Strengthening Protections for Home Buyers Under the Recent Amendment to the Sale Law

The main objective of the Sale Law (Apartments), 5733-1973 (hereinafter: “the Law”) is to offer different types of protection to home buyers, for the most trivial reasons imaginable. Since buying a home is often the biggest investment a person makes in their lifetime, and given that the power gap between the buyer and the developer or contractor is so significant, the Law is of great importance.

You will be happy to learn that especially now, at times of a housing crisis and a constant rise in the number of transactions, the legislature does not sit idly by and continues to amend the Law to enhance the protections offered to home buyers, as it did just in recent weeks.

Background:

The Sale Law is, in its essence, a consumer law enacted in the 1970’s, and whose objective as mentioned above was to establish arrangements between the seller of a new apartment (either a developer or a contractor) and the buyer of the apartment.

Some of these arrangements concern defects discovered in the apartment after it has been handed over to the buyer during the inspection period. For example, home buyers can sue the seller for damages in the form of an appropriate monetary compensation or in an amount needed to repair the home. Other arrangements in the Law concern the financial matters involving the seller and the buyer, such as fixing the amount of the initial payment and the general payment schedule which shall apply between the two parties.

Additional existing arrangements, which were amended as part of the recent amendment – Amendment No. 9 – and which also offer significant protection to buyers of new homes, include compensation for the buyer by the seller in case of a late delivery, as well as a mechanism to establish the issue of indexing the purchase price.

In this context we should mention that the recent amendments made to the Sale Law applies only from 7.7.22 onward, meaning that the amendments do not apply to transactions carried out prior to this date.

Amendment No. 9 to the Sale Law:

Compensation for late delivery:

Article 5a of the Law, prior to its recent amendment, provided that in case a seller of an apartment was more than 60 days late in delivering the apartment to the buyer past the date established in the sale agreement, the buyer is entitled to compensation, without proof of damage, for every month’s delay or part thereof, or to compensation in an amount agreed upon in the agreement for late delivery, the greater of the two.

Article 5a of the Law further established the amount of compensation to which such buyer would be entitled in case of a late delivery. Thus, for the first 8 months of the delay, the buyer would be entitled to compensation in the amount of 1.5 times of the monthly rent of an apartment of similar size and location. For a delay in excess of 8 months, the compensation amount would be 1.25 times the rent. The Article further provided that these compensation amounts be paid to the buyer at the end of every month, for that month, with the compensation for the first 60 days being payable at the end of that period.

Now, under Amendment No. 9 to the Sale Law, the legislature amended the way in which these compensation amounts are paid. First, the compensation period commences 30 days of the contractual delivery date (compared to 60 days in the previous version of the Article). In addition, the legislature changed the periods used to calculate the compensation, so that the wording of the Article following the Amendment provides that for a delay of one to four months past the contractual delivery date, the compensation amount would be the rent of an apartment of similar size and location (not multiplied). For a delay of 5-10 months, the compensation amount would be 1.25 times the rent, and for a delay greater than 10 months, the compensation amount would be 1.5 times the rent.

In doing so, the legislature changed the periods for which compensation is calculated, and also changed the compensation amount so that, the greater the delay, the greater the rent multiplier. The objective is obvious: to encourage sellers to deliver apartments to buyers with as little delay as possible, while it is clear to them that the more they delay delivery, the greater the compensation they would have to pay to the buyer for every month.

Limit to indexation:

Until Amendment No. 9 was enacted, the entire apartment price would typically be indexed, so that the buyer would pay the index difference for all components of their purchased home, even when such components are not affected by the index (such as the cost of land purchased by the seller).

Now, following the amendment, Article 5c of the Law provides that indexation is allowed only to the Building Cost Index (and not to any other index, such as the Consumer Price Index), and also that no more than half of each payment may be indexed, with the exclusion of the first 20% of the price. Consequently, the proportion of the price which may be indexed has been limited to 40%.

Another important amendment made as part of Amendment No. 9 to the Law is the provision that indexation may apply only up until the contractual home delivery date. In other words, if the seller is late in delivering the home to the buyer, the indexation period will not include the delay period and will stop at the original delivery date. To complete the picture, we note that there is a caveat to this provision, stating that it would not apply if the late payment resulted from circumstances related to the buyer or where the contract is thwarted by extreme and unforeseeable circumstances.

We note further that Amendment No. 9 also provides that a seller may not charge a buyer interest, except late payment interest which the buyer pays if they are at least 7 days late in making payment. The legislature further limited the rate of late interest in Sale Regulations (Apartments) (Maximum Rate of Late Interest), 5782-2022.

Conclusion:

The Sale Law in general, and Amendment No. 9 in particular, are meant to offer protection to buyers of new homes using a host of mechanisms which, naturally, are supposed to mitigate the power gap between home buyers and developers or contractors and to ensure the rights of the former.

At the same time, we cannot end this article without mentioning that the developers and contractors to which the Law refers argue that the legislature’s objective isn’t fulfilled in Amendment No. 9, since all costs involved in the amendments (such as limiting indexation to the Building Cost Index) would be applied to buyers in other ways, such as by calculating in advance the risk of an increase in the land price.

Either way, it is clear that the legislature’s main objective should be maintained in a way so as to curb, if only slightly, the dramatic and disproportionate rise in housing prices in Israel, to the benefit of aspiring homeowners.

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