A parties signed a lease agreement alongside a document entitled 'Option to Purchase a Property' which stipulated that the apartment will be sold during the lease period or at the end thereof and the parties will jointly act to finalize a sale contract. In practice, the lessor did not agree to make any changes to the sale contract draft and demanded that the ‘lessee’ vacate the apartment.
The Court accepted the lessee’s claim and held that there was an agreement between the parties to sell the apartment and that such should be enforced. The starting point for interpreting an agreement is its language, but when it is not unequivocal, the Court is also required to consider circumstances external to the contractual text, on the basis of which the intentions of the parties at the time of concluding the agreement must be examined. The classification of the type of transaction is done according to the essence and not necessarily by the headline they chose to give to the contract. Here, the parties intended to execute a 'sale' transaction, but the transaction was artificially split into two contracts, a 'lease contract and an 'option contract. In practice, the parties agreed on material details of the transaction: the identity of the parties, the nature of the transaction, the identification of the sale, the consideration and the burden of bearing the tax. The reason the sale contract was split into a lease agreement was, inter alia, due to tax considerations on the part of the lessor. The failure to sign a sale agreement between the parties stemmed solely from a lack of good faith and unreasonable demands on the part of the lessor, including the requirement to sign the sent draft sale contract within only two days, otherwise the negotiations would immediately end. Under these circumstances, the agreement will be enforced and the parties will act in cooperation and in good faith to formulate contracts and if they do not do so, a receiver will be appointed for the sale of the apartment.