Guide to Checking Property Tax and Water Debt Before Buying an Apartment

Why is checking property tax and municipal debt essential before purchase?

When you buy an apartment or real estate property, you are not just buying the building — you are also buying all the previous obligations attached to it. One of the most important obligations is property tax debt (municipal property tax) and additional municipal debts such as water, sewage, and collection charges.

Checking property tax debt is not merely a choice — it is a legal obligation enshrined in real estate law. If you do not check, you may find yourself in a position where you, as the new owner, are liable for repaying debt that accumulated on the property before you purchased it. This could be a substantial amount, especially if the property has not changed hands for years.

Our firm, Mendelbaum, Gor, Witzman-Gor and Partners, Attorneys at Law, handles dozens of purchase and sale transactions annually, and in each one, checking municipal debts is a critical step. Based on our experience of over 18 years representing real estate buyers, we have witnessed cases where failure to conduct proper checks has resulted in significant legal and financial costs.

On this page, we will teach you everything you need to know about checking property tax, water, and additional municipal debts, how to obtain municipal approval for the transaction, and what to do if you discover unexpected debt.

What is property tax debt and what are municipal debts?

Property tax debt is a tax obligation collected by the local authority (municipality or council) on every real estate property within its jurisdiction. Property tax serves to support public services such as street maintenance, lighting, water treatment, street cleaning, and security. It is typically calculated based on the apartment's size, location, and type of use (residential, office, shop, etc.).

Additional municipal debts include:

• Water debt — payment for water and sewage consumption. This is a debt collected by the local water company (typically the national water company in Israel, based on meter readings).
• Collection debt — an additional amount collected by the local authority on unpaid bills from the past, including interest and penalties.
• Debts to public institutions — in certain circumstances, debts to other entities such as lighting, treatment, or street cleaning facilities that are collected through the local authority.

When you purchase a property, you step into the shoes of the new owner regarding these obligations. This means that if previous owners did not pay the property tax or water debts, you may be liable for repaying the amount, unless you protect yourself when signing the contract.

How to Check Property Tax and Water Debts Before Purchase?

Checking municipal debts is a systematic process that requires several steps. Here are the practical instructions:

Step 1: Request a Municipal Clearance Certificate for Transaction

The first and most important way to check property tax debts is by requesting a municipal clearance certificate for transaction (also called "current clearance" or "debt certificate"). This is an official document issued by the local authority, indicating all existing debts on the property at the time of request.

To obtain a municipal clearance certificate for transaction, you must:

• Contact the collection department at the municipality or local council (usually through the local authority website or by telephone).
• Provide the property number (house number, apartment number, or plot number in the land registry).
• Specify that you are a buyer and require an updated debt clearance certificate for the purpose of a purchase transaction.
• Typically, the local authority will issue the certificate within several days to weeks.

Important to know: A municipal clearance certificate for transaction is generally valid for 30 or 60 days from the date of issue, depending on the local authority's regulations. Therefore, it is preferable to obtain it a few days before signing the contract or closing the transaction.

Step 2: Check Water Debts

Water debts are often not shown in a municipal clearance certificate, as they are managed separately by the water company. To check water debts, you must:

• Contact the local water company directly or through the government website (usually through the "Water Company Services" portal).
• Provide the property number and dwelling number (if applicable).
• Request an updated debt report.
• This check is essential because water debts can be substantial, especially on properties that have not changed hands for a long time.

Step 3: Check Capital Gains Tax (if applicable)

In addition to municipal debts, it is advisable to also check whether there is an outstanding capital gains tax debt on the property. Capital gains tax is calculated upon sale of the property and is typically paid by the seller, but in certain circumstances there may be a prior unpaid debt. This check is performed through the local authority or through an accountant.

Step 4: Check the Land Registry Document

Checking the land registry document (the official property document in the Land Registry) can be useful to verify that there are no encumbrances or third-party rights on the property. An attorney representing you in the purchase will be able to check this for you.

