Buying an Apartment in Israel – Seller’s Disclosure Duty

The purchase of an apartment is one of the most significant transactions a person undertakes in their lifetime. As part of purchasing an apartment, the buyer signs a sale agreement that regulates all details of the real estate transaction.

According to Israeli law, crucial requirement of the sale and purchase agreement of real estate is that it must be in writing. 

While the Israeli Contract Law of 1973 allows contracts to be made verbally between parties, in the case of real estate transactions, the agreement must be in writing to be enforceable.

Buying the Apartment AS IS

In almost all of these agreements, it is stipulated that the buyer purchases the property “AS IS” (regarding a 2nd hand property rather than a new one). 

Before signing the contract, the buyer should examine the property, its facilities, the building/structure it is in, and its surroundings. 

The buyer usually confirms that after inspection they found the apartment suitable for their needs and satisfaction, acknowledges that they are purchasing the property “AS IS” and will not have any claims or demands against the seller in the future.

What does this clause mean, considering the buyer had inspected the property and purchased it AS IS, if the seller did not disclose all the information they knew or should have known?

Seller’s Disclosure Obligation

The duty of disclosure imposed on a seller of an apartment requires them to disclose existing defects, hidden flaws, and any relevant information concerning the sale. 

This obligation is based on two principles: Section 12 of the Israeli Contract Law and Section 16 of the Israeli Sale Law.

Section 12 of the Contract Law states that parties negotiating a contract must act in bona-fide and in a customary manner. Breach of the duty to act in bona-fide and in a customary manner can include acts or omissions, including the non-disclosure of facts that, under the circumstances, should have been expected to be disclosed by a person conducting negotiations.

Even if the buyers could have discovered those facts themselves, the seller is not exempt from its disclosure duty and must disclose the necessary facts on his/her own initiative.

Seller’s Duty – If Knew or Should Have Known

Section 16 of the Israeli Sale Law imposes an enhanced duty on the seller, as they have access to information about the apartment. This section addresses the discrepancy arising from facts that the seller knew or should have known at the time of the contract but did not disclose to the buyer.

Thus, actual knowledge on the part of the seller about the discrepancy is not required. It is sufficient to establish a culpable basis for liability towards the buyer. The test is whether the seller knew or should have known about the discrepancy or those facts (see, for example, Civil Appeal case number 8068/11 Uri Eini v. Chen Shefer).

It should be noted that the Sale Law does not equate the responsibilities of the parties to the agreement. The seller must demonstrate that the buyer actually had knowledge about the discrepancy in order not to rely on it; While the buyer must show that the seller knew or should have known about the discrepancy (see, for example, District Court case number 27228-11-13 Hillel Masgana v. Eran Peretz).

Cannot Waive the Disclosure Obligation

In practice, the seller’s disclosure duty according to the Sale Law is a matter that cannot be waived. 

Therefore, even if a clause commonly appears in sale agreements in Israel stating that the buyers found the property suitable for their needs and purposes and waive any claim or that they purchase the property “AS IS,” such a clause cannot exempt the seller from liability for defects in construction or discrepancy in the property (see, for example, Supreme Court case number 13698-03-11 Ninet Bublil v. Gdilin Investments and Properties Ltd.).

Seller’s Liability – “Should Have Known”

This liability of the seller, if they knew or should have known about the discrepancy or defect, is interpreted by the Israeli Supreme Court rulings in a manner that does not require actual knowledge from the seller but is based on a basis of negligence. 

In other words, a reasonable person in those circumstances would have known about the facts establishing the discrepancy (see, for example, Civil Appeal case number 7642/97 Hannah Shterit v. Bella Nosbaum).