indemnity in kind is not set against that amount.

Pre-paid sales of the contractor’s share in urban transformation

For the part of the contractor’s share that, with the relevant administration’s permission, is sold as pre-paid housing, a separate BTS contract can be made; under the existing contract, that part is covered if the maximum limit in the policy includes the sale price in addition to the landowners’ shares (GC art. 7(3)(b); SEDDK Guide).

Scope of Cover, Extensions by Agreement and Exclusions

Under GC art. 7, the insurer provides cover to the beneficiaries named in the guarantee account, in accordance with the General Conditions and the policy’s special conditions, where:

• Bankruptcy: the insured goes bankrupt;
• Death: an individual insured dies and the heirs renounce the estate; or
• Failure to hand over: the insured, for a reason other than those in GC arts. 8 and 9 (art. 8 matters unless brought into cover by agreement) and including through actions that breach legislation or the project, does not complete and hand over the property within 12 months after the maximum period stated in the relevant contract or legislation, or after the delivery date committed in the project.

Provided it does not arise from the insured, the reasonable time needed to bring the project into line with new legislation or an act of a public authority is not counted in calculating the delivery period (GC art. 7(1)).

Matters that can be covered by agreement (GC art. 8)

The following are outside cover but can be brought into it by an additional agreement: in policies for pre-paid sales, the landowner’s interests where a construction contract outside Law No. 6306 is made on a flat-for-land or revenue-sharing basis; shops, offices and similar commercial units within pre-paid sales; failure to complete because of natural catastrophes such as earthquake, volcanic eruption, landslide, storm, hail, lightning, flood and water damage (not limited to these); and the liability of the lender or housing finance institution for homes bought with linked credit under Article 35 of Law No. 6502.

Exclusions (GC art. 9)

• Nuclear risks and the losses they cause
• War, civil war, revolution, rebellion and the military and policing actions they require
• Acts classed as terrorism under Law No. 3713 and the interventions made to prevent them
• The consumer’s withdrawal or rescission of the pre-paid sale contract
• Termination of the construction contract at the landowners’ request
• A beneficiary’s avoidance of taking transfer and delivery of the property after being notified that it will be duly transferred and delivered
• Interior finishes that do not prevent habitability (tiles, taps, flooring, door handles, kitchen cabinets and similar) not being as committed in the project
• Payments made outside the banking system
• Where a property is partly bought with linked credit under Article 35 of Law No. 6502, the credit amount provided by the lender or housing finance institution
• Where, without the insured’s fault, the project cannot be brought into line with new legislation or an act of a public authority
• The beneficiaries’ indirect losses and any contractual penalty clauses in the construction contract or pre-paid housing sale contract within the scope of the General Conditions, which are in any case outside cover (GC art. 9(3))

Certificate Limit and Settlement Terms

• Limit: The total of the guarantees in the individual certificates cannot exceed the maximum limit in the policy, and of the payments made by the beneficiary only those made through the banking system are covered (GC art. 7). The insurer’s payment obligation is also limited to the number of units that are stated in the project and fall within cover (GC art. 20(4)).
• Cash or in kind: The insurer may perform by paying the amount it owes (cash indemnity) or by having the project completed and the property handed over (indemnity in kind), and decides without delay and notifies its decision (GC art. 20(1)). If it chooses indemnity in kind, the condominium easement that is to be transferred to the contractor or seller under the construction or pre-paid sale contract must be transferred to the insurer and registered, or a notarised sale promise agreement for transfer to the insurer must be made (GC art. 20(6)). The insurer must exercise reasonable care in selecting the contractor that will complete the project and, in certain cases, may also agree with the existing contractor (GC art. 20(5)).
• Handover period (indemnity in kind): After a contractor is selected and the project site is handed to the insurer, the property is handed to the beneficiaries within a reasonable time and in any case within 24 months: counted, in bankruptcy and death cases, from the committed project completion date, and, where the insured fails to hand over within 12 months, from the handover of the site to the insurer (GC art. 20(7); SEDDK Guide).
• Rent: If indemnity in kind is chosen, once the project site has been handed to the insurer, rent equal to five per thousand of the adjusted construction cost of the unit is paid monthly until the home is handed over. In insolvency and death cases rent runs monthly from the committed project completion date; where the insured fails to hand over within 12 months, it runs monthly after the 12th month following that date. These payments cannot be set against the maximum amount in the certificate (GC art. 20(8)).
• Due date and advance payment: Where cash indemnity is chosen, the indemnity falls due once the insurer has finished its investigations after the documents are supplied, and in any case 45 days after notice of the risk; the period does not run if the investigation is delayed for a reason not attributable to the insurer. If, where that period does not run, the investigation is not finished within 3 months of notice, the insurer pays at least 50% of the loss, as determined by agreement or by court-ordered preliminary expert opinion, as an advance (GC art. 20(9), (11), (12)).
• Bankruptcy estate: Under Article 42(2) of Law No. 6502, indemnities, guarantees and similar protections provided under BTS cannot be included in the bankruptcy or liquidation estate or be attached.