What to Do If You Discover Property Tax or Municipal Debts?

If your examination reveals property tax or municipal debts on the property, you face several options:

Option 1: Negotiate a Price Discount

This is the most common option. You can demand a discount from the seller on the purchase price equal to the discovered debt. For example, if the property tax debt is ₪15,000, you can request a discount of ₪15,000 from the agreed price. This allows the seller to use the discount to pay the debt before closing the transaction.

Option 2: Direct Payment of the Debt by the Seller

In some cases, the seller may agree to pay the debt directly to the local authority or water company. This is typically done at the time of closing the transaction, when funds are transferred through an attorney or escrow agent.

Option 3: Debt Sharing Agreement

In rare circumstances, the seller and buyer may agree to split the debt. For example, the seller may agree to pay part of the debt, and the buyer will pay the remainder. Such an agreement must be documented in writing in the purchase contract.

Option 4: Transaction Cancellation

If the debt is very substantial and neither the seller nor you can agree on a solution, you can cancel the transaction. This may be practical if the debt is so large that it changes the viability of the purchase.

In all these cases, it is important to have strong legal advice. Our firm, Mandelbaum, Gur, Weitzman-Gur and Co., Attorneys at Law, handles dozens of cases involving negotiation of municipal debts each year. We know how to protect your rights and ensure that your contract is properly protected.

Purchase and Sale Agreements: Protection Against Municipal Debts

A good purchase and sale agreement should contain clear provisions addressing municipal debts. Here are the essential components:

Seller's Liability Clause for Prior Debts

The agreement should clearly state that the seller is responsible for all debts accumulated prior to the transfer date (the date of transaction closing). This means that if a debt is discovered that was unknown at the time of signing, the seller will be liable for reimbursement of the amount.

Municipal Clearance Certificate Clause

The agreement should specify that the buyer will receive a municipal clearance certificate for the transaction (debt certificate) before closing. This confirms that all known debts are reflected in the certificate.

Debt Payment Clause

The agreement should clearly state who pays the debts: the seller, the buyer, or both jointly (in case of division). This is essential to prevent misunderstandings at a later stage.

Warranty Clause

In some agreements, there is a warranty clause whereby the seller warrants that no additional debts will be discovered after closing. This adds an additional layer of protection.

In our experience, we have seen numerous cases where an agreement drafted without proper attention to municipal debts led to legal disputes that lasted for years. This is why we specialize in drafting agreements that protect the buyer at the highest level.

Comparative Table: Different Property Tax Debt Scenarios

The following table presents various scenarios and how they may affect your purchase:

Note: The amounts in the table are estimates only and depend on the apartment size, city, years of non-payment, and the collection level of the local authority. Each case must be examined individually.

Why Choose Mandelboim, Gor, Vitzman-Gor & Co., Law Offices?

Municipal lien verification is a complex legal matter that requires deep knowledge of Israeli real estate law. Our firm, Mandelboim, Gor, Vitzman-Gor & Co., specializes in real estate purchase and sale transactions since 2008. With over 18 years of experience, we have encountered every type of situation related to municipal liens and know how to protect our clients.

Here is what we offer:

• Professional Legal Advice — Our attorneys will assist you at every stage of municipal lien verification, from obtaining municipal approval for the transaction to negotiating with the seller.
• Full Contract Protection — We draft contracts that protect the buyer at the highest level, including clear provisions regarding municipal liens.
• Free Initial Consultation — You can consult with us free of charge to understand the risks and options available to you.
• Coordination with Local Authorities — We can help you coordinate with the local authority to obtain municipal approval for the transaction.
• Proven Experience — We have handled dozens of purchase and sale transactions per year and know how to handle every type of municipal lien.

If you are purchasing an apartment or real estate property in Petach Tikva, Ramat Gan, or in the central region of Israel, we are here to help you. Contact us today for a free initial consultation.