This morning (Tuesday), a memorandum was published for the Sale (Dwellings) Law, Amendment No. Nine to the Law, on behalf of the Ministry of Construction and Housing and led by Minister of Construction and Housing Zeev Elkin. The amendment, using four tools, is intended to improve and strengthen the status of apartment buyers vis-à-vis the contractor or the selling company. The ministry estimates that the amendment “is expected to save apartment buyers up to hundreds of thousands of shekels” if approved, but here also lies the mine: the amendment does include moves that will directly affect many buyers – but in the current political reality, and when more bills await, The memorandum of this law will be promoted and approved.
It will be recalled that “on the table” awaits, among other things, the emerging reform of the Minister of Finance, Avigdor Lieberman, on the issue of housing, only parts of which have been revealed so far; Lieberman is also promoting seven amendments to the Real Estate Tax Law, as we published here in late March; And in the background, of course, awaits an almond alternative, the Minister of the Interior of which began promoting at the end of 2021. Against the background of recent political upheavals, it seems that every ministry has recently moved in its direction.
The complexity of limiting CPI linkage
One of the main sections in the new memorandum concerns a topic that has already been discussed in detail here recently: limiting the linkage of the price of a new apartment to the construction component only in the construction input index, along with a ban on indexing the other components of the transaction.
The new memorandum states that “Currently, many sellers tend to link the price of the apartment, from the date of purchase to the date of completion of payments to the construction input index, even though a significant part of the apartment price consists of land price and other components not actually affected by the rise in construction input index. Much more than other accepted indices in the market.As a result, the price of the apartment at the time of taking the mortgage may be significantly lower than the price actually paid, and in a world of rising construction input index developers have a negative incentive to provide the apartment on time.
“It is proposed to limit the linkage to the construction input index to the construction component only. It is also proposed to stipulate that the linkage of the value of the apartment will be done only until the date of delivery of the apartment in accordance with the contract, or until the actual delivery of the apartment, whichever is earlier.”
This important issue is probably the most complex to approve of all the issues raised in the memorandum, certainly and certainly when the current coalition is so shaky. Many questions arise from it, such as determining the ratio between the land component and the construction component, determining the construction costs that require frequent updating and the question of when an apartment will be considered habitable, and when indexation will cease. All of this will require the Minister of Construction and Housing himself, who by law will have to make regulations in the matter – and until these are determined the law will not be completed. As mentioned, the given political situation will make it very difficult, at least in the near future.
Delay without compensation – only when it is an act or omission of the buyer
Another important section in the new memorandum concerns the compensation that a seller of a new apartment is obligated to pay to the buyer of an apartment when the apartment is delivered late. This is a key issue in the existing Sale Law, and it is defined, inter alia, in section 5A (c) that the parties to the sale contract may agree that the issue of compensation shall not apply to late delivery “caused by circumstances beyond the seller’s control and the risk of their occurrence and consequences is not borne.”
According to the memorandum, this section creates an “unbalanced balance of power, since the purchaser has limited ability to resist and this too is manifested only in the possibility of lengthy legal proceedings. The practice is such that the sellers of apartments make extensive use of section 5A (c). The law is not optimally implemented.
“This offer is intended to ensure that only due to a delay caused as a result of an act or omission of the buyer only, the seller will not be required to pay compensation for delay in delivery.
Another amendment in the proposed memorandum concerns the payment of legal expenses imposed on the buyer of the apartment, and paid directly to a lawyer on behalf of the seller. The amount is currently limited to NIS 5,114, and the memorandum states that there are four failures in this matter:
“The first – legal expenses are collected separately from the price of the apartment so that it constitutes a ‘hidden cost’ which sometimes the buyer does not take into account during negotiations; the second – failure to provide security. The buyer does not hold security according to the provisions For which the guarantee or insurance policy held by the purchaser will be used, this amount will not be refunded to him.
“The third is the use of equity. Currently, this amount is not taken into account as part of the price of the apartment and therefore, the mortgage does not include this amount. “Information gap. Many cases that come to the table of the sales law officer at the Ministry of Construction and Housing reveal a picture in which buyers of apartments mistakenly believe that the lawyer receiving the payment represents the buyer and his interests.”
In accordance with all these, the law memorandum proposes to stipulate that “legal expenses must be included in the price of the apartment and not charged separately.”
Zeev Elkin, Minister of Construction and Housing: “From the moment I took office I said that the Sale Law should be changed in order to protect the buyers of apartments from contractors and developers. All relevant factors in the real estate market. I believe that amending the law will bring fairer sales transactions in the real estate market in Israel, along with certainty for the buyers. “
Aviad Friedman, Director General of the Ministry of Construction and Housing: “The amendment to the Sale Law comes at a critical time for tens of thousands of apartment buyers who are expected to buy their apartment in the near future. The sales laws have not been updated for five years, and it is time to remove the dust from them and fix what is needed. I would like to thank all the parties who took part in the work and believe that we will soon be able to include the amendment in the book of laws in the State of Israel. “