In a contract, hope for the best, anticipate the worst

In a contract, hope for the best, anticipate the worst

August 8, 2019

You leased out a house for two years but after a year your tenant notified you that he does not intend to pay the future payments. Need you wait until the next payment is due or may you take immediate measures to evict the tenant? A more complex issue arises when the tenant pays and continues to pay, but you discover that he cut down the trees in the yard and will not be able to return the property in the same condition as received and as required under the agreement? Can the agreement still be terminated and the tenant evicted?

Israeli law generally does not require to await the date on which a party to an agreement will breach it and enables taking of measures already when the other party knows that the agreement is about to be breached, or in legal jargon: an “anticipatory breach.” An anticipatory breach occurs when, before the due date, a party to a contract notified, or circumstances demonstrated clearly, that he does not intend, or is unable, to meet his contractual obligations. In such a case, Israeli law sets that there is no need to await the date set forth in the agreement and measures may be taken as soon as the impending breach is clearly anticipated. Israeli caselaw teaches that a party about to be impaired by breach of a contract may choose whether to terminate the agreement, sue for damages due to the breach without terminating the agreement, or insist on its right to uphold the agreement verbatim.

Because an anticipatory breach relates to a future event, apprehension of a breach is not enough and one need ensure that the breaching party indeed intends not to uphold the agreement or that the breach will indeed take place at a high level of certainty. Failing to meet such preconditions may cause the party impaired by the anticipatory breach to act as if the agreement was breached where, in practice, it is he who is breaching it. Thus, for example, in a case heard at the Herzeliya Magistrate Court in April, 2019, a developer contracted apartment owners for a project. Under the contract, the developer undertook, inter alia, to obtain a building permit within a certain period of time, but approached the apartment owners for am extension. The apartment owners saw this as an anticipatory breach and entered into an agreement with another developer. The Court held, in retrospect, that the developer’s letter was not a breach and the developer took measures to obtain the permit on time. It was the apartment owners who prevented the developer from completing the permit issuance process on time and were the ones who breached the contract.

Thus, in case there is a suspicion that the other party to an agreement is about to breach it, before giving notice of termination or acting as if the agreement has already been breached, without waiting for the due date, it is important to seek legal advice from a lawyer specializing in the field, to examine not only the wording of the agreement but also the circumstances, and make an informed decision on how to act and whether it is right to take a risk that the party anticipating the breach will actually find itself in breach of contract. In many cases, it is better to be safe than sorry.