Apartment Sales Law Guarantee Guide – Complete Protection of Buyer Rights

What is an Apartment Sales Law Guarantee and Why is it Important for the Buyer?

An apartment sales law guarantee is a central legal mechanism designed to protect the buyer's rights in an apartment purchase transaction in Israel. Under the Apartment Sales Law (1973), the seller is required to provide the buyer with a bank guarantee or a guarantee from an authorized insurance company, which protects the payments the buyer makes before the apartment is delivered. This is one of the most important legal protections in a real estate transaction in Israel, especially when dealing with an apartment under construction or in various stages of a construction project.

The guarantee serves as security ensuring that the buyer's payment will not be lost if the seller or contractor is unable to complete the construction or delivery. Every apartment buyer should understand the nature of the guarantee, its amount, its terms, and the ways to enforce it in case of need.

At Mandelbaum, Gor, Witzman-Gor & Co., we guide buyers through every stage of a purchase transaction, particularly in examining the guarantee and its terms. With over 18 years of experience representing buyers and sellers in real estate, we ensure you are protected at every stage of the process.

Types of Guarantees Under the Apartment Sales Law

The Apartment Sales Law recognizes several types of guarantees, each with different terms and performance characteristics:

• Bank Guarantee: This is the most common guarantee in apartment purchase transactions. The bank commits to pay the buyer the guarantee amount if the seller is unable to fulfill his obligations. A bank guarantee is subject to strict conditions and requires careful examination of the seller or contractor.
• Insurance Company Guarantee: Certain insurance companies are authorized to issue guarantees in accordance with the law. This guarantee operates similarly to a bank guarantee, but is issued by an authorized insurance company in Israel.
• Conditional Guarantee: In some cases, the seller or contractor may offer a guarantee that has certain conditions that must be met for it to be valid. These conditions must be carefully reviewed as a priority.
• Guarantee for Construction Stages: In projects built in stages, a guarantee may be divided into different stages, each covering part of the payments the buyer makes at a specific stage of construction.

Each type of guarantee requires careful legal review to ensure the buyer is properly protected and that the guarantee will be valid in case of emergency.

Apartment Sales Law Requirements Regarding Guarantee Amount and Terms

The Apartment Sales Law establishes strict requirements regarding the guarantee amount that the seller must provide to the buyer. Generally, the guarantee amount should cover all payments made by the buyer prior to apartment delivery. This means that if the buyer pays 50% of the total price in various installments before apartment delivery, the guarantee should cover at least this 50%.

The guarantee must remain valid throughout the construction period and for a fixed period of time after apartment delivery. According to the law, the guarantee must remain valid for at least 24 months after delivery of the apartment to the buyer, in order to protect the buyer against construction defects or problems that may be discovered during this period.

It is important to note that the guarantee must be presented on terms that give the buyer a simple and direct opportunity to exercise it. If the guarantee includes certain conditions that must be met in order to exercise it, the buyer must understand exactly what these conditions are and ensure that they are clear and feasible.

In real estate transactions, we review every guarantee with high priority and ensure that it meets all legal requirements. We note any deviation or non-compliance with the law's requirements, and we discuss with the buyer the potential risks involved.

Apartment Buyer Protections – Beyond the Guarantee

Apartment buyer protections do not end with the guarantee alone. The Apartment Sales Law contains additional provisions designed to protect the buyer:

• Right to Visit the Apartment: The buyer has the right to visit the apartment at various stages of construction to check the quality of work and its compliance with plans.
• Right to Legal Review of the Sales Contract: The buyer has the right to consult with an attorney before signing the sales contract, to ensure that he or she understands all terms and obligations.
• Protection Against Plan Changes: If the seller changes the apartment plans or project plans, the buyer may demand modifications or even contract cancellation under certain conditions.
• Right to Report Defects: If the buyer discovers defects in the apartment after its delivery, he or she has the right to demand correction of the defects within a certain timeframe.
• Protection Against Delays: If the seller delays apartment delivery beyond the agreed date, the buyer may be entitled to compensation or contract cancellation.

