New Era In Re-Generatıon: What to Expect for the Real Estate Sector?

As it is known, the regeneration activities that were started to be carried out in Türkiye in the 1950s with the purpose of preventing slum settlement, was superseded by the agenda on disaster risk management after the Marmara earthquake in 1999. The procedures and principles regarding the applications of improvement, dislocation and renewal to be carried out in areas under disaster risk and where risky buildings are located was determined by the Law No. 6306 on the Transformation of Areas under Disaster Risk dated 16 May 2012 (“Law“) and the Implementation Regulation of the Law No. 6306 published in the Official Gazette dated 15 December 2012 and numbered 28498 (“Regulation“).

The earthquake disaster occurred on 6 February 2023 in Türkiye has once again underlined the necessity to implement more effective solutions to accelerate the regeneration activities carried out within the framework of the Law.

Accordingly, structural amendments were also added to the Law with the Amendment Law No. 7471[1] in order to facilitate those measures to ensure disaster risk-oriented regeneration applications are started and completed swiftly are taken up without delay.

The amendments entered into force by its publication in the Official Gazette dated 9 November 2023, with the exception of Article 6(15) regarding the institutions[2] to be licensed for the applications under the Law. Application was made to the Constitutional Court on 4 January 2024 for the cancellation and suspension of execution of the legislation which is still pending.

Overview of the Regeneration Process in Light of the Amendments

Directorate of Regeneration

The Directorate of Regeneration (“Directorate“) was established under the Ministry of Environment, Urbanization and Climate Change (“Ministry“) as an administration with a special budget dedicated to disaster risk-oriented transformation. The main rights and authorities of the Ministry under the Law, such as determination of risky buildings, demolition, evacuation and application procedures, were transferred to the Directorate.

Further procedures and principles regarding the implementation of the Law will be determined by the regulations to be prepared by the Directorate. It is notable that although the Regulation issued by the Ministry is currently in force, the amendments to the Law was not reflected to the Regulation. Considering the scope of the amendments, it is essential for the sector that a new regulation on the implementation of the Law is prepared.

Scope of Implementation of the Law

For the provisions of the Law to be applicable, the relevant buildings and areas should be identified as risky areas, reserve building areas or risky buildings. Each status is defined below in general terms.

• Risky Areas: The areas in places where public order or security is disrupted in a manner to suspend or interrupt the ordinary course of life (with certain conditions), or areas where at least 65% of the total number of buildings laying thereupon are are built in contravention of the zoning legislation but subsequently licensed may be determined as risky areas. Risky areas are determined by the Ministry itself on its own motion, upon the request of the Housing Development Administration (“TOKİ“) or the Administration[3], or upon the request of the building owners from the Ministry or the Administration, and approved by relevant Presidential decrees.
• Reserve Building Areas: These are not areas bearing disaster risk, but determined by the Ministry itself on its own motion, upon the request of TOKİ or Administration, or upon the request of the building owners, to be used in relation to the applications to be carried out in risky areas and risky buildings in accordance with the Law.
• Risky Buildings: Buildings inside a risky area or buildings outside a risky area that have completed their economic life or are at a risk of collapse or severe damage may be determined as risky buildings based on scientific and technical data. Unlike reserve building areas and risky areas, the determination process for risky buildings can be initiated directly by the building owners through the institutions licensed by the Directorate (formerly the Ministry). In addition, the Directorate and the Administration may request the building owners to carry out the determination process of the risky buildings within a certain period, or per the amendment, it may be carried out directly by the Directorate.

Regeneration Decision and Following Actions

Following the demolition of the building, a decision should be made by the building owners regarding the actions of management and disposal to be undertaken under the Law in the parcels where the risky building is located, such as construction to be made by the owners, to be transferred to a developer by a contract of construction for land share, to be left entirely as land or to be sold. In the event that no agreement is reached within 30 days following the notification to be made in this regard, the Directorate, the Administration or TOKİ may recourse to urgent expropriation.

In practice, it is observed that a “decision” covering the demolition and evacuation processes is made by the building owners before the demolition of the building, based on the principle of “evacuation by agreement“.

In buildings where there is more than one owner (buildings where independent sections were formed through the establishment of a condominium or buildings held in joint or common ownership), there may be difficulties in obtaining the majority required for such decision. In fact, decisions regarding the relevant buildings should be taken according to the provisions applicable to the relevant ownership status. For example, pursuant to Article 45 of the Condominium Law No. 634 (“CL”), important administrative matters, such as disposals regarding rights on immovable property, may only be undertaken by unanimous decision of all condominium owners, and the relevant calling and meeting procedures specified in the CL must be complied when making such decisions.

It is notable that, in immovable properties where the building is demolished and has received the ‘land’ status, the established condominium and condominium easement status are automatically removed by request of the Directorate and registered in the name of the property owners as per their land shares. After this removal in the land registry, the main property becomes a property subject to joint ownership, and the condominium owners become shareholders. Pursuant to this change, the provisions of the Turkish Civil Code No. 4721 (“TCC“) regarding joint ownership will be applied instead of the provisions of the CL.

