Law of Sales Warranty — What It Covers and Practical Examples

What is Law of Sales Warranty and Why Is It Important?

Law of Sales Warranty is a vital legal mechanism that protects real estate buyers in Israel. When you purchase an apartment, house, or any property, you enter into a complex legal transaction that involves numerous obligations on both sides — the seller and the buyer. Law of Sales Warranty constitutes legal security that ensures the seller will fulfill all his obligations as defined in the law and in the sale agreement.

In recent times, awareness among buyers regarding the importance of understanding this warranty has increased. Real estate transactions in Israel involve substantial financial amounts, and buyers are often exposed to legal and physical risks that may affect their investment. Law of Sales Warranty provides a critical layer of protection against these dangers.

Our firm, Mendelbloum, Gor, Witsman-Gor and Partners, Attorneys at Law, has been advising buyers and sellers on this matter since 2008. We understand the complexities of real estate transactions and how Law of Sales Warranty may be critical in protecting your rights.

Basic Legal Definition

Law of Sales Warranty is the legal obligation of the seller, sometimes backed by a guarantor (typically a bank or insurance company), to complete all obligations required under the Law of Sales and under the specific sale agreement. These obligations include delivering the property in proper condition, clearing the property of previous occupants or third-party rights, and paying off any outstanding financial obligations on the property.

What Law of Sales Warranty Covers — Scope of Protection

Law of Sales Warranty covers a broad range of seller obligations; however, it is important to understand that not every issue that may be discovered after purchase is covered by this warranty. The protection focuses on specific legal obligations as defined in the law and in the contract.

Obligations Covered by the Warranty Concept

• Delivery of the property in full: The seller undertakes to transfer the property to the buyer free of structural or planning defects unknown at the time of signing. If it is discovered that the property is not in the proper condition guaranteed, the buyer is entitled to claim under the warranty.
• Clearing the property of previous occupants: The seller must ensure that there are no previous occupants or persons with usage rights in the property. If after purchase it is discovered that someone has a right of occupancy in the property, the warranty covers the expenses involved in legal eviction.
• Clearance of mortgages and liens: The seller must ensure that the property is transferred without mortgages, liens, or encumbrances. The warranty covers situations where the seller has not paid off financial obligations on the property.
• Payment of municipal debts: Obligations to local authorities — such as property tax, water, electricity, and sewerage — must be paid or transferred to the buyer properly. If the seller left accumulated debts, the warranty covers them.
• The property is not subject to attachment or seizure: If at the time of sale the property is under attachment or seizure that has not been removed, the warranty ensures that the seller will deal with it.
• Building rights and easements: If the Law of Sales or the contract stipulates that the seller has an obligation to transfer certain building rights or easements (shared rights in the property), the warranty covers breaches of this obligation.

What is Not Covered by Sales Law Warranty — Exclusions and Limitations

Although sales law warranty provides significant protection, there are several areas that are not covered by it. Understanding these exclusions is essential to avoid confusion when a problem is discovered.

Types of Issues Not Covered

• Construction defects unknown at the time of signing: If construction defects or structural issues are discovered after purchase that were not discoverable during standard inspection, sales law warranty will not cover them. This is especially true if the buyer did not conduct a thorough inspection or did not hire an inspection expert at the time of purchase.
• Technical infrastructure issues: Problems in plumbing, electricity, heating, or other systems that are not discoverable by visual inspection are generally not covered by warranty, unless they are directly related to a legal obligation of the seller.
• Aesthetic defects or natural wear: Sales law warranty does not cover issues such as faded paint, worn floors, or worn furniture. These are considered natural wear or matters the buyer should have noticed during a property visit.
• Changes in planning or zoning laws: If planning or zoning laws for the area change after purchase, sales law warranty does not cover the impact on the property's value or your ability to use it as planned.
• Neighbor rights or boundary disputes: If after purchase it is discovered that a neighbor has rights or claims on your share of the property, sales law warranty will not cover this unless it is directly related to a defect in the land registry or sales contract.
• Environmental issues or soil contamination: If the property is located in an area with known environmental issues or if the soil is contaminated, sales law warranty generally does not cover this, especially if the problem was discoverable.

