Buying an Apartment or Real-Estate Asset

Buying an apartment is usually the largest financial transaction of a person's life. Alongside the excitement, it is a transaction that carries legal, planning, tax and financing risks. Signing a memorandum of understanding or transferring an advance payment before due diligence is carried out may create a binding commitment before it has been established whether the seller holds the rights, whether there are attachments or building violations, and whether a mortgage can be obtained and the rights registered.

Legal support in an apartment purchase does not begin with signing the contract and does not end with receiving the keys. It includes examining the property and the rights, structuring the transaction, conducting negotiations, protecting the buyer's funds, reporting to the Real Estate Taxation Authority, handling the mortgage and registering the rights in the purchaser's name.

The Or Rovner Law Office provides personal support in the purchase of second-hand apartments, new-build (developer) apartments and other assets, in coordination with the bank, the broker, the appraiser, the registration bodies and the relevant professionals.

Before Signing: The Checks You Must Not Skip

Examining the Rights in the Property

The examination varies according to where the rights are registered: the Land Registry Office, the Israel Land Authority, a housing company (chevra meshakenet) or another managing body. What is checked includes the identity of the rights holders, mortgages, attachments, caveats (warning notes), orders, charges, third-party rights, and whether there is a match between the seller and the register.

Planning and Physical Examination

A land registry extract does not necessarily show that what has actually been built conforms to the permit. It is necessary to check the building file, the building permit, the condominium plan, attached units, permitted uses, building violations, demolition orders, planning proceedings and the plans applying to the surrounding area. Where a concern arises, it is advisable to obtain the assistance of an appraiser, engineer or architect.

Examining the Condition of the Condominium

What is examined includes the bylaws, the common property, the attachment of parking, storage and roof areas, house committee decisions, debts, legal proceedings, anticipated renovations and urban renewal plans. An oral promise regarding parking or a storage room is no substitute for a registered right or a clear contractual arrangement.

Examining the Financing and the Mortgage

An approval in principle is not always a final commitment by the bank. The payment schedule must be aligned with the timing of the mortgage, the bank's appraisal, the equity available and the conditions for releasing funds. Where the seller's mortgage is registered on the property, a mechanism is built for its removal and for obtaining the bank's documents.

Assessing Purchase Tax and Transaction Costs

Purchase tax is affected by the purchaser's status, the number of apartments, the share of rights, residency and further circumstances. Alongside the tax, one must take into account legal fees, brokerage, appraisal, registration, mortgage, renovation and ancillary expenses. Planning ahead prevents a financing gap after signing.

Drafting the Sale Agreement and Protecting the Buyer's Funds

A purchase agreement must precisely regulate the description of the property and its attached units, the seller's declarations, the payment schedule, registration of a caveat or an alternative security, removal of mortgages and attachments, provision of tax and municipal certificates, the delivery date, the condition of the property, breaches, compensation and the transfer of rights.

Payments are set according to legal milestones and not merely according to the parties' convenience. As a rule, each payment should be tied to obtaining appropriate protection: a caveat, discharge documents, powers of attorney, tax certificates or a deposit held in trust. The purpose of the mechanism is to prevent a situation in which the buyer has paid most of the consideration but cannot obtain clear possession or register the property.

Ten Checks Worth Completing Before Signing

• The identity of the seller and the seller's authority to carry out the transaction.
• An up-to-date land registry extract or confirmation of rights from an official source.
• Mortgages, attachments, notes and orders registered against the rights.
• Conformity of the apartment, parking space and storage room with the plan and the registration documents.
• The building permit, the building file and possible violations.

• Town planning schemes, expropriations, building rights and urban renewal.
• House committee debts, proceedings within the condominium and approved special expenses.
• An engineering inspection of the apartment's condition by a suitable professional.
• Financing capacity, bank appraisal and the timetable for receiving the mortgage.
• Purchase tax, ancillary costs and the total amount required through completion of the transaction.

An Example of a Safe Payment Mechanism

Where the seller's mortgage is registered on the apartment, the full amount of the next payment is not necessarily transferred directly to the seller. Part of the consideration may be paid to the seller's bank under a letter of intent, against an undertaking to remove the mortgage. The balance of the payment is then transferred in accordance with registration of the security in the buyer's favour and completion of the milestones set out in the contract. The precise structure varies from transaction to transaction, but the principle is constant: every payment should be connected to a corresponding legal protection.

Documents Worth Requesting from the Seller at the Outset

• A land registry extract or confirmation of rights;
• Identity documents and personal status details of the rights holders;
• The previous purchase agreement and the registration documents;
• The outstanding mortgage balance and a letter of intent, if a charge exists;
• The municipal tax (arnona) account, block and parcel details and the condominium documents;
• The permit and the plans, particularly if changes were made to the apartment;
• Minutes or material information regarding urban renewal;
• A lease agreement, if the apartment is not vacant.

Buying a New-Build Apartment from a Developer

In a developer's contract it is important to check, among other things, the developer's rights in the land, the building permit, the bank financing arrangement, the securities under the Sale Law, the apartment specification, the plans, attached units, the linkage mechanism, changes and additions, the delivery date, compensation for delay, registration of the condominium and registration of the rights.

Points to Check in a Developer's Contract

• What security is provided for each payment and when it is delivered;
• Whether payments are made through a voucher book into the financing (escrow) account;
• What exactly is included in the specification, the plans and the attached units;
• Which parts of the consideration are index-linked and under what mechanism;
• What the developer is entitled to change in the design and the specification;

• The delivery date, permitted postponement periods and compensation in case of delay;
• The apartment inspection process, the delivery protocol and the handling of defects;
• Additional expenses, infrastructure connections and changes requested by the purchaser;
• The date and responsibility for registering the condominium and the rights.

The apartment price appearing in the advertisement is not always the final cost. One must also calculate linkage, purchase tax, changes, the mortgage, registration expenses, upgrades and housing costs during the waiting period.

The Seller's Identity and Possession of the Apartment

Beyond examining the register, the seller must be identified and it must be verified that he is the person authorised to undertake obligations in the transaction. In cases involving a power of attorney, inheritance, guardianship, a company or an owner residing abroad, further checks and documents are required.

It is also necessary to check who is actually in possession of the apartment. If there is a tenant, a family member or another person, the contract must regulate how and when a vacant apartment will be delivered and what will happen if the occupant does not vacate. Proper registration of rights does not in itself guarantee vacant physical delivery.

After Signing

After the agreement is signed, the matters handled include registration of the security, reporting the transaction to the Real Estate Taxation Authority within the period fixed by law, the purchase tax assessment, the mortgage documents, monitoring the conditions and payments, taking possession and completing the registration.

At the time of delivery a protocol is drawn up, the vacating of the property and the handover of the keys are checked, meter readings are documented and the ongoing payments are arranged. Once the certificates and transaction deeds have been received, the rights are registered in the buyer's name and the temporary security is released, as applicable.

A Real-Estate Transaction Begins with Proper Due Diligence

Preliminary checks and precise contract drafting can prevent disputes, delays and significant losses. The office provides support on a personal basis, from the initial examination stage through to completion of the registration.

Frequently Asked Questions