Draft Bill – Real-Estate Purchasing Groups

On December 23, 2018, the Israeli ministerial committee approved a draft bill on the subject of real-estate purchasing groups.

This draft bill is designed, on the one hand, to protect members of purchasing groups and, on the other hand, to enable their continued existence as a means to construct residential apartments while cutting costs.

The draft bill applies to purchasing groups comprised of more than 10 members that organize in order to jointly construct residential apartments.

The draft bill’s main innovation is that it serves to protect the investments of members of the purchasing group.

Among the provisions of the draft bill are:

A compulsory precondition to the very organization of a purchasing group is the approval of a detailed plan for the real estate by the relevant authorities.

The organizer of a purchasing group must have a real-estate appraiser’s report regarding the real estate before it can begin advertising or marketing.

The bill imposes a restriction on the organizer’s fee and/or the membership fee to join the purchasing group.

The organizer’s fee must be fixed and final, and paid according to the project’s progress, with some payments after the construction of the apartments is complete.

The cooperation agreement between the purchasing group members must include, inter alia, details about the estimated costs, the forecasted timetables, the number of apartments that may be constructed, and the actions taken to increase the number of apartments, if any.

The purchasing group’s funds must be managed separately in a trust account with the members of the purchasing group being its beneficiaries.

The trustee is prohibited from having any personal or business interest in the organizer or from being in a state of conflict of interest.

Withdrawals of funds from the trust account for purposes other than advancing the purchasing group’s interests are prohibited.

The organizer is obligated to register the rights of the members of the purchasing group and to issue a biannual report to the members of the purchasing group detailing the actions taken and the group’s state of affairs.

The organizer may be replaced by resolution passed by 70% of the members of the purchasing group.

Members of the purchasing group may exit the group if the real-estate purchase agreement is not signed within three years after the first member joined the purchasing group. Members who exit the purchasing group under these circumstances will receive a refund of the monies they paid, after deducting the membership fee and the organizer’s fee up until that date.

A sale of the purchasing group’s rights in the real estate and termination of the group’s activities will be possible by resolution passed by a majority of the members of the purchasing group, if four years have elapsed since the real estate was purchased and a building permit has not been obtained.

If the number of members of the purchasing group exceeds the number of apartments, it is compulsory to explicitly specify the actions needed in order to obtain approval for additional apartments and the order of priority between the purchasing group members for receiving these additional apartments upon approval. These members’ funds will be managed in a separate trust account.