Legal Updates

A material mistake regarding the planning status of the land and the possibility of betterment may lead to cancelation of the transaction

August 15, 2023

One who sold an agricultural land for about ILS 200,000 sought to revoke the agreement because he was not aware of a planning procedure to change the land's designation from agriculture to residential which resulted, during a short time, in an increase in the land value of 5 times the consideration paid.

The Court accepted the claim and held that the sale agreement is to be revoked due to a mutual mistake. A party who entered into a contract due to a mistake and it can be assumed that if it were not for the mistake he would not have entered into the contract and the other party did not know and should not have known about it, the Court may, at the request of the party who erred, cancel the contract, if it deems it just to do so. Here, the plan to change the designation of the land was published and approved only after the agreement was executed, while at the time of execution the designation of the land was agriculture. However, at that time the plan was processed in a quick procedure and there was a high possibility of changing the designation. The rate of betterment tax that the seller undertook to pay was actually higher than the consideration and made the transaction economically illogical. This is a mutual fundamental mistake regarding the nature of the rights of the seller in the land as both parties were not aware of the planning status of the land and did not imagine the possibility that the value of the land would change dramatically in such a short time. Under these circumstances, purchasing a land for an amount that is a fraction of its true value is unjust, and therefore there the agreement should be revoked.