It is customary in the construction field in Israel to begin the execution of a construction project before a building permit is granted by the local committee for reasons related mainly to maximizing the profitability of the project. It is usually found that both the client and the contractor gave a hand to this: the client – who gave an order to start work before issuing the building permit; And the contractor – who began to perform before issuing the building permit.
At the same time, when a dispute between the client and the contractors arises regarding agreed compensation for the delay in completion of construction, it is often claimed by the contractor that the client is not entitled to receive compensation during the period in which the building permit was not granted.
In a judgment given by the Supreme Court in civil appeal 4162/02 Randor Ltd. v. Dror Engineers (1990) Ltd. it was decided that the agreed compensation rate will be determined according to several parameters: when a work start order is issued for each building, when a building permit is issued for each of the buildings, whether the delays were caused by external reasons, and if so, what is the weight of those reasons concerning the total delay and until when is there an entitlement to agreed compensation concerning buildings for which a building permit and a work order was issued.
That is, while a delay caused by the completion of projects establishes in itself the worker’s entitlement to receive the agreed compensation in the agreements between him and the contractor, the agreed compensation rate will be determined depending on whether the delay in completing the construction is due to the contractor’s actions or omissions. The contractor was not allowed to start construction under the Planning and Building Act.
This decision re-validated the known legal rule regarding the annulment of a contractual provision whose purpose is illegal or contrary to public policy and accordingly ruled that it would not enforce an execution agreement as far as agreed compensation for a construction period in which there was no valid building permit.
A possible question that arises in this context is – Does the contributory fault of the contractor, who knew he was carrying out the project during a period in which a building permit was not granted. This question is not yet to be argued before the Israeli court and has not yet been decided.
The foregoing does not constitute legal advice, legal opinion, or a replacement for legal advice, and for this purpose, you are welcome to contact counsel Sagie Royzer to receive further advice regarding your case.
