In Israel most contractors aim to sell a significant portion of each of their projects to buyers before or during the construction phase. It is known in Israel as buying an apartment on paper, where the buyer pays an initial down-payment and subsequent payments over a period of up to several years and is given the apartment when construction is completed and occupancy permits are issued.
Once a buyer is satisfied regarding the contractor, the elements of the project itself must be examined. Does the contractor hold a duly issued building permit? Does the Urban Building Plan which applies to the land allow for the construction which is planned? Is the land itself free and clear of any liens or mortgages of any kind. Can Caution Notices be recorded regarding the land/apartments in favor of the buyer? A Caution Notice is recorded in the Land Registry Office and informs third parties of the rights of the beneficiary of the Notice.
In Israel, the contractor employs a lawyer to handle the signing of contracts with buyers. Although each buyer pays (usually) 1.5% in lawyer’s professional fees as part of the payment for the apartment, it should be emphasized that the contractor’s lawyer does not represent the interests of the buyer in the sale contract. At most, the contractor’s lawyer is responsible for registering all of the rights of the buyers and registering the local equivalent of a condominium (Bait Meshutaf,) therefore it is imperative that the buyer employ a lawyer on his behalf.
In addition to ensuring that the project is Kosher in terms of the various permits and rights mentioned above, the buyer’s lawyer will also negotiate the terms of the contract in order to protect his client in cases where the builder does not complete the project or completes it in a faulty manner, delivers it late or deviates from the agreed specifications for the apartment in question. A good lawyer will help his client consider the tax implications of his purchase and will remind him that buying from a commercial entity as opposed to a private seller involves Value Added Tax (currently 16.5%) which should be taken into account. The terms of the contract should specify what is entailed if the buyer wishes to make changes or upgrades to the standard proposed by the contractor, and it is crucial to verify what is included in the purchase price and what isn’t - (for example: utility hook-up, landscaping, personal parking space (to be legally associated with the apartment in the Land Registry Extract, or not) storage unit, etc.).
An additional matter which must be determined in the contract is the schedule of payments (usually related to the pace of construction) and the penalty the contractor will pay upon delayed completion and delivery of the apartment. Unfortunately, in Israel a large proportion of construction projects end up being completed late. Therefore, the contract usually includes a date for delivery, a grace period of several months and then a penalty for each ensuing month of delay. The lawyer will endeavor to minimize the grace period and maximize the penalty (with his success depending often on the contractor in question) in an effort to minimize any damage or inconvenience to his client.
While construction of a large scale residential project can take several years, it could take even longer for a completed project to be finally registered as a Condominium with all of the rights of the apartment owners registered individually. The lawyer who took care of the acquisition will have a file at his office, where he should also verify over time that the individual apartment was registered in the name of his client. His assistance will be vital when the time comes to sell the apartment, as he will be able to present a clear picture of the situation of the rights in the apartment to the buyer’s lawyer.
In short, buying a new apartment can be a wonderful adventure and an excellent investment, however it is a journey filled with potential pitfalls which are oftentimes better navigated with the assistance of a trusted guide.
Disclaimer: this information is brought to the reader as advice only, and the user is solely responsible for any action being made as a result of what has been written here.