Many tenants living in rented accommodation desire to turn into owners of a residential apartment. Most apartment buyers invest all of their savings in the purchase and even take loans for the purchase.
New apartments are usually purchased before its existence, and the contractor builds the apartments with the purchase money of the buyers which is paid from time to time during the project life, while the buyers taking the risk that if the contractor goes bankrupt or disappears, their money may go down the drain.
Section 2 of the Israeli Sales Act was enacted to secure the investments of buyers and intended to address the concerns of buyers accompanying the purchase of the new apartments, and sets out measures to secure the buyers’ money by several means. e.g. Approval of the Capital Market Commissioner that the apartment is mortgaged for the benefit of the buyer, registration of warning note for the benefit of the buyer, transfer of ownership, etc.
A contractor, selling a new apartment, should not receive more than 7% of the price of the apartment unless he has secured the buyer’s money in one of the above measures, and he must not demand and receive an amount exceeding 7% of the apartment price unless he has guaranteed the buyer’s investment in one of the measures specified above.
If the contractor has secured the buyer’s money by providing a bank guarantee, he will be entitled to replace the guarantee with one of the other collateral (liens, registration of a warning note, or transfer of ownership in favor of the buyer), and only if he met all of the following conditions:
1. The construction of the apartment has been completed.
2. The possession of the apartment was handed over to the buyer.
3. The contract of sale does not stipulate that the seller is not allowed to exchange the guarantee.
In cases that the contractor has secured the buyer’s money by mortgaging the apartment, registering a warning note, or transferring ownership of the apartment, the buyer is entitled to pay the rates set in the Israeli Sales Act which are derivatives of the apartment’s price and according to the stages project execution. For example: in the case of a new building, upon completion of casting the lower level floor of the building, the buyer is entitled to pay an amount equal to 31% of apartment price, upon completion of skeleton’s work the buyer is entitled to pay an amount equal to 25% of apartment price, and so on.
The process of purchasing a new apartment in Israel is a complex process that should not be taken lightly, for its required full attention and the help of experts which obligated to guarantee your rights as a buyer in full and to reduce the inherent risk in purchasing a new apartment.
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.
