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What to Know before Signing a Contractor’s Purchase Application

What to Know before Signing a Contractor's Purchase Application

In most projects, the marketers/contractors/developers customarily require potential apartment buyers to sign a purchase application/proposal form.


This document constitutes a preliminary stage in the engagement between the parties, and it anchors the principles of the commercial terms that will be incorporated later in the sale agreement.


Inter alia, it is important to make sure the document is worded in the format of an inquiry/application from you to the contractor, in order to avoid it being recognized as a binding sale agreement between the parties.


Therefore, already at this stage, it is highly advisable to consult with an attorney who is an expert in this field and who will be able to advise you to pay attention to particular issues in the application.


Description of the apartment – In the application form, you should specify the type of apartment, the story, its size, and whether it includes any appurtenances, such as parking, a storage room, etc. We recommend that you negotiate these points already at this stage, since any later addition to these terms will most likely involve additional costs.


Price – It is important to question and verify exactly what the price of the apartment includes, whether you will incur additional expenses (such as a lawyer’s fee or property registration expenses), and whether each sum includes VAT.


In this regard, you should ascertain whether the contractor is expecting you to bear the cost of its lawyer’s fee (even though this lawyer is not representing you during the purchase transaction). If you are required to pay this lawyer’s fee, please be advised that today the Sale Regulations limit the fee a contractor’s lawyer can charge. In respect of apartments priced at up to NIS 4,642,750, the maximum is a fee of up to NIS 4,960 plus VAT. (These sums are updated according to the changes in the index.)


Payment terms – The terms of payment for the apartment are also usually specified in the application form you will be asked to sign. In this regard, it is important to find out whether a bank is providing financing to the project and the stage of construction of the project. If the project is in its initial stage, we recommend stipulating that payments be contingent upon the completion of milestones in the construction stages.


The obligation to execute payments on schedule is the principal and most important obligation that will apply to you in the signed sale agreement. Consequently, you should plan the potential payment schedule with all due seriousness and prudence.


It is also important to keep in mind that purchase tax may apply to you. If so, you will be required to pay this within 60 days of signing the sale agreement. Please be advised that you cannot finance the purchase tax using the loan funds secured by a mortgage.


Index linkage – When purchasing an apartment from a contractor, the purchase price is usually linked to the construction inputs index. In most cases, the purchase application specifies the base index to which the purchase price will be linked, even though, until the sale agreement is actually signed, the index might rise in a manner that increases the purchase price by thousands of shekels. Therefore, we recommend negotiating the linkage terms already at this stage.


“Application fee”/“reservation fee” – Many contractors demand the payment of a fee of tens of thousands of shekels at the time of signing the purchase application, which is a kind of commitment fee to sign a sale agreement. In this regard, it is extremely important to expressly stipulate in the application form that, in the event the sale agreement is not signed for any reason whatsoever, the reservation fee you deposited with the contractor be returned to you. You should also demand that, if you do sign a sale agreement, the aforesaid payment be deemed partial payment in respect of the apartment. We further recommend that the aforesaid sum be held in escrow by the contractor’s attorney until the sale agreement is signed.


As is evident, even a supposedly short and simple document, like an application to purchase an apartment from a contractor, involves numerous material matters that require meticulous attention to their wording. Therefore, we highly advise you to never sign a document of this type hastily. And, of course, we recommend that you consult with an expert attorney before you sign anything.


Source: barlaw.co.il