Obligations of a Private Homeowner in a Sale

What are the Obligations of a Private Homeowner Upon Selling a Real Estate in Israel?

A couple purchased a $1.48 million house in Israel from someone who had bought it from a contractor, but never actually lived on the property. 

Four years later, in 2002, the buyer filed a claim with the District Court for 3.6 million NIS for defects in the home, both according to the agreement between the parties and under the Israeli Sale Law (Apartments).

The District Court rejected most of the claim and ruled that the seller must pay 170,000 NIS for defects, but the purchaser must pay 130,000 NIS in attorney’s fees to the seller.

The court ruled that the Sale Law (Apartments) did not apply to this transaction since the seller, a private individual, did not build the apartment and thus, did not need to sell it in the manner defined by that law.

Therefore, there was no liability of the seller for defects in the house, as there would have been on a contractor who built the house in order to sell it. 

In a judgment from December 2017 (Orit Yehudin Govrin v. Yaron Levenstein et al.), the Israeli Supreme Court held that the application of Israel’s Sale Law is not limited only to construction companies and may also apply to private individuals in certain cases.

Private owners who build an apartment through a subcontractor in order to sell the apartment and generate profit from the sale – may fall within the scope of the Sales Law.

This law is intended to regulate the conduct of the private market in the sale of apartments by establishing a binding arrangement, in recognition of possible failures stemming from miscommunications between sellers and buyers.

The arrangement established in this law is divided into two levels: the first relates to the obligation, on the part of the seller, to disclose the information. The second concerns the seller’s responsibility to adapt the apartment.

The law does not distinguish between construction companies and private entrepreneurs. Therefore, the the law enforced on construction companies largely applies to private entrepreneurs. A private entrepreneur has the ability to ensure that the construction will be carried out properly, and even to conclude agreements with the executing contractor that regulate the responsibility of the contractor towards the developer.

In addition, when an entrepreneur builds an apartment with the intention of selling it immediately afterwards, there is a concern about using cheap raw materials and low standard construction to save on expenses.

The language of the law is broad enough to include a private person who does not regularly engage in the construction and sale of apartments, but may have performed such a transaction on a one-time basis.

This applies if they have built the apartment with the intention of selling it right away. How long is “right away”? Section 9 of the Sales (Apartments) Law regulates that period of time.

The provisions of section 9 of this law states that if the apartment has been occupied for less than one year from the date of the construction’s completion, or if the owner has lived in for less than six months from the date of completion, the transaction applies to the Sale Law.

The Israeli Supreme Court held that in the aforementioned case, the house was sold immediately after the completion of the construction, and no one lived there for the period specified in section 9 of the law before it was sold to the buyer.

Therefore, the Sale Law and the responsibility for repairing defects do apply to the seller.

The ruling implies that even if a private person entered into a combination deal with a contractor and at the end of the construction of the apartment, they decide to sell it, they may be legally considered a contractor and be liable for the construction defects for several years after the sale.