Guide to Purchasing an Apartment from a Contractor — What to Check in the Contract

Why It Is Important to Carefully Review a Contractor's Apartment Purchase Agreement

Purchasing an apartment from a contractor is one of the largest investments in most people's lives. Unlike purchasing an existing apartment, when you buy an apartment from a contractor — you are essentially purchasing something that does not yet exist, based on plans, promises and documents. Therefore, reviewing the purchase agreement (contract) is a critical step that cannot be overlooked.

A contractor's apartment purchase contract includes hundreds of clauses, industry standards, legal terms and rules related to payment, buyer's rights, contractor's obligations and your legal protections. A mistake in reading or misunderstanding a single clause can lead to substantial financial risks, delays in apartment transfer, or loss of important legal rights.

Our firm, Mandelboim, Gor, Witzman-Gor & Co., has been engaged in real estate and property law since 2008 and has extensive experience guiding buyers through this process. On this page we will present the critical points to check in the contract, the clauses that frequently raise issues, and how to protect yourself.

Steps for Reviewing a Contractor's Apartment Purchase Agreement

A systematic review of a contractor's apartment purchase agreement should begin with the basic steps and progress to more complex issues. Here is a proposed procedure:

• Verification of the parties' identity: Ensure that the contractor is a legally registered company, holds a valid construction permit, and has professional liability insurance coverage.
• Review of the plans and specifications: Verify that the plans attached to the contract match the plans approved by the municipality, and that the dimensions and apartment description are accurate.
• Review of payment terms: Carefully read the payment schedule — when payments are due, how much, to which account, and what happens if you fail to pay or if the contractor does not complete on time.
• Review of key dates: Check the construction completion date, occupancy permit issuance date, contractor's commitment date for apartment transfer.
• Review of insurance clauses and cost allocations: Check whether the contractor is required to obtain construction insurance, who pays for the apartment owner's insurance, and what happens if damage occurs during construction.

Critical Sections in a Purchase Agreement for an Apartment from a Contractor That You Should Examine Carefully

1. Payment Terms and Schedule

The payment schedule is one of the most important sections in the contract. Examine carefully:

• The percentage of the deposit (typically 5–10% of the price).
• The detailed payment schedule — how much you pay at each construction stage (foundation, roof, windows, electrical, finishing, etc.).
• The payment terms — whether payment is made directly to the contractor, to a bank, or to an attorney's escrow account.
• Interest rates and late payment penalties — what happens if you delay payment? What is the interest rate? How many days do you have to complete payment?
• The shared expenses agreement — when do you begin contributing to building expenses (electricity, insurance, management).

2. Apartment Definition and Description

This is a section that often gives rise to disputes. Check:

• The apartment size in square meters (built-up area and total area) — verify that it matches the plans approved by the municipality.
• The list of assets and rooms — bedroom, living room, kitchen, bathroom, balcony, storage room, etc.
• The description of finishing — what is included in the contract? Flooring, paint, interior doors, tiles, sink, toilet?
• A deviation from plans clause — does the contractor have the option to deviate from the plans within a certain margin of deviation (typically up to 5%)? What happens if he does?

3. Buyer's Rights and Protective Measures

Check sections that protect you as a buyer:

• Apartment inspection and acceptance: Do you have the right to inspect the apartment at various construction stages? What happens if there are defects at the time of acceptance? How much time does the contractor have to fix them?
• Contractor's warranty: Is the contractor obligated to provide a warranty for fixing defects after the apartment is accepted? For how long? (typically 12 months).
• Contract cancellation clause: When can you cancel the contract? What happens to your deposit?
• Construction delay clause: What happens if the contractor does not complete on time? Is there a delay penalty? Can you cancel?

4. Insurance and Tax Collection

Check sections related to insurance and additional expenses:

• Who pays for construction insurance (typically the contractor)?
• Who pays for property insurance (typically the buyer, from a certain point)?
• What about appreciation tax? Who pays? How much? (typically the buyer, but the contractor can assist in valuation).
• What about attorney fees, registration, and registration office fees?

5. Legal and Statutory Sections

Check sections related to laws and legal rights:

• Does the contract comply with the law (Apartment Buyer Protection Law)? (typically yes, but check).
• What about a settlement or arbitration clause? Is there a clause that requires you to agree to a settlement instead of litigation?
• What about a contract amendment clause? Can the contractor unilaterally change the contract?

Comparison Table — Critical Sections in an Apartment Purchase Agreement from a Contractor

Common Mistakes in Reading an Apartment Purchase Agreement from a Contractor

Based on our experience, there are several mistakes that buyers make repeatedly:

• Hasty Signature: Many sign the contract without reading it properly or without obtaining legal advice. This is a very significant risk.
• Misunderstanding the Payment Schedule: Buyers often do not understand when they need to pay, how much, and to which account. This can lead to payment delays and penalties.
• Overlooking the Delay Clause: Many contracts contain a clause that allows the contractor to delay construction under certain conditions (weather, strikes, etc.). If you did not read this, you do not know what your rights are if there is a delay.
• Misunderstanding the Contractor's Warranty: Many believe that the warranty covers everything, but it typically covers only minor defects and is limited in time.
• Failure to Check Plans: The plans attached to the contract should be identical to the plans approved by the municipality. If there are differences, this can lead to problems later.

How Our Firm Assists in Reviewing a Purchase Contract for an Apartment from a Contractor

Our attorneys at Mandelboim, Gur, Witzman-Gur & Co. have extensive experience in real estate and property law. When you come to us at the stage of selecting a contractor-built apartment or at the stage of signing a contract, we perform the following:

• Systematic contract review: We read the contract carefully, section by section, and identify problematic clauses or those that do not provide sufficient protection.
• Plans review: We compare the plans attached to the contract with the plans approved by the municipality, and verify that there are no significant differences.
• Contractor review: We check the contractor's status — whether he holds a valid building permit, whether he has professional liability insurance, whether there are any claims or legal issues against him.
• Negotiation with the contractor: If we find problematic clauses, we conduct negotiations with the contractor (or with his attorneys) to correct them.
• Full explanations: We explain to you in simple language what each clause means, what the risks are, and what your rights are.
• Post-signature guidance: Even after you sign the contract, we can guide you through the construction process, monitor construction progress, and ensure that the contractor meets his obligations.

Our experience since 2008 has taught us that often, investing in legal counsel at an early stage can save you from major problems later on.

Essential Tips Before You Sign an Apartment Purchase Agreement from a Contractor

1. Take Your Time: Do not sign the contract without reading it thoroughly and obtaining advice. This is not a document to sign hastily.
2. Obtain Legal Advice: An experienced attorney can help you identify problematic clauses and negotiate with the contractor.
3. Check the Plans: Ensure the plans attached to the contract match the plans approved by the municipality.
4. Check the Contractor: Ensure the contractor is a properly registered company, has a valid building permit, and has professional liability insurance.
5. Read the Payment Schedule Carefully: Ensure you understand when you need to pay, how much, and to which account.
6. Ask Questions: Do not hesitate to ask questions if you do not understand something. A good attorney will explain everything in plain language.
7. Document Everything: Keep copies of all documents, the contract, plans, and existing documents via email or in writing.
8. Take It Seriously: This is an important contract and should be treated as such. Do not be in a hurry.