In the first weeks of the Iron Swords War, construction companies sent notices to buyers that delays in receiving apartments were expected due to the war. Most legal experts think that under the circumstances, companies will be exempt from an obligation to compensate purchasers for the delay, provided that they can prove a direct connection to the consequences of the war.
During this turbulent period in the history of the state of Israel, thousands of home buyers have received letters from construction companies, informing them that due to the war that Israel is currently waging against Hamas, the delivery date of their apartments is expected to be delayed for unspecified period, which depends on the extent of the consequences of the war. In these letters, various clauses in the contract are referenced that define war or “force majeure” as circumstances that exempt the developer from paying compensation for the delay.
Although the issue of compensation will certainly reach the courts, according to the assessment of most legal experts specializing in the subject, companies have a strong case that exempts them from paying compensation due to delays stemming from the war.
Already, after more than 5 weeks of fighting, it is clear that the implications of the war on the industry in general, and on the pace of construction progress in particular, are significant. This is primarily due to the severe manpower shortage in the industry, which lost some 100,000 Palestinian workers who were employed until October 7, and who constituted the overwhelming majority of construction workers in the industry. In their absence, the government is currently making efforts to recruit tens of thousands of foreign workers from various countries with which there are manpower agreements, including Moldova, Ukraine, and China, but recruiting workers on such a scale will take time.
Additional effects on the sector are the decision of most municipalities to completely close construction sites for a period of two to four weeks after the outbreak of the war, mainly due to concerns about the presence of Arab workers, as well as various disruptions in the supply of raw materials.
It is clear, then, that circumstances lead to a delay in the delivery of apartments in the vast majority of projects. But now the question arises whether buyers are entitled to compensation on behalf of the developer.
According to the Sales Law, Chok Hamecher, which regulates the rights of home buyers, the developer is obliged to compensate home buyers when the delay in delivery exceeds one month. Up to the first four months of a delay, the developer has to pay compensation in the amount of 100% of the rent of a similar apartment, and from the fifth month, the compensation is 125%. However, the Sale Law allows the parties to agree on certain circumstances in which the provisions of the law will not apply, and this is indeed the case in any standard apartment sale contract when in a country like Israel – “war” is cited as one of the reasons that may lead to a delay that does not require compensation.
Apart from this, two additional legal terms may release developers from the obligation to compensate buyers of new apartments. One is “preventive circumstances,” a term that appears in the Sales Law that allows breach of contract “arising from circumstances that the violator, at the time of entering into the contract, did not know and should not have known about or did not see and should not have seen in advance, and could not have prevented, and the performance of the contract in those circumstances is impossible.”
The second term is “force majeure”, a clause that appears in every sales contract, and lists a variety of events, from natural disasters to strikes, epidemics, and, of course, wars, as events for which the entrepreneur will be entitled to violate the contract without compensation. However, he will still be obligated to prove a causal connection between the “force majeure” and the delay in delivery.
According to lawyers interviewed in recent days in the Israeli media, developers are likely, in most cases, to be protected from the obligation to compensate buyers of new apartments due to delay. However, they can still expect various negative consequences.
Thus, for example, it should be considered that the payment schedule set out in the contract also determines the dates on which the buyer must pay the developer for the apartment. A buyer who received notice of an expected delay in delivery may claim that if this is the case, he too is entitled to delay his payments to the developer, and this is already a much more complex legal issue.
Another point that will require individual legal examination is the issue of pre-sales, also known as “purchase on paper.” This is a fairly common form of purchase in the Israeli market, in which the apartment is purchased even before the developer receives a building permit, and therefore the price of the apartment is also slightly lower. Due to the uncertainty of purchasing an apartment in a building that has not yet received a building permit, many agreements of this type contain a clause stating that if by a certain date, the developer has not received a building permit, the buyer may be released from the agreement. Here, too, there are unclear and arguable issues to consider.
Although there will likely be a large number of legal discussions on issues related to the implications of the war on purchase agreements for new apartments, developers and buyers are united in the hope that the construction industry will return to full force shortly, with the expectation that after the war, the pace of construction will pick up and exceed that which it was before October 7.
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