Construction Defects Guide — Legal Risks for Buyers and Sellers

What are Construction Defects and How Do They Affect Real Estate Transactions?

A construction defect is any construction or structural alteration made without proper building permits from the local authorities or in violation of the conditions of the issued permit. Building without a permit may sound like a mere administrative issue, but in reality, it is a significant legal matter that can critically affect buyers, sellers, and banks financing the purchase.

When you buy an apartment or property with a construction defect, you are not merely purchasing a property with a technical problem — you may also be exposed to legal obligations, risks of eviction, delays in transaction completion, and inability to mortgage the property with a bank. Conversely, a seller who fails to disclose a construction defect may be sued for liability and damages.

In recent years, following urban renewal and construction waves throughout the center of the country, the number of cases related to construction defects has increased significantly. Mandelbaum, Gor, Witzman-Gor and Co. has been advising buyers and sellers on this matter since 2008, providing accurate and focused legal advice for each case.

Types of Construction Defects — Legal Distinctions

Not all construction defects are equal. Israeli law distinguishes between different types of defects, each with unique legal consequences:

1. Building Without Any Permit

This is construction carried out without obtaining a permit from the local authority at all. Example: adding a room, expanding a balcony, or constructing a basement that was not submitted for approval. This issue is the most serious from a legal standpoint, as it demonstrates a complete violation of planning and building laws.

2. Building in Violation of Permit Conditions

In this case, a building permit was indeed issued, but the execution deviated from the plans or permit conditions. For example: a permit for one room, but two rooms were constructed; or a permit for office use, but the actual use is residential.

3. Minor Technical Deviation

Construction completed with minor deviations from the plan (for example, a few centimeters in wall cutting or an unapproved color change). Although minor, it remains a legal defect requiring attention.

4. Construction in an Old File Not Regularized

Older properties, particularly in Jerusalem and Tel Aviv, sometimes include construction carried out decades ago without a modern permit. In these cases, legal regularization is more complex.

Legal and Financial Risks for Buyers

A buyer of a property with a construction defect faces numerous dangers:

Inability to Mortgage the Property

Banks in Israel typically refuse to provide mortgages on properties with documented construction defects. They view this as a legal and regulatory risk. As a result, a buyer dependent on bank financing may encounter a significant obstacle — they cannot complete the purchase or must seek alternative financing on less favorable terms.

Risk of Demolition Order

In principle, the local authority or planning administrator can issue a demolition order for construction without a permit. Although demolition orders are not common in purchase transactions, they represent an existing legal risk. If such an order is issued, the buyer may be required to demolish the construction at their own expense — a cost that could reach tens of thousands of shekels.

Reduction in Property Value

A known construction defect reduces the market value of the property, sometimes by tens of percent. This also affects a buyer who wishes to sell in the future — they must explain the issue to prospective buyers.

Delay in Transaction Completion

Detection of construction defects may occur during the purchase process, especially when a buyer conducts thorough legal review or building inspection. This could delay completion or even cancel the transaction.

Claims from Future Buyers

If a buyer sells the property in the future without disclosing the defect, they may be sued by the next buyer for liability and damages. This creates a legal chain that can be costly and complicated.

Legal and Financial Risks for the Seller

A seller who failed to disclose or knew about a building violation and handled it without transparency may face significant civil lawsuits:

Liability and Damages Claim from the Buyer

If a buyer discovers a building violation after completing the transaction, they can file a claim against the seller alleging misrepresentation, concealment of information, or breach of contract. The claim may include a request for financial compensation, price reduction, or even cancellation of the transaction under certain circumstances.

Obligation to Disclose Building Violations

Under Israeli law, a seller is obligated to disclose to the buyer all material information related to the property, including known building violations. This is a legal and contractual obligation. Failure to disclose may be considered misrepresentation or intentional concealment, which could lead to a damages claim.

