Delay in apartment handover from contractor
The Sales Law (Apartments) is a law designed to protect new apartment buyers from apartment sellers on several levels, and among other things it entitles apartment buyers to financial compensation in cases of a late handover of an apartment from a contractor. Compensation is given for a delay of more than a month in handing over an apartment, and the amount of compensation increases as the delay continues. Apartment sellers may be exempt from compensation for late handover only if they can show the court that the late handover was caused by the buyer of the apartment or due to external circumstances amounting to force majeure or breach of contract.
Who should we sue for a delay in handing over a new apartment: the developer of the construction project or the contractor?
Section 1 of the Sales Law (Apartments) states that a “seller” is “a person who sells an apartment that he built or is going to build himself or by another person on his own land or someone else’s, in order to sell it, including a person who sells an apartment that he bought, in order to sell it, from a person who built it or is going to build it as mentioned, with the exception of the seller of an apartment that he did not build it himself and did not receive compensation from the buyer for its sale” – hence if the development company uses the services of another company as the “executive contractor” of the project, as is the case with most construction projects in Israel – the responsibility towards the apartment buyers lies with the project developer, not the executive contractor (it is possible that the developer will be compensated by the contractor, but this is not the concern of the apartment buyers).
What does the Sales Law (Apartments) stipulate regarding a delay in the handover of a new apartment?
Amendment number 5 to the Sales Law (apartments), which includes the addition of section 5a, entered into force in 2011 regarding the delay in the handover of a new apartment. In July 2022, amendment number 9 entered into force. The explanatory notes to the amendment state that it is a “consumer law designed to provide protection to buyers of new apartments in these transactions. The basis of this legislation is the assumption that the contractual system in these transactions of purchasing an apartment from a developer is not equal and that there is a considerable disparity of power between the buyer and the seller, in favor of the seller.”
Accordingly, the buyer and the seller of the apartment are not allowed to agree on provisions in the purchase agreement that are in favor of the seller and to the detriment of the buyer regarding late handover – both in terms of the amount of compensation and in terms of when the buyer is entitled to compensation. On the other hand, the parties are allowed to determine provisions among themselves in the purchase agreement in favor of the buyer, but in practice this is not common, since the drafters of the contracts, the ones with the power, are the sellers of the apartments.
According to the section as it currently stands, after amendment number 9 (this article was written in April 2023), if the seller of an apartment does not hand over the apartment to the buyer within one month of the date specified in the purchase agreement (“the contractual date”), the buyer is entitled to compensation, without proof of damage, for each month or part thereof from the end of one month from the contractual date until the apartment is made available to him, based on what is detailed below: “(1) An amount equal to the rent of an apartment of similar size and location – for the period beginning at the end of a month from the contractual date and its termination at the end of four months from the contractual date; (2) an amount equal to the rent of an apartment of similar size and location when multiplied by 1.25 – for a period beginning five months after the contractual date and ending at the end of ten months from the contractual date; (3) an amount equal to the rent of an apartment of similar size and location when multiplied by 1.5 – for a period beginning 11 months after the contractual date and beyond.”
The first month – a grace period in favor of the seller that does not entitle the buyer to compensation
As you can see, within the framework of section 5a, the seller is granted a “grace” period in which he may delay the handover of the apartment without paying the buyer any compensation for the delay. Unlike the situation according to amendment number 9 to the law, the grace period of 30 days is fixed, and cannot be canceled under any circumstances. That is, even if the seller of the apartment is delayed in delivering the apartment for a whole year, he will not have to compensate the buyer of the apartment for the first month of delay.
Examples regarding the amount for which the seller of a new apartment must compensate the buyer for late handover:
In accordance with the above, if the market value of the apartment to be delivered is 10,000 NIS per month, the developer must compensate the buyer of the apartment with the same amount for three of the first four months of the delay (remember the first month is the grace period); in the amount of 12,500 NIS per month for the period between the next six months of delay (fifth to tenth month) and in the amount of 15,000 NIS per month for the period from the eleventh month and beyond.
The section indicates that the longer the delay in handover continues, the more significant the amounts that the sellers must pay the buyers.
In what cases are apartment sellers exempt from compensating buyers due to late handover?
Section 5a(c) was also modified as part of amendment number 9. Previously, the exemption section stated that the seller would be exempt from compensating the buyer in circumstances where he has no control over the situation (the “force majeure” section). The current version states that “the provisions of subsections (a) and (b) shall not apply if one of the following applies to the delay in handing over the apartment: (1) it is caused by an act or omission on the part of the buyer solely; (2) it is the result of circumstances as stated in section 18(a) of the Contracts Law (Remedies for Breach of Contract), 1970, and the other conditions stipulated in that section are met.”
But in fact, a careful reading of the section reveals that this is not a significant change, since the section applies the “exemption due to force majeure or breach of contract” defense established in section 18(a) of the Contracts Law, (Remedies), and apartment sellers will be able to claim “force majeure” based on this section as well.
According to the Supreme Court ruling, the date of handover must be clear, to the extent that allows the buyer to rely on it
In Shemesh v. Space Construction and Enterprise Ltd. (given on 21.2.2016), the Supreme Court dealt with a case where the purchase agreement did not stipulate a new concrete handover date following changes made to the apartment, but the agreement allowed the development company that sold the apartment determine the handover date on its own. In the ruling, written by Judge Dafna Barak Erez, it was determined that the handover date should be clear and transparent, to the extent that allows the buyer to trust it (the mere possibility of setting a new contractual date for changes is not against the law, but it is important to make sure that there is an up-to-date agreement on the handover date – and not an exemption presented as an agreement on a new handover date, but which in practice is intended to exempt the seller of the apartment from the compensation obligation imposed on him by law).
Contacting an attorney regarding the purchase of a new apartment and a delay in the handover of an apartment
Buying a new apartment is one of the most significant events in a person’s life. In light of this and since it is a transaction involving a lot of money, it is extremely important to have legal guidance from a real estate attorney at all stages of the transaction – from the negotiations for the purchase of the apartment to receiving the keys (and even after that, in case of construction defects). Legal support from an expert real estate attorney protects your interests and gives you peace of mind in this complex situation.
Our attorneys, who specialize in civil law and late handover of apartments, will be glad to assist you in everything involved in the matter. You can contact us at the phone numbers and email address below.
The article was written in collaboration with attorney Adam Johnson.
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