Delay in Completion of New Apartments in Israel – New Legislation

In May 2022, a memorandum was published to amend provision number 9 to the Israeli Sale Law (Apartments), which deals with compensation of contractors for late delivery, as well as the change linked to the Construction Input Index.

The amendment to the law intends to make purchasing easier on new apartment buyers and increase certainty in the housing market in Israel. The amendment entered into force on July 7th, 2022 and applies to all contracts of sale signed from that date onwards.

Compensation for late delivery of new apartment

As you may already know, when it comes to buying a new apartment from a contractor, one of the main issues is the date of receipt of the apartment and paying the full price for it. Many paragraphs in extended purchase agreements deal with this issue, mainly covering delay and the circumstances that may cause these delays when handing over an apartment to the buyers after years of anticipation.

Until recently, the Israeli Sale Law (Apartments) stated that from the date that the parties have agreed upon as the date of handover for a new apartment, a grace period of two additional months is to be given to the contractor, during which the contractor is not obligated to compensate the buyers.

This is, of course, regardless of the many clauses that appear in the purchase agreement in which there are circumstances beyond the contractors’ control, such as delays on the part of government authorities, strikes, shortages of construction materials or construction workers, emergency situations, etc – and that can cause the contractor to postpone the delivery date, sometimes with an additional “Organization Period”.

The amendment to the law

The amendment to the law from July 2022 states that the grace period given to contractors will be shortened from two months to one month, only from the fixed date of delivery of the apartment in the sale agreement between the parties.

After a month has passed from that fixed date which the parties agreed upon, the buyers become entitled to compensation without being required to prove that they have suffered any damage, for each month or part of it from the end of the grace month (as opposed to previous wording that states the compensation starts from the delivery date stipulated in the agreement between the parties).

The compensation is as shown below, as stipulated by law or according to the compensation stipulated in the purchase agreement due to a delay in the delivery of the apartment (if stipulated) – whichever is higher.

• From one to four months from the date specified in the contract → compensation in the amount of rent for an apartment of similar size and location.

• From five to 10 months from the date stipulated in the contract → an amount equal to the rent of an apartment of similar size and location, multiplied by 1.25.

• From 11 months from the date specified in the contract and onwards → 1.5 times the cost of rent of a similar apartment. 

Compensation must be paid to the buyers at the end of each month for the previous month.

Exclusion of compensation – solely due to the fault of the buyers or to circumstances caused by obstruction

A very significant innovation in the amendment states that the seller is not responsible to pay the compensation only if the delay is caused by an act or omission of the buyers or if the delay is the result of Obstruction according to the Israeli Contract Law – that is, a breach of contract as a result of circumstances that the breacher could not have known and could not have prevented, and the fulfillment of the contract under those circumstances is impossible or fundamentally different from the agreement between the parties.

This means that the seller will not be able to justify the late delivery of the new apartment if the delay is caused by external circumstances beyond their control, such as delays caused by various authorities (fire, water, electricity), development works by the local authority, strikes, national shortage of building materials, discovery of antiquities, and the like.

The first part of this amendment doesn’t really change anything, since purchase agreements usually stipulate that if the buyer is late in making payment or causes a delay in the delivery of the apartment, the delivery date should be postponed without any compensation. The second part however, reflects the ruling of the Israeli courts in recent years that delays in construction and delays cause by the authorities should be a matter that contractors take into account when setting a delivery date. This is a risk they need to understand and undertake, as judges have determined in recent years.

Petition to the High Court

Following the amendment to the law, the Contractors’ Association has filed a petition to the Israeli High Court claiming that the amendment violates the parties’ freedom of contracting and their ability to share risk in a situation where, due to circumstances outside of the contractor’s control, a delay in delivery is caused