Delays in Transaction Completion

If a building violation is discovered during the legal review or engineering inspection stage, the buyer may demand a significant discount or even withdraw from the transaction. This leaves the seller with an unsold property and no opportunity to claim damages based on their knowledge.

Bank and Mortgage Risks

If a bank discovers a building violation during mortgage review, it may refuse to provide a loan. This also affects the seller, who may lose a buyer who relied on bank financing.

How to Identify and Inspect Building Violations?

Legal Review by a Law Firm

An attorney experienced in real estate law can review the property through several channels: files at the Land Registry, files at the local municipality, inspection of old building permits, and review of architectural plans. Mendelboum, Gor, Witzman-Gor and Co. conducts thorough legal reviews before every purchase or sale.

Engineering Review and Building Laboratory

An in-depth engineering review can uncover building violations not registered in official records. A building laboratory can test materials, structure, reinforcements, and coatings. This review is especially critical for older properties or properties that have undergone renovations.

Soil and Topography Review

For properties with underground construction, a geotechnical review can reveal unpermitted building beneath the ground.

Seller Questionnaire

During the purchase process, the buyer should require the seller to complete a detailed questionnaire that includes questions about building violations, renovations performed, permits issued, and any changes to the property since its construction. An honest and comprehensive response provides legal protection for the seller and critical information for the buyer.

Comparative Table — Different Scenarios and Legal Implications

Note: Each case is unique and implications vary according to circumstances, property location, local authority approach, and additional factors. Personal legal consultation is essential.

Practical Steps for Buyer — How to Protect Yourself

1. Conduct In-Depth Legal Review Before Signing

Do not sign a purchase agreement without a complete legal review of the property. This review should include inspection of building permits, files at the local municipality, examination of plans and property documentation.

2. Request Seller to Complete Detailed Questionnaire

Ask the seller about any construction, renovations, permits, and known building deviations. Obtain a signed written response. This will help you know what the seller knows and provide you with a legal basis for potential future claims.

3. Obtain Independent Engineering Inspection

A third-party engineering inspection may uncover building deviations not officially recorded. It is a cost, but it is worth the value of your investment in the property.

4. Negotiate Discount or Correction

If you discover a building deviation, negotiate a substantial discount from the price. In some cases, you can require the seller to regularize the deviation before deal completion.

5. Obtain Legal Advice From an Experienced Real Estate Attorney

An attorney experienced in real estate law will be able to assess risks, advise you on your rights, and represent you in negotiations or claims.

Practical Steps for Seller — How to Protect Yourself

1. Honestly Disclose Any Known Building Deviation

If you know about a building deviation, disclose it in writing in the agreement and be clear in its description. This legally protects you from future claims.

2. Keep Records of All Construction and Deviations

Keep all receipts, permits, plans, photographs, and documentation of construction performed on the property. This will help you prove what you knew and when.

3. Obtain Your Own Legal Review Before Sale

Obtain your own legal review to understand what the known deviations are and how to present them in the legally correct manner.

4. Use Detailed Buyer Questionnaire

When a buyer requests answers, provide accurate and honest responses. If you don't know something, state that in writing. This will reduce the risk of future litigation.

5. Consult With Attorney Before Sale

An attorney experienced in real estate law can help you regularize deviations in the legally correct manner and protect yourself in the purchase agreement.

Why consult Mandelboim, Gor, Witzman-Gor & Co. regarding building deviations?

Mandelboim, Gor, Witzman-Gor & Co. specializes in real estate and property law since 2008. We represent buyers and sellers in complex real estate transactions, including transactions involving building deviations. Our experience enables us to accurately assess risks, conduct effective negotiations with sellers and buyers, and represent clients in legal proceedings if necessary.

We offer a free initial consultation where we can understand your situation, assess the risks, and educate you about your rights and obligations. Our office is located in Ramat Gan and Petah Tikva, and we can meet with you in person or via telephone.

If you are a buyer or seller with a building deviation in your property, do not hesitate to contact us. Early legal advice can save you time, money, and legal troubles in the future.