A recent Israeli district court ruling addressed the legal complexities of conflicting real estate transactions, determining the priority of ownership rights when claims overlap. The case involved two brothers—one of whom was granted ownership but later had the property sold by his sibling to a third party. The court examined Section 9 of the Real Estate Law, which generally favors the first transaction unless the second buyer meets specific criteria, including good faith and full payment. Despite the first owner’s failure to register a cautionary note, the court ruled in his favor, emphasizing the buyer’s duty to conduct due diligence. The decision reinforces that land registry records alone do not establish good faith and underscores the importance of thorough legal checks in real estate transactions.
By Attorney Nir Dahan, with the assistance of Yarin Ravivo
The case concerns multiple transactions involving ownership rights to a residential apartment in East Jerusalem divided into two separate housing units. The original ownership rights to one of the apartments (hereafter, “the apartment”) belonged to the father of two brothers. In 2010, the father granted exclusive ownership rights to one of the brothers (the first transaction).
The brother who received ownership was living abroad, so he appointed his sibling as a trustee for the property. About a year later, the trustee transferred ownership to himself through a sale transaction without consideration. In 2016, he sold the apartment to a third party, who registered a cautionary note in his favor (the second transaction).
The first transaction owner claimed that his brother had forged documents to transfer ownership to himself and subsequently sell the apartment to a third party. This resulted in a “legal accident” due to the conflicting transactions. Conversely, the third party argued that he had acted in good faith, relied on the land registry records, and paid the full purchase price for the apartment.
Legal Question
How should Section 9 of the Real Estate Law be applied in conflicting transactions?
According to Section 9, priority is generally granted to the party who executed the first transaction unless the second party meets three cumulative conditions: good faith, full payment of the property’s real market value, and registration of ownership in the land registry (Tabu).
An exception to this rule, based on the Ganze ruling, states that if the first transaction owner did not register a cautionary note, their reliance interest may be weakened. This could allow the second purchaser to gain priority, even if the transaction were not yet fully registered in the land registry.
In this case, the court had to determine whether the first transaction owner’s rights prevailed over those of his brother, who sold the apartment to a third party in the second transaction.
Court Decision
The court applied Section 9 of the Real Estate Law, which generally grants priority to the first transaction holder unless the second transaction meets the stated requirements. However, the court ruled that despite the first transaction owner’s failure to register a cautionary note, this did not automatically justify prioritizing the second transaction. Consequently, the third party did not benefit from the Ganze ruling.
While the claim of document forgery against the brother was rejected, the court found that the third party purchaser failed to meet the objective good faith requirement. He had not conducted the necessary due diligence before purchasing the apartment and did not verify who actually possessed the property. Moreover, he failed to prove that he had paid the full purchase price, with only partial evidence provided on this matter. As a result, the absence of a cautionary note registration by the first owner was not a decisive factor in the ruling.
Ultimately, the court prioritized the first transaction owner, emphasizing the importance of good faith and the due diligence obligation imposed on the second purchaser in conflicting transactions.
Authors’ Commentary
The ruling reflects the balance between protecting the first transaction owner’s property rights and the second purchaser’s obligation of thorough legal checks in real estate transactions. It also highlights that while registering a cautionary note is a crucial tool, it is not an absolute determinant. Good faith and proper due diligence remain responsibilities of all parties involved.
On one hand, the first transaction owner failed to secure their claim by registering a cautionary note, a step that could have prevented the “legal accident.” On the other hand, the second purchaser’s lack of good faith, failure to investigate property possession, and inadequate verification of ownership rights were decisive factors in the court’s ruling.
This ruling underscores that reliance on official registration alone is insufficient to establish a claim of good faith. The court reaffirmed that good faith is not merely a technical requirement but a fundamental legal principle ensuring fairness, even in complex cases. The decision reminds real estate professionals that property rights are not just a formal legal matter—they require responsibility and careful examination.
Tel Aviv District Court Case No. 52201-06-191 Abu Ghanam v. Guyhan et al., (Nevo, 12.08.24)
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