Right of purchaser of a newly built apartment to compensation for belated tender of the apartment

Yair Aloni, Adv.
May 11, 2016

The disparity of force between a contractor and a purchaser of a newly built apartment is reflected in the issue of the treatment of a delay in the tendering of the new apartment and is often strengthen because the purchases waive, for some reason, legal representation even though this is probably the largest deal the purchaser ever done. The date of tendering the apartment to the purchaser is one of the most important principles in the purchase agreement. However, sometimes contractors draft in the agreements provisions that give them flexibility regarding the date of tendering. The purchaser is at a disadvantage, because the purchaser already paid most the money to the contractor and is bound by the transaction, but at the same time the delay may leave the purchasre without a housing solution, cause economic damage and keep the purchaser in distress due to the uncertainty regarding the date of receipt of the apartment. Is a purchaser entitled to compensation for delay in tendering of the apartment?

Israeli law stipulates that if the apartment was not tendered to the purchaser within sixty days of the date agreed in the contract the purchaser is entitled to compensation without requirement to prove damage. The law stipulates that the compensation will be the rent of an apartment of similar size and location multiplied by 1.5 or 1.25, depending on the length of the delay.

The purchaser is entitled to receive the compensation as from the contractually stipulated date until the apartment was tendered and the law does not allow the purchaser to waive the right. Deviation from the provisions of the law by an agreement can only be to the benefit of the purchaser and does not worsen the purchaser’s status. For example, one can stipulate that the purchaser be compensated at a higher rate than that provided by law.

A recent case law dealt with the status of a contract provision stating that any change or addition to the apartment will postpone the contractual date for tendering the apartment "for the period in which the changes will be made and at least 60 days." The Court held that the clauses in the sale agreement, which gives the contractor the right, apparently, to be exempted from paying compensation for a delay that exceeds the legally prescribed period upon any change in the apartment, whether it affected the pace of construction or not, is against the law. A contractor may not set provisions that are contrary to the law with regard to the date of payment of compensation. Even clauses stipulating that the purchaser will be compensated only after payment in full of the consideration for the apartment and only after receiving possession of the apartment, are illegal because the contractor is obligated to pay the compensation on monthly basis.

Agreements with contractors are complex agreements involving many provisions, not all of them in line with the interests of the purchaser. Even if the contractor suggest that the purchaser will be satisfied with the legal advice from a lawyer on behalf of the contractor and "save money" this way, it is important to act with caution because many times an attorney on behalf of the contractor will tend to represent the interests of the contractor. Thus, when purchasing an apartment from a contractor it is advisable to be accompanied by an attorney to examine the provisions of the Agreement and ensure that they are consistent with the provisions of the law. In case of breach of contract by the contractor it is important to immediately seek legal advice to allow future filing of a lawsuit, if required.