Buying an Apartment in Israel - The Seller's Duty of Disclosure
A real estate transaction is one of the most significant enterprises that one will enter into during their lifetime. An integral part of this process will be the signing of a purchase agreement which will arrange all of the details of the real estate transaction.
An essential requirement of an agreement which aims to arrange the purchase and sale of real estate is that it must be made in writing. The Israeli Law of Contracts makes an allowance for verbal agreements to receive contractual validity, however when it comes to real estate transactions there is no exception and the contract must be made in writing.
Buying AS IS Apartment
Almost all such agreements that deal with purchasing an existing apartment in Israel have a section stating that the buyer is purchasing the apartment in its current state.
The contract usually states that before signing the contract the buyer inspected the apartment and its facilities, reviewed the building in which the apartment is located, and its surroundings, and agrees that the apartment is to his satisfaction, and suits all the buyer’s needs.
Thus, the buyer agrees to purchasing the apartment in its current condition, “as is”, and will have no allegations or claims against the seller in the future.
The following question arises: What is the meaning of a section that establishes that the buyer inspected the apartment and is purchasing it “as is”, and how can this effect a situation where the seller did not reveal details that he either knew of, or that he should have known of, to the buyer?
Seller’s Burden of Disclosure
The burden of disclosure lies with the seller in real estate transactions in Israel to detail to the buyer all the existing deficits, hidden defects, and any other relevant information concerning the apartment and as it relates to the sale.
This regulation is supported by two pillars of law: the first being Section 12 of the Israeli Law of Contracts 1973, and the second being Section 16 of the Sale Law 1968.
The Israeli Law of Contracts states that parties must negotiate a contract in good faith and in an acceptable manner. Breach of this obligation to act acceptably and in good faith during negotiation can be by way of an action or omission, including the non-disclosure of facts, which, under the circumstances, would be reasonable to expect a person negotiating the sale of a property to disclose to the other party.
Even in the event that the buyer could have independently discovered those same facts, the seller is still not exempt from the obligation of disclosure and volunteering said required information.
In some circumstances, non-disclosure is considered as a mistake and in other circumstances it is considered deception.
The Seller’s Obligation – If He/She had Known or Should Have Known
The Israeli Sale Law imposes a heightened responsibility on the seller since the seller is the individual with access to the information on the property. This clause deals with the discrepancies that arise from the non-disclosure of facts, that were known or should have been known to the seller at the time of the signing of the contract.
In other words, it is not required that the seller knows of the said non-disclosure which caused the discrepancy in the sale, rather the negligence of the seller alone is enough to obligate him to take full responsibility for the buyer’s losses. The solution is to assess whether the seller should have known of said discrepancy or facts that were not disclosed to the buyer. The seller in such a scenario is seen as one who did not fulfill the obligations of the purchase agreement in the event that the property is no longer suitable as it pertains to the agreement between the parties.
It is important to keep in mind that the Israeli Sale Law does not treat both parties of the agreement equally. The seller is required to prove that the buyer actually knew about the discrepancy, knew concretely and entered into the agreement regardless, while the buyer only needs to show that the seller knew or should have known of the undisclosed information.
Therefore, even if the buyer had reasonable opportunity to inspect the apartment and nevertheless did not take advantage of it, or even exploited it, the seller’s obligation will still supersede the buyer’s responsibility. The seller’s obligation to disclose to the buyer will take precedence and the buyer can safely rely on the seller’s description of the apartment in the contract and on the information written in the agreement between them.
Seller’s Duty of Disclosure – Cannot be Conditioned by Any Agreement
In effect, the seller’s duty of disclosure under the Israeli Sale Law is a matter that cannot be conditioned by any agreement. Therefore, even the section above that often appears in the purchase agreements whereby the buyer finds the property to be suitable to his needs and waives any claim to the contrary, or a section stating that the buyer purchases the property in its current condition – such sections shall in no way exempt the seller from the innate responsibility to disclose all defects in the construction of the property and/or any reason the property would not be suitable.
Meaning- the seller’s responsibility exists independently of whether or not the defect could have been discovered had the buyer made reasonable inspection of the property. Unless the buyer knew of the discrepancy or the hidden defect in advance – that is, before signing the agreement, the buyer is protected from any negligence arising as a result of the absence of a suitable apartment inspection.
Actual Knowledge or Negligence
In the Israeli Supreme Court’s ruling the meaning of the seller’s responsibility to disclose a discrepancy or defect that he knew of or “should have known of” was interpreted in a way that it is not mandatory to prove actual knowledge on the part of the seller, but rather negligence.
That is, that a reasonable person in the same circumstances would have known about the undisclosed facts that created the discrepancy in the contract.