Warranty Claim Process Under the Sales Law — Practical Steps

If you believe the seller has breached their obligations in the real estate transaction, you have the right to file a claim under the sales law warranty. The process is complex and requires a clear understanding of the required steps.

Step 1: Evidence Collection and Documentation

Before filing a claim, you must gather comprehensive evidence supporting your allegations. This includes photographs of the property, engineering inspection reports, letters from the seller or their attorney, and notices of the defect. Proper documentation will significantly strengthen your case.

Step 2: Sending a Legal Notice

Typically, before filing a formal claim, your attorney will send a legal notice to the seller and the guarantor. This notice will specify the problem, the unfulfilled obligation, and give the seller and guarantor a reasonable opportunity (usually 30 days) to respond and remedy the issue.

Step 3: Negotiation and Settlement Attempts

Often, after receiving a legal notice, the seller or guarantor will come to the negotiating table. At this stage, your attorney may be able to reach a settlement without requiring full legal proceedings. Such settlements may include fixing the problem, monetary compensation, or a combination of both.

Step 4: Filing a Claim in Court

If you have not reached a settlement, your attorney will file a claim in the relevant district court. The claim will specify all details of the problem, the unfulfilled obligations, and the damage you have suffered. In court, both parties will be able to present evidence and arguments.

Step 5: Court Judgment

After hearing the evidence and arguments, the judge will issue a judgment. If you win the claim, the court may order the guarantor to pay monetary compensation, or order the problem to be fixed, or both. It is important to note that a judgment may be appealed by the seller or the guarantor.

Challenges in the Process

The claim process can be lengthy and expensive. The cost of legal proceedings, including attorney fees, engineering inspection costs, and court expenses, may be substantial. Additionally, there is a risk that the court will not fully accept your claims, or that the compensation you receive will be less than the damage you suffered. Therefore, it is important to assess the viability of the claim at an early stage with an experienced attorney.

Comparative Table — Practical Scenarios and Warranty Coverage

Below is a table presenting various practical scenarios and which of them are covered by the Sales Law warranty:

Important Note: This table presents general scenarios only. Each case is examined individually in accordance with the contract terms, Sales Law, and the specific warranty conditions. A real estate attorney with relevant experience can evaluate your case with greater precision.

Practical Advice for Real Estate Buyers — How to Protect Yourself

As a real estate buyer, you have strong legal tools to protect yourself. However, good protection begins at the early stages of the transaction. Here are some practical tips:

1. Choose an Attorney Experienced in Real Estate

Not all attorneys have experience in real estate. Select an attorney who specializes in real estate purchase and sale transactions and has experience dealing with warranties and disputes. A good attorney will be able to thoroughly review the purchase agreement and ensure that it protects your rights.

2. Inspect the Property Thoroughly

Before signing the purchase agreement, conduct a thorough inspection of the property. If possible, hire a professional inspection engineer to examine the structure, infrastructure, and all systems. This inspection can identify potential issues early on and use them as leverage in negotiations regarding price or repairs.

3. Ensure a Strong and Clear Warranty

Do not accept a weak or unclear warranty. Require a bank or insurance warranty that is unconditional, with a sufficient validity period (at least one to two years). Ensure that the warranty amount is sufficient to cover potential damages.

4. Document the Property's Condition at Time of Purchase

Take photographs and videos of the property at the time of purchase, especially of any area showing signs of problems. This documentation can be very useful if you need to file a claim later.

5. Keep All Correspondence with the Seller

Preserve all letters, emails, and messages from the seller or his attorney. This correspondence may be important evidence if you need to file a claim.

6. Act Quickly if You Discover a Problem

If you discover a problem in the property after purchase, act quickly. Do not wait, as the warranty's validity period may expire. Send a letter to the seller to document the issue, and consult with an attorney to review your options.