When buying off-plan, you pay the developer hundreds of thousands of shekels before the apartment exists. If the developer runs into trouble, the money could be lost. The Sale (Apartments) (Securing Investments of Apartment Buyers) Law was designed for exactly this situation.
What security must the developer provide?
The developer may not receive more than 7% of the price without giving the buyer one of the securities set by law:
- A bank guarantee for all amounts paid.
- An insurance policy from a licensed insurer.
- A first mortgage in the buyer’s favour.
- A caution note in the buyer’s favour, when there is no prior lien or third-party right on the land.
- Transfer of ownership to the buyer, free of liens.
In practice, the common security in new projects is a bank guarantee.
What is a payment voucher book?
When the project has bank financing, the buyer receives a voucher book and pays only with the vouchers, into the project account. Each voucher payment instructs the bank to issue a guarantee for the amount. Paying the developer directly, by transfer or cheque outside the vouchers, may leave the money unprotected.
What to check
- That a guarantee is received for every payment, with the correct amount and name.
- That there are no payments “outside the vouchers”, for example for extras or upgrades, without security.
- When the developer may replace the guarantee with another security. As a rule, only after construction is complete and possession delivered.
What if the developer fails?
The guarantee is meant to return the money paid when the developer cannot transfer the apartment. On the steps in such a case see developer in difficulty or insolvency.
Where do you go from here?
A developer’s contract is written by the developer’s lawyers, so it protects the developer first. At Paz Israel & Co. Law Office we represent buyers of new apartments and landowners in combination deals: we check the developer, the security and the specification, negotiate the contract and accompany you through handover and registration at the Land Registry. For more information see our property purchase and sale representation page, or contact us to schedule a meeting in Tel Aviv, Jerusalem or Modi’in.
This article provides general information, is correct as of the time of writing, and does not constitute legal advice or a substitute for reviewing your specific circumstances.