Housing Ministry recommends 100-day delay in the delivery of new apartments as a result of Coronavirus

The Israeli Housing Ministry has recommended a 100-day  delay in delivering new apartments in Israel as a result of Coronavirus. This amounts to an additional 40 days to the delay period that the law currently permits. According to the Ministry, the average delay caused by the Corona crisis is estimated to range between 70 and 90 days, but contractors disagree: “The delays are much longer. The State is trying to shirk its responsibility”.

Following the Corona crisis, the Israeli Housing Ministry has recommended that contractors of new homes in Israel be given a 100-day extension for delivery of new apartments beyond the date agreed in the sale contract, without having to pay any compensation to the purchasers for this period. This is an additional 40 days to the 60-day delay period currently permitted by Israeli law. This extension will apply to apartments whose original delivery time was set between 18/03/2020 and 31/12/2020.

Average delay of 70 to 90 days on construction sites

The recommendation, formulated last week by the Housing Ministry, is based on an estimate that the Corona crisis resulted in an average delay of 70 to 90 days on construction sites. These delays have been caused by a number of reasons, the most significant one being the lack of manpower, especially Palestinian workers, of which only a small number continued to work during the outbreak until the crossings were closed to the West Bank. Another important factor was a shortage of imported building materials whose supply was disrupted due to the crisis.

By allowing an extension of 40 days to deliver a new apartment, which is about half the estimated delay cause by Corona, the Ministry determines that contractors and buyers bear equal damage caused by the delay. The Minister of Construction and Housing, MK Yaakov Litzman, said “the purchasers of apartments are among our primary interests and we must take care of them. Alongside this, there are also businesses and contractors who have been hurt and lost money at this time. Our solution considers the need to balance purchasers on the one hand and contractors on the other, for the benefit of all parties.”

Director of Construction and Housing Ministry, Elazar Bamberger, said that “the Ministry’s position was intended to promote preemptive and preventive intervention in the market in order to neutralize any dispute between buyers and contractors. Given the Corona crisis and the effects it has had on the real estate market in Israel, providing an extension on the delivery date of new apartments is a fair and just solution for the benefit of all related parties”.

According to Israeli law, after 60 days have passed beyond the expected delivery date stipulated in the purchase contract, contractors are required to pay the purchaser for every additional day of delay at a rate of 150% of the acceptable rent in the given area. If a higher rate of compensation is set in the contract than is required by law, then that rate will apply. The Ministry of Housing recommends that the contractor’s exemption from compensating the purchaser for delay be increased from 60 to 100 days after the delivery date stipulated in the contract.

However, judging from the response of the Israel Builders’ Association the dispute continues. According to the Association’s president,  Raul Srugo “the halting of work on most construction sites has thus far been for more than 90 days and is the consequence of government decisions and the restrictions that were created due to Corona.” As in the whole world, this is an occurrence that Israeli contractors did not cause, did not anticipate, and are not guilty of. The purchasers of the apartments are also not guilty of these circumstances and should not have to absorb the damage inflicted on them. The proposal of the Ministry of Construction and Housing is an outrageous evasion on the part of the Israeli Government from taking responsibility for its actions”.

Is Corona considered to be a “Koach Elyon”?

“Contrary to many other sectors in the economy that demanded the government compensate business owners, the Israeli Builders’ Association did not demand any compensation, yet contractors cannot be responsible to compensate purchasers for the delays caused by Corona. If this is not considered to be a “Koach Elyon” (an act of God), I do not know what a Koach Elyon is. We demand that the Government announces this occurrence as a Koach Elyon, determines this in an amendment of legislation, and not settle for any decision that will send all casualties to court. We demand that the State itself compensate purchasers for the damages caused by the construction delay as a result in the halt of construction”.

Nimrod Kadim and his family purchased an apartment in a new project in the new city center of Modi’in. According to Kadim “While the original delivery date to which the contractor committed was in early April, by mid-June the apartment is still unpopulated, and the contractor does not even know when the apartment will be ready. In a normal state of affairs, Kadim and his family would start receiving compensation from the contractor due to the delay, but under the recommendation of the Ministry of Housing, his compensation will be reduced significantly.

“I consider the Housing Ministry’s recommendation very harsh,” says Kadim, “everyone in our project who is waiting to take possession of their new apartment is concurrently paying a mortgage and rent. When it comes to families who have lost their livelihoods, the effect of such a delay can be devastating, to the point of having to sell. Today, in our project, there are people who have no other choice but to sell their apartment”.

Regarding the Ministry of Housing’s claim that the damages should be distributed between the contractors and the purchasers, Kadim says “this claim is wrong since no burden was imposed on the developers. Not only were they not subject to restrictions during the Corona period, but they also received significant relief within the framework of regulations for what was considered to be an emergency.”

Relief for Developers in Israel

A precedent was set at the end of March when the Israeli government approved regulations that gave relief to developers. For example, a contractor may currently receive “Tofes Ichlus” from the local authority, a permit that allows residents to move in even if the apartment does not meet all the legal requirements, such as electricity connection. “In our specific project, I did not notice any effect on the pace of work due to Corona. On the contrary, during the period the number of workers seemed even greater than usual”.

“Buyers are the weaker and more vulnerable players in this situation, while the developers are affected far less. Therefore, this decision is wrong and unjust”.

The contents of this article are designed to provide the reader with general information and not to serve as legal or other professional advice for a particular transaction. Readers are advised to obtain advice from qualified professionals prior to entering into any transaction.

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