Apartment Purchase Agreements

One can argue that the primary concern for the seller of an apartment end upon receiving the full amount specified in the contract, while the buyer’s concerns last for many years. If this were true, then the sellers of apartments would not have no need of lawyers – but no doubt the person buying an apartment takes a greater risk than the sellers, even if they have examined the state of the property itself in depth. This is why it’s so important to create a detailed, accurate, and equitable apartment purchase agreement when selling or purchasing an apartment in Israel.

This article details the important risks and issues comprising the sale contract, so that the transaction can be successful while avoiding any breach of the agreement, which would oblige you to pay a steep compensation.

It’s important to note that when you’re intending to buy an apartment, you need the assistance of a professional lawyer with the preparation and wording of the contract, as well as the negotiations prior to the preparation of the contract. Our law firm specializes in the preparation of sale contracts, as well as the general handling required for a real estate transaction.

What is a sale contract?

 A sale contract is a document summarizing the engagement between the parties, including the identity of the buyer and the seller of the property, the precise details of the property and its registered attachments, the parties’ contractual rights, the parties’ representations and warranties.

The sale agreement also includes clauses concerning consideration with respect to the sold property, as well as the payment plan for the consideration. In addition, it includes clauses concerning a breach of the contract, such as delay in the apartment’s delivery by the seller, or a delay in payment by the buyer.

Who prepares the sale contract?

An apartment purchase contract is prepared by a lawyer on behalf of the sellers, containing the basic details agreed between the parties. The seller’s lawyer sends the draft to the buyer’s lawyer, and together with the buyer, they review the contract’s details, make sure that everything is as agreed, and that no clause may create any future issue. In addition, they set a payment plan schedule manageable to the buyer.

It should be noted that this payment plan might be flexible if both parties wish it. For example: if the parties have agreed that the mortgage should be paid in August, and the bank has transferred the mortgage to the buyer at an earlier date, then the payment may be pushed forward. It’s recommended to provide for such agreement in writing between the parties, so that their undertaking is clear.

The main clauses of the sale agreement:

1. “The sale” – the purchased property (apartment/house), its area, the number of rooms, and its precise address. This clause also includes reference to the apartment’s legal status, as well as its present status in terms of lessees and obligations to third parties.
2. “The seller’s representations and warranties” – this clause includes the apartment seller’s undertakings to the buyer. Generally, the undertakings are to deliver it without defects and without any legal status which might prevent the transfer of ownership, such as charges and claims related to this apartment. It’s important to note that this clause includes the seller’s undertaking to pay a land appreciation tax. In addition, this is where one should note which rights transfer documents would be delivered to the buyers’ lawyer upon delivery of possession.
3. “The buyer’s representations and warranties” – this clause states the buyer’s undertakings, being the payment of consideration, as well as a statement that they have seen the property and consent to its condition. This is done in order to prevent future lawsuits from the buyer regarding the state of the property. This undertaking is based on preliminary examinations made by the buyer. It should be noted that this clause includes the buyer’s undertaking to pay a purchase tax.
4. “The consideration” (see details below) – the details of the apartment’s price, and the payments table of the consideration paid by the buyer to the seller. The payment plan is highly important in a sale agreement, and it should be noted that beside the fact that the buyer must comply with the payment plan (especially if they are waiting for the mortgage funds), they must also ensure that they have a security against every payment made to the seller, such as a warning note, etc.
5. “Taxes” – this clause details payments to the water and electricity authorities, etc., during the period between the signing of the agreement and the delivery of possession. Payments made until the date of the signing of the sale agreement or the delivery of possession apply to the seller, whereas payments from the date agreed upon and after, apply to the buyer.
6. “Remedies” – this clause deals with compensation in case of breaches by either party. For example, if the buyer has failed to complete the payment upon the agreed-upon dates, or if the seller has failed to deliver possession of the apartment following the completion of payment by the buyer. It should be noted that one can demand immediate compensation with regards to some material breaches, whereas in the case of non-material breaches, the defaulting party is given the opportunity to amend them. The sale agreement specifically describes a material breach of this type. The compensation in case of any breach stands at approximately 10% of the apartment’s value.
7. Special clauses – naturally, real estate transactions are not identical copies of each other. Therefore, in certain circumstances, the contract needn’t follow the traditional structure, and unique clauses and sections may be added to a specific real estate transaction.
8. Registration of the transaction – following the completion of the purchase process, the property is registered to the name of the buyers. This registration is performed through the relevant land registration bureau – usually a land registry extract (Tabu) – by the buyer’s lawyer. This process takes a number of days, and in rare cases might even take up to several weeks. After obtaining a confirmation from the bureau that registration has been successfully executed, it is recommended to produce an updated land registry extract, and make sure that registration has been performed in full.
   In the event that the property does not have a land registry extract, the transfer of rights takes much longer, usually over six months.
9.  The date of possession delivery could be a particular date or a relative range of time (for example, six months following the signing of the contract). The contract must also note whether the date might be pushed forward/postponed, and upon what conditions. Possession is transferred to the buyer only following the full payment of the amount, whether directly to the seller or indirectly to their lawyer.

Consideration and payment plan:

One of the most important clauses for the buyer is the payment plan for the consideration. This plan is mostly based on a calculation of the buyer’s equity, an estimation of the mortgage’s transfer by the loaning bank, as well as an examination of the securities provided to the buyer by the seller with respect to each of these transfers.

The most common payment plan is 10% as a start, upon the signing of the contract, and the last 10% upon the delivery of possession. The remaining 80% is worked into a payment plan, depending on each case and the parties’ agreement.

If the buyer transfers part of the payment plan to the seller, then the transfer of the property’s possession can be advanced – registration of a warning note, striking out of the sellers’ mortgage on the property, and finally, the full registration of the apartment.

It’s generally acceptable to transfer the final payment, prior to entry to the apartment, to an escrow by a lawyer, who then only transfers it to the seller following the registration of ownership with the Land Registrar.

Conclusion:

As you may have noticed, the preparation of an Israeli real estate sale agreement is complex, and carries many implications, both with respect the buyer and with respect to the seller. Those who are wise enough to secure themselves, through the sale agreement, from all possibilities and scenarios which might occur, can rest assured that the transaction will be executed in the best way possible.

Remember, this process cannot be performed independently and without the close assistance of a lawyer. Therefore, we recommend hiring a professional lawyer specializing in this field. Our law firm handles transactions of this type on a daily basis. If you intend to purchase an apartment, contact us today to receive free legal advice.

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