Impact of the Swords of Iron War on Apartment Deliveries

The ongoing Swords of Iron War has severely disrupted the construction sector, including severe manpower shortages and intermittent construction site closures, resulting in delayed apartment delivery dates across numerous projects.

Legal Framework Governing Apartment Delivery Delays

The Sale Law (Apartments) of 1974 adopts a paternalistic approach to protect apartment buyers. Its provisions are cogent, meaning they cannot be deviated from, except for the benefit of the buyer. Among these protections are statutory compensation for delays in apartment deliveries, calculated according to the duration of the delay.

Amendment 9 to the Sale Law (Apartments), which took effect in July 2022, introduced revised rights and obligations concerning delays in apartment deliveries. notably, this amendment applies exclusively to contracts signed on or after July 7, 2022. Accordingly, in any situation involving a delivery delay, it is important to determine whether the sale agreement was signed before or after this date.

Under the previous law, the seller is exempt from paying compensation for a delivery delay in the event of “circumstances beyond its control, when the risk of their materialization is not imposed on it.”

However, under the amended law, the seller is exempt from compensation only in two specific circumstances:

(a) If the delay was caused by an act or omission of the buyer; or

(b) If the delay was due to an event that caused “frustration of contract,” as defined in section 18 of the Contract Law (Remedies for Breach of Contract).

Frustration of contract: When Is a Seller Released from Liability?

Section 18 of the Contract Law (Remedies for Breach of Contract) regulates  
frustration of contract – i.e. exceptional circumstances that prevent the seller from fulfilling its obligations. Three cumulative conditions must be met to establish frustration of contract:

1. No Prior Knowledge: At the time of signing the contract, the seller was unaware of or could not have foreseen, the circumstances causing the breach;
2. No Control: The circumstances causing the delay were beyond the seller’s control and could not have been prevented;
3. Material Change: Performance of the contract became impossible or fundamentally different from the original agreement between the parties.

The burden of proof lies on the seller, who must provide clear and compelling evidence, including detailed documentation of the circumstances  leading to the delay and their direct impact on the seller’s ability to meet contractual deadlines.

Can War Create Circumstances Causing Frustration of Contract?

As a country frequently affected by wars and military operations, Israeli courts have deliberated whether warfare constitutes a foreseeable event, and whether it can create circumstances justifying frustration of contract.

Over time, Israeli courts have shown reluctance to broadly recognize wars or military operations as events constituting frustration of contract, largely due to their foresee ability. Shortly after the Yom Kippur War of 1973, the courts unequivocally ruled that war in Israel does not create circumstances causing frustration of contract, since such events are deemed foreseeable in Israel. However, this ruling has been softened over the years whereby each case is to be examined on its merits, considering the impact of the war on the relations between the contractual parties.

For example: the court ruled that the Second Lebanon War of 2006 created circumstances that caused frustration of contract and therefore, the court recognized the defendant’s right to release from its contractual obligations as a result of the war.

Over the years after the Second Lebanon War, quite a few court rulings took into consideration military operations, such as Operation Pillar of Defense in 2012 and Operation Protective Edge of 2014, but most of the rulings did not recognize the military operations as having created circumstances of a magnitude justifying release from contractual obligations, apparently due to their relatively low intensity.

Is the Swords of Iron War Creating Circumstances Causing Frustration of Contract?

Given the relatively short time since the outbreak of the war (which is still ongoing), case law has not yet determined whether this war is creates circumstances justifying delays in apartment deliveries and accordingly, there is no way to know with certainty how the courts will rule in this regard.

On the one hand, most of the past combat operations were not recognized as creating circumstances that caused frustration of contract. On the other hand, it appears that the Swords of Iron War (including the surprise attacks that precipitated the war) has unique characteristics unlike previous military operations or even previous wars, and therefore, it is likely that the courts will examine the unique characteristics of this war and its pervasive ramifications.

If the courts do recognize this war as creating frustration of contract, contractors will still need to provide evidence for a direct causal link between the war’s consequences – such as manpower shortages due to the unavailability of Palestinian Authority construction workers or due to the widespread reservist call-ups, as well as difficulties in importing goods and in the supply of materials – and delays in project progress.

Preparing for disputes

As stated, emergency situations, such as war, have impact on the real estate industry and raise legal disputes about delays in apartment deliveries. Therefore, as soon as a delay appears imminent, it is important to prepare for all scenarios, including: reviewing the relevant contractual provisions; checking the contract signing date (before or after the amendment to the Sale Law (Apartments) – 7.7.2022); informing the buyers of the imminent delay and the reasons for it; documenting the events that occurred and their impact on the project’s progress; and ascertaining whether particular work components can be accelerated and whether the workforce can be augmented, etcetera.

Given the complexities involved, it is advisable to seek legal counsel to ensure compliance with contractual obligations and minimize the risk of disputes.

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