Two recent rulings dealt with serious deception in residential real estate transactions in Israel. Although the homebuyers finally received compensation, it took many years of heartache and struggle, and in each case, a saga could have been avoided — In this article, Buyitinisrael brings to your attention pitfalls to be avoided when purchasing a home in Israel.
Two recent rulings on issues of misleading marketing and sales techniques teach a great deal to buyers of real estate in Israel about the potential dangers that lurk in the process, and the importance of being accompanied by appropriate professionals.
The first ruling was handed down by the Supreme Court following a transaction that involved the purchase of an apartment in the luxurious Park Bavli Tower in north Tel Aviv. The apartment, on the fourth floor of the tower, was purchased “on paper” in 2014 – that is, before construction actually began – for NIS 5.1 million.
According to the buyer, her demand for a sea-facing view from all windows and openings in the apartment had been clearly communicated to the project marketers, and consequently, she was presented with several apartment options, from which she selected and purchased one. However, as the development of the project progressed, the buyer realized that the view to the south from her apartment was in fact blocked by an adjacent building that was also under construction. She subsequently filed a lawsuit for damages of NIS 2.15 million, according to an appraiser’s opinion.
In February 2021, the District Court dismissed the lawsuit, placing the blame for the omission on the attorney who accompanied the purchaser. The role of the attorney “is not limited to technical matters of the sales agreements,” the judge ruled, and thus he should have examined the transaction more thoroughly.
Following this, the purchaser appealed to the Supreme Court, which accepted her claim in full. In the ruling given by Justice Alex Stein, it was determined that the company violated its duty of increased disclosure, which it owed to the buyer, precisely because she bought an apartment “on paper” and had nothing to rely on other than the information provided to her on behalf of the developer. This is part of the obligation of every developer to treat buyers “in good faith and in an acceptable way.” As a result, the judges returned the hearing of the case to the District Court for an examination of the compensation amount due to the purchaser in accordance with the appraiser’s opinion.
There was some controversy among the justices: Stein held in a single opinion that the compensation should be reduced by 25% due to “contributory fault” on the part of the purchaser, since the images and other documents attached to the sales contract should have, in his opinion, aroused the suspicion of the existence of an obstruction and that this should have led her to examine the issue more thoroughly; Stein’s two partners in the panel, Gila Kanfei-Steinitz and David Mintz, ruled in a majority opinion that full responsibility for the damage lies with the developer.
Another precedent-setting ruling, given by the Tel Aviv District Court, involved the sale of an apartment that was later discovered to be a warehouse whose use for residential purposes is prohibited. For the first time, the ruling imposed the responsibility not only on the seller of the property who misled the buyer but also on the two attorneys who represented the parties in the Tel Aviv transaction.
In this case, the plaintiff purchased a residential apartment with a courtyard on the ground floor of a building in the center of Tel Aviv in 2004. However, in 2010, six years after the purchase, the Tel Aviv Local Committee filed an indictment against him for excessive residential use — after they found that this property could be used only as a warehouse.
Following this, the buyer filed a lawsuit against the seller of the property, for deception, as well as against the attorney who represented him in the transaction, for negligence. Subsequently, the buyer’s attorney filed a “third-party notice” against the municipality, the local committee, the seller’s attorney, and the architect who legalized the property for residential use, claiming that they, too, all had a part in the error.
After the Magistrate’s Court ruled in 2017 on a relatively low compensation of several hundred thousand shekels, of which he divided the charge equally between the seller and the buyer’s attorney, the buyer appealed to the District Court on the amount of compensation, while the attorney who represented him during the purchase process appealed the issue of liability of the other parties who he claimed bore collective responsibility.
In the district court’s ruling given by Judge Einat Ravid, she ruled that the magistrate’s compensation was indeed too low since it did not allow the buyer to repair the harm caused and she set the amount of compensation at NIS 1.8 million. At the same time, the judge accepted the “third-party notice” filed by the buyer’s attorney against the seller’s attorney, stating that “the evidence indicates that the seller’s attorney knew full well that there was no permit for residential usage in the warehouse and yet drafted an agreement that explicitly includes, five times, the word apartment” Therefore, she stated, “It seems that there is no possibility of not imposing on the seller’s attorney a certain responsibility for the damage caused to the buyer.”
The judge divided the liability for the damage between the various parties as follows: 50% on the seller, 35% on the buyer’s attorney, and 15% on the seller’s attorney.
The two cases described in these rulings are unfortunately not uncommon in the Israeli real estate landscape. Hundreds of lawsuits are filed each year for buyers who feel misled by the sellers – some of them with complete justice. Although in the cases described here, the buyers eventually received compensation, this occurred after years of legal struggle, and it is clear that none of them were interested in getting into this situation in the first place.
The way to significantly reduce the likelihood of this type of occurrence is through the hiring of appropriate real estate professionals. Although every buyer is generally accompanied by an attorney, surprisingly, many buyers hire attorneys who do not specialize in real estate. Very often, they do not even bother to check whether he or she has any expertise in this area, and are simply satisfied with them being an “attorney”. When it comes to real estate transactions in Israel, specialization in real estate is of tremendous importance.
Another way to increase the buyer’s level of confidence in Israel in the quality of the transaction he is involved in is to hire the services of a real estate appraiser for a preliminary examination of the property. Although this may incur an additional expense of several thousand shekels – it is marginal relative to the price of the apartment. Making sure to hire earnest and reliable professionals, in a real estate transaction that may involve several million shekels, could save a lot of money and aggravation in the long-run, and ensure that the purchase is not problematic.