“A real estate developer is obligated to present all the details related to the purchased apartment, even if there is no legal obligation to present them in the sales contract. And if it turns out that as a result of incorrect presentation of the purchased apartment, the buyer was harmed – the company will be obligated to pay him compensation.”
This is what the Supreme Court ruled, in an appeal filed by a buyer of an apartment in a tower in the “Park Babylon” project in Tel Aviv. The court determined the compensation formula, and overturned a ruling by the district court, which was interpreted as if part of the job of the attorney for the apartment buyers is to carry out inspections in the planning procedures related to the purchased property.
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The ruling dealt with the case of a woman buying an apartment in a project of real estate companies that were controlled by businessman Yitzhak Tshuva, “Eled Israel Magorim” and “A.M.T.S. Investments”. In 2014, the buyer contacted the project’s sales office and asked to purchase an apartment where all air directions and transparent walls would overlook the view, and that the view would not be obscured by nearby buildings.
The marketing people presented her with an apartment on the fourth floor, which faces the project’s park. The buyer found that the apartment suited her needs, and therefore decided to act on the advice of the marketing people. She purchased the apartment for NIS 5.16 million.
However, later it became clear that in practice the south side of the apartment is blocked and hidden by a building that was erected for the convenience of the tenants, and that there was no view from the living room. After she claimed she was unable to reach an agreement with the company, an appraiser prepared a report on her behalf, according to which the value of the alleged violation of the agreement amounts to NIS 2.15 million.
The District Court in Tel Aviv rejected the lawsuit and accepted the claim of the companies’ lawyers, Gad Khaled and Yossi Shecht, that the company acted according to the law and did not hide anything, and that the buyer was assisted by a lawyer who conducted a professional examination of the project, and its planning and legal status, and could have known all of this.
The judge who heard the case, Oded Maor, wrote, among other things, in the verdict that “the plaintiff was represented by a lawyer throughout the process. It has been said more than once in the ruling of the Supreme Court that the importance of legal representation must be reiterated. The importance of the lawyer in the transaction cannot be taken lightly real estate. The lawyer has a significant part in the whole process.”
The initial ruling expanded the lawyers’ liability
Through attorneys Hagi Shalu and Mike Beaton, the buyer appealed the ruling to the Supreme Court, which heard it in a panel of three: Alex Stein, Gila Knafi-Steinitz, and David Mintz. The Bar Association also joined the petition, and this against the background of the section of the district’s ruling, which expanded the The responsibility of a property buyer’s lawyer up to the inspection of planning aspects of the property.
The judges ordered the annulment of the part of the district’s ruling, which referred to the responsibility of the lawyer representing a purchaser of rights in real estate, thereby effectively removing from the lawyers the responsibility for checking the planning condition of properties, at the time of their purchase.
All the judges accepted the buyer’s appeal, and determined that the developers misrepresented the buyer. They disagreed on one thing and that was the extent of the buyer’s responsibility for the transaction. As mentioned, the district considered her completely responsible for the execution of the transaction due to her failure; Judge Stein opined that the purchaser has a contributory responsibility, and therefore the entrepreneurs should be held liable for reduced compensation, while judges Knafi-Steinitz and Mintz ruled in a majority opinion that the purchaser has no responsibility, and the entrepreneurs must compensate her in full.
It is the duty of an apartment seller to provide the buyer with essential facts
Judge Kanafi-Steinitz was asked about the obligation of the developers to provide details to apartment buyers and wrote that although the Sales (Apartments) Law does not oblige the seller of an apartment to provide the buyer with details about other buildings located in the vicinity of the building where the apartment being sold is located, however the obligation of the seller of an apartment to provide information to the buyer, at the stage The conclusion of the contract is not limited only to what is written in the Sales Law, and it is also subject to contract law and other charges to reveal essential facts to the other party during the negotiations.
A review of the sales agreement and the rest of the documents that were transferred to the buyer revealed to the judges that they did not present the blocking problem at all.
In every transaction, is it incumbent on the developer to inform buyers about the landscape or environment of the project?Judge Knafi Steinitz answered this in the negative, but explained that in the Babli case, 3 unique factors had accumulated: the first was the execution of the transaction in the apartment on paper, which the buyer cannot physically examine; The second factor that spoke of a luxury project that emphasizes a green environment and a view of the park; And the third factor is that the blocking was carried out by the developers of the project and not by another developer who is building nearby.
The compensation formula determined by the Supreme Court is based on the ratio between the market value of the apartment in its condition as sold, and its value, if it were consistent with the misrepresentation. In this way, the percentage difference between the two prices can be obtained, and the entrepreneur must compensate the buyer for this difference.
The estimated difference in the value of the apartment may reach 10%-20%
The Supreme Court ruled that the district court will appoint an appraiser on its behalf, who will prepare and submit to the court estimates of the market value of the purchased apartment, detail the degree of influence of the adjacent building on the value of the apartment, and estimate what the price of a similar mortgaged apartment would have been, without the adjacent building, as of the date of purchase in 2014 , and thus will cut the compensation.
What might be the amount of compensation? The meaning of an apartment with an open view, even if it is a close view, compared to an apartment whose living room is blocked by a building, may be extremely significant in prestigious projects and reach 10-20% of the apartment’s value. This means hundreds of thousands of shekels and maybe even more.
The Chairman of the Admissions Committee at the Bar Association, Adv. Eran Golan, and Adv. Ariel Tron, who represented the bar in its application to join the appeal process as a friend of the court, together with Adv. Liraz Saban, responded:
“In the days when proposals to abolish the bar association are heard, the acceptance of the bar’s position in essence by the Supreme Court, shows the importance and the need to have an independent and strong bar that works to protect lawyers and also to regulate areas of the economy on the one hand.”
“We welcome the ruling and the important determinations in it regarding the limits of the responsibility of the representing lawyers. The ruling has an important meaning because expanding the responsibility of the lawyers to areas that are not their expertise and are not legal in nature such as planning matters, may lead to chaos in regards to the living space of the professionals in the field in general And the lawyers and their legal duty towards their clients in particular.”