Why payment security clauses deserve scrutiny before contract signature
Finnish investors and family offices developing property in Türkiye typically focus due diligence on title, zoning, and permits. One area that receives far less attention, and causes far more disputes once construction is underway, is the payment and performance security structure embedded in the construction contract itself. For a Finnish party used to Nordic contracting norms, where bank guarantees and staged payment are standardized and predictable, the Turkish system requires a different level of scrutiny.
How Turkish construction contracts structure security
Turkish building contracts, whether based on the domestic Kat Karşılığı (build-to-share) model or a standard fixed-price construction agreement, rarely default to the retention and bonding conventions familiar in Northern Europe. Performance bonds, advance payment guarantees, and retention money are all negotiable items rather than statutory requirements, which means the protection a Finnish investor receives depends entirely on what is written into the contract, not on background legal custom.
A letter of guarantee (teminat mektubu) issued by a Turkish bank is the most common security instrument. It typically covers advance payments, performance obligations, and sometimes defect liability. Finnish investors should confirm three things before relying on one: that the issuing bank is a recognized, well-capitalized institution rather than a small regional lender, that the guarantee is unconditional and payable on first demand rather than requiring arbitration or litigation to trigger, and that the guarantee amount and expiry date are tied explicitly to project milestones rather than a fixed calendar date that may not match actual progress.
Advance payment risk : Developers in Türkiye commonly request advance payments of 10 to 30 percent before mobilization. Without a corresponding advance payment bond, this exposes the investor to the contractor's insolvency risk with no recourse. Any advance released without a matching guarantee should be treated as a red flag, not a routine accommodation.
Retention practice : A retention rate of 5 to 10 percent held back from progress payments until practical completion and the defects liability period has passed is standard international practice and is achievable in Türkiye, but it must be negotiated explicitly. Many standard Turkish contractor templates omit it entirely, particularly in residential and mixed-use projects where contractors compete on cash flow terms.
FIDIC-based contracts versus domestic templates
For larger commercial or mixed-use developments, Finnish investors are better served insisting on a FIDIC-based contract form, which is widely used and understood by Turkish contractors working on institutional and international projects. FIDIC contracts build in structured mechanisms for performance security, advance payment guarantees, and retention release that align closely with what a Finnish legal or finance team would expect. Domestic residential build contracts, by contrast, are often shorter, less structured, and weighted toward the contractor.
Practical steps before signing
Finnish investors should have a Turkish construction lawyer review the payment schedule against physical progress milestones rather than calendar dates, since calendar-based payment schedules decouple cash outflow from actual site progress and increase exposure if a contractor stalls. It is also worth verifying the guarantee-issuing bank independently rather than accepting a document at face value, and confirming that dispute resolution language does not require the investor to pursue lengthy domestic litigation before a bond can be called.
Currency and structuring considerations
Because most Finnish capital enters as euros, contracts should specify clearly whether guarantees and retention amounts are denominated in euros, US dollars, or Turkish lira, since currency mismatch between the guarantee and the underlying payment obligation can erode the real value of the security over a multi-year build. This is a routine structuring point that is often overlooked until a dispute forces the question.
How advisory support helps
Eurasia Experts works with Finnish investors and developers to review construction contracts, verify guarantee instruments, and structure payment schedules that align with milestone-based progress rather than calendar assumptions. Independent, on-the-ground verification of a contractor's financial standing and the credibility of its bank-issued guarantees is a modest cost relative to the capital at risk, and it is far more effective addressed before signature than after a dispute has begun.