Start, End and Limitation Periods

• Period of insurance: Cover starts and ends on the dates and at the times stated in the policy; if no time is stated, 12:00 noon Turkish time applies (GC art. 6).
• Certificate validity: According to the SEDDK Guide, the certificate should show a validity date of at least the project period plus 12 months. Even if the insurance contract ends, the insurer’s liability under certificates issued before the end date continues.
• End on handover: The contract ends when the properties have been transferred and handed over to all beneficiaries, and the certificates lapse; on partial handover, the contract and certificates continue for the homes not yet handed over (GC art. 22(2)–(3)).
• End of the underlying contract: If a beneficiary withdraws from or rescinds the construction or pre-paid sale contract, or the contract is terminated, the insurer cancels the relevant certificate and the protection ends (GC art. 19(6)).
• Limitation: Claims under the insurance contract become time-barred two years after the claim falls due, and claims for indemnity in any case six years after the risk occurred (GC art. 24).

Obligations of the Policyholder, the Insured and the Insurer

• Pre-contract disclosure and notice before certificates are issued: When the contract is made, the policyholder discloses accurately and completely the material matters that could affect the insurer’s decision (such as information on the project and past projects, documents showing its financial position and its creditworthiness) (GC art. 11(1)–(2)). It must also tell the insurer of changes arising after the contract is concluded and before an individual guarantee certificate is issued, developments in the insured’s activities, and matters material to its creditworthiness (GC art. 11(8)). This is separate from the notice of aggravation of risk that applies during the term (GC art. 12) and the insured’s other notification duties (GC art. 15(3)).
• Aggravation of risk: Circumstances such as bankruptcy proceedings or an action for bankruptcy, a restrictive decision on payment of debts, inability to pay debts, a composition (konkordato) being declared, a significant deterioration in financial position and delay of more than 6 months in the project plan stages, declared when the contract was made and approved by the relevant administration, count as aggravation of risk; they are not triggers of cover, which are those in GC art. 7 (GC art. 12(3)). A restrictive decision must be one that binds all creditors. These circumstances are stated expressly in the policy (GC art. 12(3)). The insured notifies the insurer immediately of acts that aggravate the risk or of one of these circumstances occurring, and, where such acts were done without its knowledge, within 10 days at the latest from learning of them (GC art. 12(4)). Within 1 month of learning of the aggravation or of circumstances accepted as aggravation, the insurer may terminate the contract or ask for a premium difference or for additional security up to the amount of its payment obligation under certificates issued or requested; if the premium difference or additional security is not accepted within 10 days the contract is deemed terminated, and a right not exercised in time lapses; if the position that existed before the changes has been restored, the right to terminate cannot be exercised (GC art. 12(5)). Even if termination is exercised, liability under certificates already issued to the beneficiaries continues (GC arts. 12(8), 22(4)).
• Insured’s obligations: The insured notifies the insurer of handover of the property, credit relationships, security given to third parties over its assets, changes of beneficiary, a beneficiary’s withdrawal or rescission, and payments made by beneficiaries, and provides information on project progress (GC art. 15(3)).
• When the risk materialises: The policyholder notifies the insurer without delay on learning that the risk has materialised; beneficiaries may also notify. Information and documents must be supplied within a reasonable time and the insurer allowed to investigate (GC art. 13).
• Insurer: It gives pre-contract information, issues the policy, keeps the guarantee account, issues the individual certificates and delivers the key information form (GC arts. 16–19). Before signing, it assesses the contractor’s or seller’s financial position and past experience in particular (SEDDK Guide).

How BTS Differs from Surety Bonds and CAR/EAR

BTS is a surety-type product, but it does not do the same job as surety policies or construction and erection policies. The table separates what each answers.

The second column reflects only the SEDDK Guide’s comparison of surety insurance and BTS for urban transformation projects under Law No. 6306; for the general scope of surety insurance see Surety Bonds. The third column is given for general orientation and, unlike the BTS and surety columns, is not drawn from the General Conditions or the Guide but depends on the policy; for CAR/EAR cover see Construction & Erection Insurance and Engineering Insurance.

General Conditions and the policy’s special conditions

The General Conditions set the maximum framework and minimum rights, but cover is provided “in accordance with the General Conditions and the policy’s special conditions” (GC art. 7). Special conditions may be added to suit the nature of the risk, provided they do not conflict with the mandatory provisions of Law No. 6102 or with the General Conditions (GC art. 26). Matters that can be covered by agreement (art. 8), the limit, the term and additional-security conditions must therefore be written in the policy and the certificate, and a beneficiary should rely on the statements in the certificate.

What Information Is Reviewed for a Quotation?

• Project type and legislation: urban transformation under Law No. 6306, pre-paid housing sales under Law No. 6502 or another construction project; the status of the building permit and the condominium easement.
• Contracts: the construction contract or the pre-paid housing sale contracts; the beneficiaries and unit values.
• Project plan: the committed handover date, project stages and the plan approved by the relevant administration.
• Contractor or seller information: financial position, past experience and credit relationships (the insurer may request information and documents on these; GC art. 19(3)–(4), SEDDK Guide).
• Alternative security and extensions: whether another security method is used on the same project; matters needing an additional agreement, such as commercial units, natural catastrophes or linked credit.

This information is for assessment; the issue of a quotation, acceptance, the limit and the price rest with the insurer.

Frequently Asked Questions

Neolife's Role

Neolife Group can review project and contract information and the draft policy and guarantee-certificate wording, research suitable local insurance solutions, run a placement exercise and compare the quotations received. This does not mean any insurer's capacity, acceptance of cover, price or payment is promised; the insurer that issues the guarantee certificate makes the underwriting decision.

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