Previously, the applications for reassessment of the parcels as required for regeneration were decided by the two-thirds majority of the building owners in proportion to their shares after the determination of the risky building, whether the building was demolished or not. In the new regulation, the aforementioned applications and all relevant transactions required by these new applications which require the consent of all owners will be decided by the absolute majority policy (understood as the majority of shares) of the (land and) building owners in proportion to their shares. This provision has been the subject of some debate, in practice, the concept of removal from shareholding described below ensures that disposals on the property are carried out by unanimity.

Pursuant to the provisions of the Regulation, a meeting is not required to take this decision and the decision is not subject to any form requirement. In terms of the applications to follow, the minutes of the decision signed by the owners in agreement or power of attorneys / copies of contracts of the owners in agreement may be submitted for proof of decision. Notwithstanding these, the shareholders should be required to have decided upon sufficient deliberation, and this decision should not clearly harm the interests of the minority shareholders.

Pursuant to Regulation introduced, the aforementioned offer shall be notified to those who disagree with the warning that their shares will be sold if not accepted within 15 days via notary public or by announcement through the headmen’s (muhtar) office for a period of 15 days.

Process for owners who disagree with the abovementioned decision

The land shares of the owners who disagree with the decision and do not accept the offer within the given period, are sold by auction to the other shareholders who have reached an agreement upon determination of corresponding fair values by the Directorate. Therefore, in practice, it is ensured that the necessary disposals to fulfil the decisions made can be completed by reaching unanimity. In the event that the sale to the shareholders cannot be realized, the sale process is repeated until these shares are sold to other shareholders who have reached an agreement, or to third parties by the decision of the shareholders who have reached an agreement, provided that they accept the transaction to be made in accordance with the agreement.

Further details of the auction and sale processes, which are currently specified in the Regulation, will be determined by the Directorate, and will become clear with the expected new regulations.

Demolition Decision

Following the finalisation of the risky building determination, the building must be demolished and evacuated other than the option of strengthening under the conditions specified in the Regulation. For this purpose, a one-time period of not more than 90 days is granted to the building owners for the evacuation and demolition activities. Upon determination that the building is not demolished within the specified periods by agreement of the owners, evacuation measures can be imposed and the demolition of the building may be carried out by the administrative authorities.

Elimination of Joint Ownership

Pursuant to Regulation, the building owners who do not participate in the regeneration decision may request the elimination of the joint ownership and the assignment of their shares to them by lawsuit in accordance with Article 698 of the TCC after the immovable received the ‘land’ status. However, this should not prevent to take decisions and carry out actions under the Law.

This provision which was specified in the Regulation was annulled by the decision of the Council of State, which stated that all applications within the scope of the Law should be carried out under the Law and that it is not possible to interfere with the Law through secondary regulations. Considering the possibility of frequent recourse to this option in the applications to be made by developers, it should be observed whether this new regulation will be subject to dispute on similar grounds.

Licensed Institutions

As regards institutions whom, pursuant to the statement in the Law amended, we understand that they may be licensed for the applications under the Law without limitation to determination of risky buildings. However, a concrete framework was not established regarding the qualifications, operating conditions and powers thereof. Furthermore, the effective date of the provision was postponed to 9 November 2024. It is anticipated that the Directorate will determine the procedures and principles with the Regulation to be issued in parallel with the effective date and grant operating permits to the institutions.

Aid and Supports: Featured Applications

Pursuant to the Law, in the demolition of risky buildings and in the applications in the areas within the scope of the Law, an agreement should be reached in principle between the building owners first. Nevertheless, as stipulated, taking the demolition decision itself (fulfilling the administrative order for demolition) and evacuation of the building are beyond the personal power of disposal of building owners. However, under certain conditions, temporary housing or workplace allocation or rental assistance, credit or interest support or housing certificates may be provided to the owners, tenants and servitude holders of the buildings evacuated by agreement, or to other persons using the building, if required by the application.

The new regulations provide that assistance may be extended to right holders for construction in accordance with the procedures and principles to be determined by the President. With the “Half by Us” Campaign prepared within this scope, it is stipulated that assistance may be provided for construction including certain grants, loans and evacuation support in regeneration applications to be carried out in Istanbul.

Conclusion

In general, there is no doubt that regeneration is a hard necessity and should be subject to functional processes. However, it is notable that there was some conflict between the intended public benefit and the individual rights and freedoms of the right holders in the applications made since the effective date of the Law.

The initiative to accelerate the administrative processes is welcomed quite positively by the sector. Moreover, it is clear that the establishment of a comprehensive housing policy that takes shareholder interests into account will give direction to the legal framework. For all these reasons, we believe that regeneration projects have a great potential within the real estate sector.

We will fully see how the regulations, which will become concrete through the actions of the newly established Directorate, will affect the housing market in the following days.

[1]Law No. 7471 Amending the Law on the Transformation of Areas under Disaster Risk and Certain Laws and Decree Law No. 375

[2]See title “Licensed Institutions” below for more information.

[3]It refers to municipalities within the boundaries of municipalities and adjacent areas, special provincial administrations outside these boundaries, metropolitan municipalities in metropolitan areas and district municipalities within the borders of metropolitan municipalities in case of authorization.