A Delay on Delay – What Would be the Compensation?

A Delay on Delay – What Would be the Compensation?

Yair Aloni, Adv.
August 2, 2023

A couple purchased an apartment “on paper” from a contractor and had to exercise a lot of patience until they received the long-awaited key. Despite the couple's expectation to receive the apartment at the time specified in the agreement, they had to wait a long time due to various delays on the part of the contractor. As part of the couple's attempts to receive the compensation they deserve for the delay, the contractor contended that reductions should be made from the amount of compensation due to the couple because of circumstances beyond its control which occurred after the grace period under law had lapsed. May a contractor who is already late rely on late circumstances, which caused "a delay on delay", to reduce the amount of compensation under law?

Amendment 9 to the Israeli Sales Law (Apartments), which entered into force on 07.07.2022, states, inter alia, that an exemption from a contractor's unconditional obligation to compensate purchasers for late delivery will only apply if the delay was caused by an act or omission of the purchaser alone or due to unusual and unexpected circumstances which resulted in the failure of the contract (such as: "force majeure"). Israeli law currently defines a fixed grace period in which the purchaser’s right to compensation will apply in relation to the period after the end of one month of delay. However, with regard to contracts signed before the amendment to the law, the law sets that where the contractor is late beyond the legal "grace" period, it must compensate the purchaser for the delay as of the first day without offsetting the grace days. This is because the law cannot be conditioned upon and does not recognize a mechanism of "a delay on delay". i.e., a contractor who sold an apartment before the amendment to the law and was late in delivering it, cannot contend with respect to the period in which it is already in breach that circumstances beyond its control should result in such period being deducted from the total period of delay and thereby reduce the amount of compensation due to the purchasers.

In a case heard in July, 2023, at the Tel Aviv Court it was held that a contractor is not allowed to reduce compensation to purchasers due to events that occurred after it was already in breach, meaning in a "delay on delay" situation. In that case, the purchase agreement was signed in 2018 (before amendment 9 to the law), the contractor did not hand over the apartment on the date specified in the contract nor at the end of the 60 days grace period (as specified in the law at such time). The contractor contended that during the months leading up to the delivery (almost a year after the end of "grace period"), the CoVid19 epidemic occurred which caused additional delay to the delivery and the circumstances were beyond its control and therefore the contractor should be granted a partial exemption. The Court rejected the contractor's interpretation and held that the law does not regulate a mechanism of "delay on delay" and therefore additional unexpected “malfunctions” that occurred on the contractor's path to the expected delivery do not entail an exemption from payment, not even a partial exemption.

It should be noted that the Sale Law (Apartments) currently defines the "contractual date" as one month after the end of the delivery date set in the sales contract. Subsequently, the period for which the purchasers' entitlement to receive compensation will apply is only from after the end of one month from the contractual date and onwards, at variable rates stipulated under law. Therefore, even in the event of a delay or late circumstances, the eligibility period will apply only after the expiration of one month from the contractual date. Despite this, the Court's ruling is of great importance in relation to contracts signed prior to the amendment to the law because the Court sends a clear message to contractors who seek to avoid their obligations towards home purchasers and held that under the Israeli law (which applied before the amendment to the law) exemption due to circumstances beyond the contractor’s control can only be made in relation to the delay that may occur until the contractual delivery date and such contentions cannot be raised in retrospect in relation to later months.

In any case where a contractor refuses to pay the compensation in the rate set by law, it is important to consult with a lawyer who deals in the field even before filing the claim so that an early and correct legal notice will be made, to convey a serious message and assist in the legal process, if necessary, in order to fully exhaust the rights under law.