Lawsuit against a contractor for late handover of an apartment
In what cases can a lawsuit be filed against a contractor for late handover of an apartment? The law allows claims to be filed in cases of a delay exceeding 60 days in the handover of the apartment (and for contracts signed after July 7, 2022 – in cases of a delay exceeding a month). This is subject to the terms of the law and what was agreed upon in the contract between the parties. In the article below, an attorney who specializes in real estate law from our office will elaborate on the subject.
Israel is known as a country where it is very difficult to buy residential apartments. This is due, among other things, to the relatively low supply of apartments in Israel compared to the high demand, as well as the skyrocketing apartment prices. In light of this situation, many buyers are willing to buy apartments from contractors, even before the construction of the apartment has been completed, and sometimes even before it has begun. Buying an apartment in these cases is always accompanied by uncertainty about when it will be possible to enter the apartment, and in many cases there is a delay in the handover of the apartment.
Delays in handing over an apartment cause a lot of damage, especially when the property was bought for residential purposes. A family that planned to move into the property at the time when it was promised to be handed over according to the contract, will often be forced to find temporary housing, sometimes for an unknown period of time, and be dragged into unexpected expenses, sometimes reaching tens and even hundreds of thousands of shekels. For this reason, and in light of the many cases of late handovers of apartments, Israeli law allows the buyer to file a claim against a contractor in such cases. This is in order to minimize the occurrence of handover delays and to protect the rights and interests of the apartment buyers. Below we will explain this in detail.
What does the law stipulate regarding the right to sue a contractor for late handover of an apartment?
The Sales Law (Apartments) deals with various issues concerning purchase transactions of residential apartments in Israel, including the purchase of new apartments from a contractor. In 2011, a new arrangement was established in the law that allows compensation to be claimed, without the need to prove damage, for late handover of an apartment. It is important to note that the law received an important amendment in 2022, which created an improved arrangement for compensation claims in these cases. However, this arrangement only applies to apartment sales agreements signed as of July 7, 2022. In view of the fact that there are still many sales agreements signed before this date, below we will explain the two types of arrangements stipulated in the law.
Eligibility for compensation for apartment sales agreements signed until July 6, 2022
The law in its previous version, which as mentioned is still valid with regard to apartment sales agreements signed before July 7, 2022, entitles buyers to compensation as long as the delay in handing over the apartment exceeded 60 days from the date set in the sales agreement. The compensation will be paid for each month or part thereof, until the actual handover of the apartment. It is important to clarify that as long as the apartment was delivered less than two months late, the model of compensation without proof of damage will not apply. However, if more than two months have passed, the compensation obligation will apply from the first day of delay.
The amount of compensation will be the highest of the following amounts, according to the law: “(1) an amount equal to the rent of an apartment of similar size and location when multiplied by 1.5 – for the period that begins on the contractual date and ends at the end of eight months from that date; (2) An amount equal to the rent of an apartment of similar size and location when multiplied by 1.25 – for a period starting nine months after the contractual date and beyond.” However, the parties may agree on an amount higher than this.
Eligibility for compensation for apartment sales agreements signed July 7, 2022, or later
According to the improved model of compensation that took effect in 2022, the obligation to pay compensation will begin one month after the late handover of the apartment (and not after 60 days as in the old model). As long as a month has not passed, the right to compensation according to this model will not apply, but if a month of delay has passed, the obligation will come into effect from the first day of delay, for each month of delay or part thereof.
The compensation amount will be the highest of the following amounts: “(1) An amount equal to the rent of an apartment of similar size and location – for the period that begins at the end of one month from the contractual date and ends 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 ten months after 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.” Here, too, the parties may agree among themselves on a higher compensation amount.
Are there cases in which no compensation will be paid?
The answer is that this may happen. The law in its previous version (which still applies to agreements signed until July 6, 2022) states that the parties may agree among themselves that the aforementioned compensation obligation will not apply in cases where there are circumstances beyond the control of the contractor, and the possibility of these circumstances occurring and their results is not incumbent on him. This refers to circumstances that constitute force majeure or extreme situations which the contractor was unable to prevent.
The above-mentioned model caused many disputes, and in the version of the new law (valid as mentioned for apartment sales agreements starting on July 7, 2022) a new rule was established on this subject, which is intended to minimize the disputes between the parties in these cases. According to this rule, compensation will not be paid in cases where the delay was caused by an act or oversight of the apartment buyers. Also, compensation will not be paid in circumstances that establish eligibility for an exemption from the performance of the contract, based on the arrangement known as frustration of contract according to the Contracts Law (remedies due to breach of contract). Frustration means that due to external circumstances that could not have been foreseen, one party must be exempted from fulfilling a certain obligation stated in the contract. Israeli courts do not often recognize the circumstances establishing entitlement to exemption due to frustration, except in the most extreme cases. Thus, the model in the new law may reduce the disputes regarding the obligation to pay compensation.
What is the recommended course of action in a lawsuit against a contractor for late handover of an apartment?
Despite the arrangement in the law that we described above, quite a few cases may still occur of delays in the handover of an apartment, as well as disputes regarding the obligation to pay compensation for the delays. For example, it often happens that contractors hand over apartments when they are not yet habitable (for example, when some of the rooms are still under construction and cannot be occupied). In order to reduce the scope of the dispute, it is recommended that apartment buyers take an active role in drafting the agreements for the sale of the apartment, and seek the assistance of a real estate attorney for this purpose.
Our experience in dealing with the issue has taught us that the drafting of the contract between the contractor and the buyers in a clear manner, which takes into account the interests and rights of the buyers, may prevent a delay in the handover of an apartment, and ensure that compensation will be paid if a delay does occur. Among other things, it is important that the date of handover of the apartment be defined in the purchase agreement, both in terms of the handover date and in terms of defining the conditions that are considered suitable for living. In addition, determining the compensation in the purchase agreement will make it possible to avoid disputes in the future. Arranging these issues and similar issues in the agreement will make it possible to avoid disputes in practice.
Apart from this, it is recommended to make sure to document all communication with the contractor, in order to avoid misunderstandings and maximize the chances of success of a lawsuit, if it becomes necessary to file one. Also, in cases of an actual delay, it is important to document any expense incurred as a result, in order to ensure receiving compensation for it as well. Likewise, when the apartment is actually handed over, it is important to hire a professional (such as a real estate appraiser) to check if there are any damages and discrepancies between what was promised in the contract and the handed over apartment. It is important to document any damage or discrepancy, in such a way that it will be possible to raise claims for damages if need be.
Lawsuit against a contractor for late handover of an apartment – contact an attorney specializing in real estate law
Above we have explained the courses of action in cases of delays in the handover of an apartment, and the arrangements set forth in the law regarding compensation claims in such cases. If you have additional questions, or need any advice or assistance, you can contact our office and we will be glad to help. Our offices, in Jerusalem and Tel Aviv, specialize in real estate law. Our attorneys have extensive experience in representing apartment buyers in negotiations to purchase apartments, consulting on real estate taxation matters and representing clients in legal disputes in all the legal courts, as well as in arbitration or mediation procedures.
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