Each of these rights requires a deep understanding of the Apartment Sales Law and knowledge of applicable case law on the subject. At Mendelbaum, Gur, Weitzman-Gur and Partners, we ensure that the buyer is aware of all his or her rights and knows how to protect them.

Comparison Between Types of Guarantees and Their Terms

In the table below, you can see a comparison between different types of guarantees and the main differences between them:

As can be seen in the table, each type of guarantee has advantages and disadvantages. Bank guarantees are generally considered the safest, but they require careful examination of the bank's creditworthiness. Conditional guarantees can be problematic if their conditions are difficult to fulfill or if they are not clearly defined.

How to Enforce an Apartment Sales Law Guarantee

If you encounter a problem as a buyer – such as delayed delivery, defects in the apartment, or the seller's failure to pay the contractor – you may need to enforce the guarantee. Here are the general steps:

1. Document the Problem: Create clear documentation of the problem, including dates, photographs (if relevant), and any relevant communication with the seller or contractor.
2. Send a Notice: Send a formal notice to the seller or contractor, typically through an attorney, describing the problem and requesting correction or compensation within a specified timeframe.
3. Request for Guarantee Enforcement: If the seller or contractor does not respond or fails to resolve the problem, you can submit a formal request to the bank or insurance company to enforce the guarantee.
4. Proof of Damage: You must prove to the bank or insurance company that the problem exists and that it is covered by the guarantee terms.
5. Receipt of Payment: If the bank or insurance company approves your request, they will pay you the amount due according to the guarantee terms.

This process can be complex and requires legal expertise. At Mandelbaum, Gor, Witsman-Gor & Co., we handle the entire process on your behalf, from initial documentation to receipt of payment from the guarantee.

Risks and Common Mistakes Regarding Apartment Purchase Law Guarantees

Many buyers make mistakes when checking the guarantee or managing a purchase transaction. Below are some of the most common risks and mistakes:

• Failure to review guarantee terms: A buyer who does not carefully review the guarantee terms may find themselves in a situation where the guarantee does not cover their issue. For example, if the guarantee includes a condition requiring seller approval to activate, the buyer may find themselves blocked from using the guarantee.
• Failure to check the bank's solvency: A bank guarantee is only as good as the bank that issued it. If the bank is in financial difficulty, the guarantee may be at risk.
• Misunderstanding the validity period: If the guarantee expires before the buyer identifies a problem in the apartment, they may find themselves without protection.
• Signing a contract without legal review: A purchase agreement without legal review may contain terms that are not in the buyer's favor. An experienced attorney can identify risks that a regular buyer would not detect.
• Failure to document defects at the time of delivery: If the buyer does not document issues at the time of apartment delivery, it may later be difficult to prove that the problem exists and that it is a defect caused by the contractor.
• Acting too quickly or too slowly: If the buyer waits too long before taking action on an apartment problem, they may lose the right to demand repairs or compensation.

Each of these risks can be prevented with proper legal advice at the initial stage of the purchase transaction.

Comparison: Transactions with Guarantees versus Transactions without Guarantees

Generally, every apartment purchase transaction in Israel should be accompanied by a guarantee. However, in some cases, buyers may encounter transactions that do not include a guarantee or include a partial guarantee. Below is a comparison of the two situations:

• With a guarantee: A buyer is protected against failure by the seller or contractor. If there is a problem, the buyer can activate the guarantee and receive their money back or monetary compensation. This is the desired and recommended situation.
• Without a guarantee: A buyer bears very high risk. If the seller or contractor cannot complete construction or apartment delivery, the buyer may lose all their payments. This is a situation that is not recommended in any way.
• Partial guarantee: In some cases, a buyer may receive a guarantee that covers only part of their payments. This is still better than no guarantee, but it leaves the buyer exposed to risk.

We always recommend to our buyers to demand a full guarantee that covers all payments they make before apartment delivery. If the seller or contractor refuses to provide a full guarantee, it may be a warning sign that there is a problem.