Buying an Apartment from a Developer

Buying an apartment from a developer is usually one of the largest financial transactions a family makes, and it is often signed long before the apartment exists. The contract was drafted by the developer and its lawyers, so the difference between signing the text the developer presents and carefully reviewing it and commenting on the text can be significant. This article covers the main points worth checking before you sign.

The information is general. The law and the details of each project vary, so have the specific contract reviewed by a lawyer.

The developer's lawyer does not represent the buyer

Developers have a lawyer who accompanies the project and may even offer buyers "convenient" representation. But a lawyer acting for the developer represents the developer. The buyer should retain an independent lawyer of their own, whose loyalty is to the buyer alone, who will review the contract, its appendices and the status of the land. For the broader field, see real estate.

Laws that protect apartment buyers

Israel has laws designed to protect people who buy apartments from developers. Two of the central ones are the Sale (Apartments) Law and the Sale (Apartments) (Assurance of Investments of Buyers of Apartments) Law. Among other things these laws address the information given to the buyer, requirements regarding the contract's content, and a guarantee for the money paid to the developer. The provisions cannot be waived to the buyer's detriment, so it is important to check that the contract does not try to work around them.

What to check in the contract

1. The parties and the land

• Who the developer is and what its status is: a company, a partnership, a single-project company.
• Who owns the land and what the developer's right in it is (ownership, lease, an agreement with the landowners).
• A check of the land registry extract or the registration of rights, including checks of in whose favor liens and notes are registered.

2. The apartment and the specification

• An exact description of the apartment: floor, area, rooms, balcony, parking, storage and shared areas.
• The apartment plan and technical specification are attached to the contract and signed. Anything promised in marketing and presentations should appear and be reflected in writing.
• Reference to materials, fixtures and level of finish, and what happens if the developer substitutes them.

3. Delivery date and delays

• A clear, final delivery date, and how extended dates and grace periods, if any, are determined.
• What compensation or settlement applies in case of delay, and in what circumstances the developer may postpone and delay the delivery.
• Whether the developer can change the delivery date on its own.

4. The financial terms and payment schedule

• How the price is set and whether it is index-linked, and understanding each linkage mechanism.
• The payment schedule: whether payments are tied to real construction stages or only to dates.
• What the buyer pays for related expenses, such as taxes, levies and fees, and who is responsible for each.

A guarantee or insurance for the money

A central risk in buying from a developer is making payment in advance. The law requires the developer to secure the buyer's payments, usually by means of a bank guarantee or suitable insurance. Make sure of the following:

• That the guarantee is actually issued, and that its wording meets the legal requirements.
• That it covers every payment made, and is released or updated in line with the project's progress stages.
• That the situation in which the land is charged to a lending bank is addressed, because the mortgage the developer took affects buyers' rights (a demand should be made for the wording of an exclusion letter).

Caveat and registration of rights

After signing, it is worth registering a caveat on the apartment, to protect the buyer's right against conflicting transactions or attachments by the developer's creditors. In addition, check:

• How and when the apartment will be registered in the buyer's name, and who is responsible for registering the condominium.
• What happens if registration is delayed, and what the buyer's rights are.
• A commitment to release the developer's mortgage when the apartment is registered in the buyer's name.

Responsibility for defects and the defect-liability period

The Sale (Apartments) Law gives the buyer protection for defects in the apartment, including during defect-liability periods. Check how the contract treats repairs, whether there is a mechanism for inspecting the apartment before accepting it, and how defects are recorded in a handover protocol. Consider having an engineer or a professional apartment inspector accompany the handover inspection.

Clauses to look at closely

• "Changes" clauses that let the developer alter the plan or specification without the buyer's consent.
• Broad waivers of claims and reservations of rights.
• Limits on the buyer's right to cancel, and agreed-damages terms.
• Consent to changes in the building permit or plan.
• Provisions on shared areas and future building-committee expenses.

A short checklist before signing

1. An independent lawyer reviewed the contract and appendices.
2. The land registry extract was checked, including liens and notes.
3. The specification and apartment plan are signed and attached.
4. The delivery date and delays are defined and clear.
5. A guarantee or insurance was issued and its wording reviewed.
6. The path to registering rights and removing the mortgage is clear.
7. It is known who pays each of the related expenses.

In summary

Buying from a developer draws attention to what is visible on the surface, but the important and central points are in the contract, the guarantee, the specification and the registration. A review before signing takes less time and effort than a repair afterward. If you are about to sign a contract with a developer, you can contact us and we will go over the contract together.

The information in this article is general, is not legal advice, and does not replace review of the specific case.