Legal Updates

A memorandum of understanding for the sale of a residential house that does not include essential details for the transaction shall not be enforced

September 4, 2024
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Parties signed a memorandum of understanding (MOU) for the sale of a luxury house in Caesarea, in the amount of ILS 11 million (in which there is many valuable items), subject to signing an agreement. An agreement was never signed and the potential purchasers demanded to enforce the MOU, which they contending to be a binding agreement.

The Court rejected the claim and held that the MOU was not a binding agreement. A document titled "MOU" may be deemed a binding agreement or a non-binding phase during negotiations. In order for the MOU to be deemed a binding agreement, it must show the parties' intention to enter into a binding agreement and specificity (i.e., include the essential details of the transaction). Missing details cannot be completed when there is an express or implied disagreement between the parties regarding those missing details. Here, the MOU lacks the necessary details for the transaction and key issues remain unaddressed, such as: aspects of tax payments; a mechanism to ensure the payment of the tax; the date of delivery of possession and the date of transfer of ownership; reference to construction defects; registration of a cautionary note, etc. Moreover, the parties did not see the MOU as a 'binding agreement' whereas no consideration was paid, the 'transaction' was not reported to tax authorities and the parties did not reach an agreement regarding the list of items to be sold to the purchasers, which is an essential detail that cannot be completed, inter alia, because it has a direct impact on the price of the property (as opposed to movable property) and therefore also on the amount of the tax. Therefore, the parties did not see the MOU as a binding agreement and shall not be enforced.

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