Selling an Apartment or Real-Estate Asset

A safe apartment sale begins with an early legal review of the state of the title, the tax position and the documents – before the property is advertised or a memorandum of understanding is signed. Selling an apartment sometimes looks simple: you find a buyer, agree on a price and sign. In practice, undertaking to sell a property before checking the state of the title, the tax and the documents may expose the seller to breach of contract, penalties, delay in receiving the funds and even a tax liability that was not taken into account.

An early review makes it possible to identify mortgages, attachments, building violations, discrepancies in the registration, inheritance rights that have not yet been registered, leaseholds, prior undertakings and a possible liability for betterment (capital gains) tax or a betterment levy.

The Or Rovner Law Office accompanies sellers of apartments and real estate assets from the stage of preparing for the sale, through the negotiations and the contract, up to receipt of the full consideration, delivery of possession and completion of the registration of the rights in the buyer's name.

Checks before selling the property

The state of the title and the registration

We check where the rights are registered and who is registered as the owner. If there is an inheritance that has not been registered, an error in the register, a housing company, a leasehold, a mortgage, an attachment or a note – it must be examined how and when these can be resolved. A buyer and a financing bank will require clear documents before transferring significant sums.

Planning compliance

An added room, an enclosed balcony, a split of the unit, a non-conforming use or a change in the attached areas may affect the transaction, the appraisal and the buyer's ability to obtain a mortgage. It is advisable to check the building file and the permits in advance and to decide how to deal with any discrepancy within the disclosure and the contract.

Betterment (capital gains) tax planning

Entitlement to an exemption or the manner of calculating the tax depend, among other things, on the type of property, the date and value of the purchase, the number of apartments, the use made of the apartment, gifts, inheritances, recognised expenses and previous transactions. A review before signing makes it possible to gather supporting documents, examine an exemption or a suitable calculation, and understand what net consideration will remain in the seller's hands.

Betterment levy and payments to the local authority

A betterment plan, a relief or a non-conforming use may create a liability for a betterment levy. In addition, a municipal certificate is generally required in order to transfer the rights. The position should be checked with the local authority, rather than waiting for the stage at which the buyer is already entitled to registration.

Repayment of the mortgage and other undertakings

If there is a mortgage, the figures and a letter of intent must be obtained from the bank and a payment schedule built that will allow it to be repaid. Where there are attachments or other debts, it must be planned how they will be removed against payment and by which documents the buyer will be secured.

The seller's file: documents worth preparing in advance

• An up-to-date land registry extract or confirmation of rights;
• The previous purchase agreement and any document by which the rights were acquired;
• Payment confirmations and expenses that may be relevant to the calculation of the betterment tax;
• Inheritance, gift or divorce agreement documents, according to the source of the rights;
• The outstanding mortgage balance and information about attachments or undertakings;
• A building permit, plans and documents regarding changes made to the property;
• A municipal property tax bill, house committee details and a lease agreement, if there is one;
• Information about an urban renewal process or agreements with a developer.

Selling and buying in parallel

When the proceeds of the sale are needed in order to purchase the next apartment, the two transactions are dependent on each other in cash-flow terms. The payment and delivery dates must be coordinated, the bank and mortgage timeframes taken into account, and a margin left for delays in obtaining tax certificates or registration.

An error in coordination may result in the seller being obliged to pay for the new apartment before receiving the buyer's funds, or being required to hand over his apartment before the alternative apartment is ready. In suitable cases it is possible to consider a rental period, a bridging loan, an advance payment against security or holding a sum in trust – after a legal and financial review.

Common mistakes made by sellers

• Signing a memorandum of understanding before checking the tax and the title;
• Undertaking a delivery date that is not coordinated with the purchase of the next apartment;
• Automatically assuming that a betterment tax exemption exists;
• Failing to disclose damp, a building violation, a dispute or a known planning process;
• Setting a payment schedule that does not allow the mortgage to be repaid;
• Undertaking to provide certificates that cannot be obtained in time;
• Using the sale proceeds before taxes, repayment of debts and the trust amount have been taken into account.

Conducting the negotiations and the sale agreement

The sale agreement defines the property, the consideration, the payment dates, the delivery date, the condition of the apartment, the parties' declarations, the handling of the mortgage and attachments, taxes and levies, the registration documents, breaches and compensation.

The payment schedule must suit the seller's needs but also allow the buyer to receive reasonable protections and to pay by means of a mortgage. Sometimes part of the consideration is held in trust until tax and municipal certificates are obtained. The trust amount should be set in a way that protects the buyer without unnecessarily delaying funds belonging to the seller.

It is also important to regulate what remains in the apartment, its condition on the delivery date, repair of material damage, vacating a tenant, bringing forward or postponing delivery, payment of municipal property tax and house committee dues, and liability in the event of a breach.

The duty of disclosure and negotiating in good faith

A seller is not required to guarantee that the apartment is free of any defect, but must refrain from concealing material information known to him and from making an incorrect representation. Recurring damp, a building violation, a legal dispute, an expropriation, an urban renewal process or a problem with the title are the kinds of matters where it must be examined how to disclose them and how to draft them in the contract.

On the other side, the buyer must carry out reasonable checks and not make do with general statements. A professional contract divides the responsibility between the seller's declarations and the buyer's checks, and does not rely solely on a sweeping clause stating that the apartment is sold "as is".

What happens after signing?

After signing, the following are handled: reporting the transaction to the real estate taxation authority, the betterment tax assessment or the exemption application, registration of a caveat in the buyer's favour, repayment of the mortgage in accordance with the payment schedule, obtaining tax and municipal certificates and preparing the transfer documents.

On the delivery date the keys are handed over against the payment that was agreed, a delivery protocol is drawn up and the meter readings are recorded. After receipt of the full consideration and completion of the conditions, the registration documents are delivered to the buyer and the rights are transferred.

Transactions requiring special preparation

• Sale of an apartment received by inheritance or as a gift;
• Sale of an apartment in connection with a divorce or a dissolution of joint ownership;
• Sale of a property registered with a housing company or with the Israel Land Authority;
• Sale of an apartment with building violations or a registration that does not match the actual position;
• Sale of an apartment that is rented to a third party;
• Parallel sale and purchase requiring coordination of payment schedules;
• Sale of a property with a high mortgage, attachments or the rights of additional parties;
• Sale within receivership proceedings or of an estate.

A safe sale begins before the price is even agreed

Early legal and tax preparation makes it possible to negotiate with confidence, to build a workable payment schedule and to complete the transaction without unnecessary delays.