One of the most significant transactions people will make during their lifetime, and some would say the most significant, is purchasing a property.  

In the context of the acquisition, the buyer signs a purchase agreement, which is meant to regulate all the details in the real-estate transaction; the payment schedule, the date of receipt of the apartment, and the various legal aspects, to name a few.

In Israel, when purchasing a property second-hand, it is standard to include a clause that the buyer is purchasing the apartment in its current condition, “as is”, and that prior to signing the agreement the buyer examined the property and found that it was satisfactory and suitable to the buyer’s needs.

“Present condition clause”

Notwithstanding the “present condition clause”, however, the seller is still obligated to disclose to the buyer in detail all of the existing defects in the apartment and any relevant information that may be important to the buyer prior to purchasing the property. Failure to disclose relevant facts before signing the contract may constitute ‘intentional misrepresentation’ on the part of the seller.  With real-estate transactions in general, the seller is considered to have the upper hand, with easier and more convenient access to obtaining information on the property.  Thus, the onus of disclosure is placed on the seller, and any physical defects that may exist in the property must be brought to the attention of the buyer.

Recently, an interesting case was brought before the court in Haifa. Modi and Hila Fluman bought an apartment together as a couple, in Giv’at Downs St. in the Carmel region of Haifa for more than 2 million NIS.

The sellers instilled within the buyers the belief that it would be possible to make use of the roof and that there are additional building rights that can be utilized that would allow them to undertake additional construction on the roof.

The sellers did not reveal, however, that currently there were legal proceedings underway regarding the building permit to allow the use of the roof and that similar plans and requests had been submitted in the past and consistently rejected by the local planning and construction committee.  They also concealed the fact that a court order had been placed on the property preventing any possibility of using or building on the roof.

The buyers sued the sellers for misrepresentation, intentional concealment and the resulting damages. In addition, the buyers also filed a lawsuit against the real estate brokers, who, they claimed, were in violation of their fiduciary duty by misrepresenting the facts, and by not upholding a moral standard of conduct.

Professional obligations by the real estate broker

The courts ruled that the occupation of a real estate broker in Israel requires skill and professionalism. A broker has the professional obligation to fully understand the implications of a mortgage, what it means to put a lean on a property, a broker must maintain a certain amount of availability and have the expertise and level of knowledge so as to be able to verify the registry status of a property according to law, such as in the Tabo (Israel Land Registry). 

As such, a broker must also be able to obtain the regulations and blueprints of a specific property and determine the extent of said regulations, including what building permits and/or orders  were issued regarding that property etc.

The court also emphasized that there is a certain level of trust that is implied when clients ask their real estate broker to verify whether the status of the registry and regulations around planning permissions of the property are as presented. If the broker responds accordingly and acts upon the client’s request, the broker is required to continue with caution, as in these circumstances there is an implied relationship of trust between the parties.

In the case at hand, the brokers provided the buyers with information regarding the condition of the planning permissions of the property but they did not do an in-depth investigation on the matter, and thereby were in breach of their fiduciary duties.

The court held that the sellers misled the buyers in the context of the sale agreement and were in breach of their duty of disclosure, as they had access to the truth but deliberately withheld it from the buyers.

It was determined that the sellers would pay the buyers punitive damages of about 140,000 NIS and that the brokers must return the 40,000 NIS that they received in commission for the sale from the plaintiffs.  Additionally, the brokers were required to pay partial legal expenses attorney’s fees of the buyers.