The contractor is late in delivering the apartment. What changed… / Yair Aloni, Adv.

The contractor is late in delivering the apartment. What changed… / Yair Aloni, Adv.

Yair Aloni, Adv.
September 6, 2022

Purchasing an apartment is often the most significant transaction an average family will do in its lifetime. A delay in receiving the apartment may cause a 'snowball' effect and damage such as: uncertainty, lack of a housing solution, financial damage resulting from increase of expenses or economic changes (such as: interest rates, linkages, rent costs, etc.). Israeli law entitles the purchaser to compensation and does not allow the seller to absolve itself of responsibility for the delay in delivery through various stipulations in the sale agreement, unless it is for the purchaser's favor, but is there an entitlement to compensation in any case of delay? What can one do when the contractor refuses to pay?

Until July, 2022, the law in Israel stipulated that a delay in the delivery of an apartment that exceeds 60 days from the date set in the contract will obligated the seller to compensate the purchaser, for each month or part thereof, in the amount of 1.5 times the rent of an equivalent apartment for the first eight months of delay and commencing the ninth month, 1.25 times such rent. If the agreement stipulates a higher compensation, the purchaser will be entitled to the higher thereof. There is no relevance to the question of whether the purchaser was actually forced to rent another apartment and the purchaser is not required to prove any damage. However, the law created a distortion in which the longer the delay, the lower the monthly compensation.

The law also stated that the seller may exempt itself from liability for late delivery in the event of a delay caused by circumstances beyond the seller's control and for which the risk of their occurrence and consequences is not imposed on it. However, many contractors abused this exception and based on long and complex clauses in the sale agreements (which exempt from compensation) contended the existence of justification for exemption. This situation resulted in the fact that various purchasers had no choice but to open a complex and long legal procedures in Court, even though in many cases the contentions of the contractors were unjustified (and sometimes turned out to be a time-stalling tactic) and even though in many cases these delays were caused by circumstances that have already been decided by Court to be under the responsibility of the seller.

The Israeli legislator sought to change this and in an amendment to the law, which entered into force on July 07, 2022, it was set, inter alia, that an exemption from the obligation to compensate will only be granted if it was caused by an act or omission of the purchaser only or due to unusual and unexpected circumstances that led to the failure of the contract (such as: "force majeure"). It was also set that the purchaser's entitlement to compensation will be after one month of delay (instead of 60 days). The legislator also changed the scope of the compensation to take into account the period of delay: for the first four months of delay, it will be an amount equal to the rent of a similar apartment (in size and location), in the period between five to ten months, 1.25 times and from the eleventh month onwards, the compensation will be 1.5 times the amount.

Theoretically, this is a significant change that works for the benefit of purchasers and a seller who seeks to evade its obligations will have to face a difficult obstacle. Thus, for example, a contractor's contention that delays due to ‘Covid19’ will likely not be accepted if the agreement was signed after the outbreak of the epidemic and its effect was already known. However, from a practical view, it is doubtful that this amendment, by itself, will contribute to reducing the burden on the Courts, because in the absence of a significant sanction, sellers have an incentive to procrastinate by conducting long legal disputes in the Courts.

In any case where a contractor refuses to pay the compensation, it is important to consult a lawyer who deals in the field in order to ensure an early and correct application and obtaining an appropriate appraiser's opinion and due planning of the procedure in order to be able to receive the rights due.