Glossary of Legal Terms
Buyers are sometimes pressured, often by agents keen to close a deal, to sign a memorandum of understanding. It serves the agent, because from their point of view the deal is closed and the parties are bound. The parties, however, expose themselves to an obligation to buy before checking the condition of the property, its planning status and the payment schedule. We recommend avoiding signing a memorandum of understanding as far as possible and consulting a lawyer who specialises in contracts and property checks before buying.
A co-ownership agreement defines each co-owner’s share of a property. Where there is no such agreement, the Land Registry extract lists the co-owners and their relative shares, but not where each owner’s part is located. The agreement defines the relationship between the co-owners, including each one’s physical part of the property, and is usually registered together with a survey map reflecting the agreed division.
The Land Law provides that a condominium (shared) building is registered in the Condominium Register, which regulates relations between neighbours living in the same residential building. Registration is carried out by the Condominium Supervisor and regulates the use of the common areas by all residents.
A probate order is issued after the death of a person who made a will setting out who will receive their assets. An inheritance order, by contrast, is issued when the deceased did not leave a will; in that case the law sets the order of succession and how the estate is divided.
TAMA 38 is a national outline plan for strengthening buildings constructed before 1980, which were usually not built to strict earthquake standards. It grants the developer planning benefits so that the project is economically viable. The plan must include seismic reinforcement, and in return permission is given to add balconies, a protected room and up to 2.5 additional floors.
Under TAMA 38/2 the building is demolished and a new one is built in its place. This route is often preferable because it allows the building to be redesigned, including parking for the new apartments, and developers usually prefer it to TAMA 38/1.
A sale agreement regulates the relationship between seller and buyer, including proper disclosure of the property’s condition and planning status, the parties’ rights and obligations and the payment schedule. It is meant to protect both the seller and the buyer in a real estate transaction.
An irrevocable power of attorney given by the seller to the lawyer handling the transaction ensures that, once the buyer has fulfilled all obligations, the lawyer may transfer ownership to the buyer.
A power of attorney given by the buyer to the lawyer handling the transaction, allowing the lawyer to delete the caveat registered on the property following the sale if the buyer does not complete their obligations to the seller.
The payment schedule sets the payment dates, the vacating of the apartment and the date possession is handed over. It protects both parties by ensuring the transaction is not completed until each has fulfilled its obligations. The last payment is usually made only after all current bills for the apartment, such as municipal tax, gas, building committee, electricity and municipal levies, have been paid.
The Land Law requires that a valid municipal certificate and tax clearances be presented to the Land Registrar to register a transaction. The municipal certificate confirms that there are no municipal tax debts or betterment levies on the property.
A betterment levy is charged by the local authority following planning changes that apply to the property. If building rights in an area are increased, the authority may claim its share of the increase in the property’s value when it is sold.
Every real estate transaction involves tax liabilities: the buyer pays purchase tax and the seller pays capital gains tax (mas shevach), calculated on the difference between the sale and purchase value. Proof of payment or exemption must be submitted; without it, the property cannot be transferred from seller to buyer.
A combination transaction is usually made between landowners and a developer. The developer undertakes to build on the land and in return receives a number of apartments in the building. The developer may register a charge on the land to secure its consideration, while the landowners receive guarantees, such as from the project’s accompanying bank, a pledge of company shares or other security.
A purchasing group is a group of buyers who acquire land together and then select a contractor to carry out the project. It aims to reduce development costs, but carries risks if members cannot complete payments during construction, so financial accompaniment, usually by a bank, is customary before construction begins.
Bank accompaniment is a closed account used to pay the construction costs of a specific project. It prevents a developer from moving money from one project to another, and ensures, through bank guarantees, that buyers’ money is used for the project.
The law provides that no more than 7% of the apartment’s price may be collected without a bank guarantee. The guarantee secures the buyers’ money against the developer’s or contractor’s expenses.
What is a single apartment for purchase tax purposes? A person is considered to own an apartment if an apartment, or more than a third of one, is registered in their name. A person building a home on land they bought is not considered to own an apartment for purchase tax purposes if they buy another property, unlike someone who bought an apartment off-plan from a developer, who is considered an owner even before construction starts and will pay full purchase tax on another property.