News for Apartment Buyers in Israel – Major Amendments to the Sale (Apartments) Law
The Israeli Knesset recently approved amendments to the Sale (Apartments) Law during the second and third readings. These amendments will have a considerable impact on the relations between sellers and buyers and on contractors’ apartment-sale transactions, and they will come into effect on July 7, 2022 (only in relation to agreements to be signed subsequent to this date).
Compensation for Delivery Delays
The amendment changes the method for calculating compensation for delays in delivering apartments to buyers.
Up until now, the seller was given a two-month grace period (after the delivery date specified in the contract) to deliver the apartment, and if the seller did not deliver the apartment by that date, it was obligated to pay compensation as of the contractual delivery date.
The amendment shortens the grace period to only one month but, unlike the situation prior to the amendment, if the seller does not deliver the apartment by the end of the grace period, it will be obligated to pay compensation only as of the end of the grace period.
The sum of the compensation in respect of a delay in delivery was also amended:
- For delays of one to four months in delivering the apartment, the compensation will be at the sum equivalent to rent for an apartment of similar size and location (and not at a sum equivalent to 1.5 times the rent as had been defined up until the amendment).
- Between the fifth and tenth month of delay, the compensation will be at the sum equivalent to 1.25 times the rent for an apartment of similar size and location (up until the amendment, the compensation was 1.5 times up until the eighth month, and 1.25 times thereafter).
- As of the 11th month of delay and subsequently, the compensation will be at the sum equivalent to 1.5 times the rent for an apartment of similar size and location (compared to 1.25 times the rent up until now).
Fewer Exemptions from Paying Compensation for Delivery Delays
Amendment 9 significantly limits the types of claims that the seller (the development company) can raise to explain delays beyond the grace period in order to lower or avoid payment of compensation for delivery delays.
From now on, the seller will be exempted from paying compensation only under the following circumstances:
- The delay was caused solely due to an act or omission of the buyer.
- The delays is the result of constraint or frustration of contract pursuant to the provisions of section 18(a) of the Contract Law (Remedies for Breach of Contract) of 1970 (i.e., when the breach of contract was caused as a result of circumstances that the seller, when signing the contract, did not know and could not have known or did not foresee, could not have foreseen and could not have avoided).
Linkage of the Apartment Price to the Construction Input Index
Up until now, the law allowed sellers to link 100% of the payments of the consideration to the construction input index – according to the index defined when signing the contract. The amendment significantly limits the seller’s ability to link payments of the consideration to the index.
From now on, as a rule, the consideration will not be linked to any index and no interest will be added (except in the instance whereby the buyer is in arrears in payment). However, the amendment allows the parties to agree to link up to 40% of the inclusive apartment price to an index (but in any event, the first 20% of the apartment’s contract price will not be linked at all to the construction input index).
The amendment also prescribes that, as a rule, it will be possible to link the payments of the consideration to the index only up until the delivery date specified in the contract (and not after the contractual delivery date as many sellers customarily did up until now), unless the delivery delay was caused due to one of the aforesaid circumstances that exempts the seller from paying compensation (a failure of the buyer or due to frustration of contract).
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We are at your service to answer any questions you might have about Amendment 9 to the Sale (Apartments) Law or about any other real estate matters.
Daphna Klein is a partner in Barne Jaffa Lande’s Litigation Department.