Legal Aspects of Buying Property In Israel

By Ellen Porat, Adv.

Ellen Porat is an attorney with 20 years of experience specializing in various fields of the law including property law and real estate, commercial law, contracts, trusts and estates, labor law, and litigation. Her office is in Tel-Aviv at Weiss, Porat & Co., Law Offices http://www.weisslaw.co.il/ Tel: 972-3-5164949, Mobile: 972-544-206125, mailto:ellen@weisslaw.co.il

This article contains information such as:

Costs and Expenses:
Purchase tax
Real Estate Commission Fees
Attorney Fees
Mortgages

Buyer Protection:
Title Verification and Caveat Registration
Bank Guarantee
Payment Schedule
Escrow
Inspection of Property

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Buying property in Israel may be a wise investment however one should be aware of the local laws and regulations and tax liabilities when taking steps towards a purchase , to bypass the potential pitfalls.

Did you know?:
Unlike other countries, in Israel it is legal for a lawyer to represent both the buyer and seller in a property transaction. Most realtors/sellers would suggest that you to use the seller’s lawyer thereby avoiding any potential difficulties in the negotiations towards the signing of a sale contract. However, this is generally unadvisable due to conflicts of interest that may arise. The buyer should always prefer to hire his own lawyer to protect his interests exclusively.
This is especially true when buying property under construction. Normally in such a transaction, the builder requires the buyer to pay his lawyer fees, which are usually 2% of the amount of the transaction plus Vat. Most potential buyers then become reluctant to pay additional legal fees for their own lawyer however, one must keep in mind that the builder’s lawyer will not look after the buyer’s interests. Therefore, a buyer would be wise to hire his own lawyer even when this means paying additional legal fees.
Costs and Expenses:

Purchase Tax: is the largest cost that must be added to the purchase price: Purchase tax is a gradual tax imposed on all purchases of property in Israel.
There is a tax break granting a reduction in purchase tax to newcomers – olim. This tax break does not apply to those already owning a home in Israel.
An oleh is entitled to a reduction in purchase tax at a rate of 0.5% up to a maximum amount which is updated every 3 three months. Over the maximum amount a tax of 5%.
The oleh is entitled to the reduction in 2 cases:

1. A first time buyer of a residential dwelling (apartment or home) or land for constructing one.
2. Another reduction for the purchase of a business or land for constructing a business for the oleh. (including agricultural farm)

This reduction is given under the condition that the dwelling was purchased within 7 years since the date of aliyah to Israel, or a year beforehand.

Real Estate Agent’s Commission: Generally the real estate agent’s fee is 2% of the amount of the transaction + VAT.

Purchaser’s Legal Fees: As mentioned above it is imperative to have representation by an Israeli lawyer whether buying property under construction or buying second hand property. The fees generally vary between 0.5% and 1.5% of the purchase price plus VAT depending on the complexity of the matter and the amount of work involved. There are also additional expenses such as registry fees paid to the Land Registration Office.

Seller’s Legal Fees: As mentioned above when buying a new home (under construction) the seller generally requires the buyer to pay his legal fees. These fees are generally 2% of the purchase price plus VAT. This is regardless of the fact that the seller’s lawyer does not represent the buyer or look after his interests.

Other expenses and costs: One must take into consideration exchange rate differences and bank commissions for converting foreign currency into Shekels.

Maintenance costs: A buyer should also be aware that there are regular maintenance costs once you receive possession/occupation of the property. The buy is obligated to pay monthly municipal taxes, committee charges for the care and upkeep of the common property. Another expense to consider is home insurance.

Mortgages:
It is quite common to finance the purchase of property with a mortgage. The fixed interest on mortgages today is 4%- 5%. Mortgages may be linked either to the consumer price index, or o the dollar plus Libor plus additional interest of 1.6% - 1.8%. An additional type of loan linked to the Prime, which is an interest rate determined by the Bank of Israel – currently at 5.5%.  This type of loan is not linked to the consumer price index or the dollar. The prices of mortgages vary and are computed based on many factors including the purchase price, the buyer’s income and assets, the value of the property compared to the loan. It is advisable to consult with a mortgage counselor who will advise you of the process towards securing a mortgage before signing a contract.

Buyer Protection:

Title Verification and Caveat Registration:
Your lawyer should examine title of the property; verify that the property is clear and free of any third party rights such as liens or mortgages. This information can be obtained at the Land Registry Office by referring to an extract of the property. Once the sale contract has been signed your lawyer should register a caveat in your name at the Land Registration Office. This caveat is a type of ''warning sign'' which appears on the property at the Land Registry indicating that the property has been sold. This caveat plays a part in protecting the buyer’s rights in the property until actual ownership can be conveyed to the buyer.

Bank Guarantee:
When buying property under construction it is acceptable to receive a bank guarantee for the payments made to the builder. Most building projects are accompanied by a bank which issues bank guarantees to the purchasers covering each payment. This bank guarantee may be activated if court proceedings are brought against the builder.

Payment Schedule:
When buying property under construction the payment schedule should be in stages based on completion of stages in the construction. The entire amount should be paid by receipt of possession/occupancy of the property.
When buying second hand property the payments may also be in stages however possession will be transferred against payment the entire purchase price.

Escrow:
When buying second hand property money should be left in escrow with your lawyer until all transfer documents and tax certificates enabling the conveyance of ownership of the property to the buyer, have been delivered to the buyer’s lawyer.

Inspection of property:
When buying a second hand property the seller is obligated to disclose any defects in the property. However, if defects are discovered following occupancy, legal costs involved in a lawsuit may prevent the purchaser from seeking legal recourse against the seller. The best way for the purchaser to minimize the risk of additional costs for repairs or replacement is to hire an engineer that will inspect the property. This is especially true when purchasing a house. Another important thing to check is if there are any building code violations, which could result ultimately result in municipal lawsuits and possible demolition orders. It is also advisable to check municipal plans relevant to the property and its surroundings, which could affect the value of the property.

When buying property under construction it is also advisable to hire a professional engineer to inspect the property before occupancy at a determined date. A protocol should be drawn up and signed by the buyer and the builder recording any defects and deficiencies to be repaired by the builder. By law, the builder is obligated to repair any defects found in the property within a year of occupancy. By law the builder is obligated to repair defects in the plumbing within 2 years of occupancy, rain leakage, motor and boiler defects, peeling of wall coverings in stairway, sinking of flooring, all within 3 years. According to law, the builder is also obligated to repair cracks in walls and ceilings within 5 years, peeling of outside wall covering within 7 years.

DISCLAIMER: THE FOLLOWING ARTICLE IS MADE AVAILABLE TO NEFESH B’NEFESH AS A COURTESY. IT IS NOT INTENDED TO BE LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. PERSONS SEEKING LEGAL ADVICE CONCERNING ISRAELI LAW SHOULD CONSULT WITH A QUALIFIED LAWYER ADMITTED TO PRACTICE IN ISRAEL.