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Israeli Real Estate Transactions Verses English Real Estate Transactions

Real estate purchase contract 96548461 225x225

Israeli Real Estate Transactions Versus English Real Estate Transactions is an important area to learn if you intend to do business in either or both jurisdictions. Many people are nervous about entering into Real Estate transactions in Israel for many reasons. In Israel, real estate transactions are conducted in Hebrew, a language they are not completely familiar with. They are not used to the Israeli business mentality. Purchasers who are not native Israelis feel that the process is different in Israel than in their native countries, thereby exposing them to more risk. Below you will find a list of practical differences between English residential real estate transactions and Israeli residential real estate transactions.

Real Estate Agents’ Fees2% of the price from both buyers and sellers, plus V.A.T.Sellers pay fees. Negotiable, but can vary between 0.5% and 2.5% of the price plus V.A.T.
Lawyers’ FeesFees vary between 0.5% – 2% of apartment price, plus V.A.T. This depends on whether or not the lawyer has to do additional work such as keep escrow accounts or procure the mortgage for the client.Fees vary between 0.2% and 0.6% of the price plus V.A.T. Some additional costs can apply to work outside of standard conveyance (e.g. Leasehold/purchase/mortgage). Check on a job by job basis.
Title SearchCompleted by the lawyer. Title insurance exists but is not very prevalent. The Buyer’s lawyer registers a notation in the land registry after the first payment is made to prevent sale of the property to a third party. This notation gives the purchaser precedence against any future impediments that might be registered on the property after the signing of the contract and before registration of title in the Buyer’s name.The Seller’s solicitor supplies copies of title documents and before completion the Buyer’s solicitor effects a search to ascertain whether or not any new entries or impediments show up on the land register. In addition to the title searches, the Buyer’s solicitors commission searches if required to do so by mortgagee or Buyers.
One Lawyer for Both PartiesPermitted. However, the lawyer may not represent one party to the contract against the other in case of a law suit resulting from the deal. If the lawyer has a personal connection with one of the parties (for example is a relative) or has a personal stake in the transaction he may not represent both sides to the transaction.Not permitted. In restricted circumstances, two lawyers in the same firm may represent seller and buyer if they are both established clients of the firm.
Payment SchedulesThe payment schedule varies depending on the needs of the parties. Some money is held in escrow against the fulfillment of certain duties by the seller, but it is usually never 90% of the price.10% at the signing (exchange of contracts). 90% at the completion of purchase. This applies to both existing properties and new construction.
MortgagesMortgages can be transferred from one apartment to another (“Grirat Mashcanta”). The reason for this is that some mortgages have special rights attached (such as the oleh mortgage). The seller can transfer such a mortgage to his new apartment so as not to lose these rights. This whole process also affects the payment schedule and is subject to the rules of the lending institution at the time of the new transaction.Mortgages can be transferred from one property to another (“porting”) if the original loan terms so state – but subject to the lending institution’s lending criteria at the time of the new acquisition.
TaxesThe purchaser pays Purchase Tax and the seller pays Capital Gains Tax. The purchase tax is calculated according to a sliding scale that is updated periodically. Olim and disabled individuals have a partial exemption from the tax. Buyer’s pay a higher purchase tax on a second apartment. Purchase tax for land, commercial property or vacation units is 6% of the price.The buyer pays a direct tax at the time of completion called “Stamp Duty Land Tax” (“SDLT”). The amount depends on the tax rate in force. Currently, it can range between 0% and 12% and there is currently a 2% additional charge for non-resident purchasers. It has become a complex area and tax advice is required. The seller can be required to pay Capital Gains Tax (“CGT”) but not always, for example on the sale of a principal residence.
Linking of PriceIn the past when the U.S. dollar was strong the prices of second hand apartments were usually linked to the U.S dollar. Now due to the fall of the U.S. dollar against the Shekel the prices of second hand apartments are written in shekels and usually not linked to anything (except occasionally to the Israeli Consumer Price Index). The prices of new apartments under construction are usually linked to the Building Index, but are sometimes linked to the Consumer Price Index.Prices are not linked. Everything is in Pound Sterling.
When Is The Deal Binding?Upon signature of both parties on the contract.At the point of formal “Exchange of Contracts”. This is customarily effected over the telephone between the lawyers, in which they undertake to each other to dispatch the signed contracts and (in the case of the buyer) the payment for the deposit. A memorandum of the exchange is prepared during the conversation. Often the solicitors sign the contract for their clients.
Protection of MoniesIn contracts for new apartments still under construction, the money is protected by a bank guarantee or insurance policy. In a second hand sale a notation to the benefit of the Buyer is registered with the land registry or a pledge to the benefit of the Buyer is registered by the Registrar of PledgesThe deposit of 10% (sometimes 5%) is paid to the seller’s lawyers as stakeholder in which case the money must be retained by the Seller’s lawyer. In this case no protection is necessary. In some cases the deposit is paid to the Seller’s lawyers as agents for the Seller (the money is not retained by the Seller’s lawyers) in which case it may be appropriate on the timescales between exchange and completion to protect the deposit by lodging at the Land Registry a Unilateral Notice.
Who Pays the Construction Company’s Legal Fees?Usually the buyer. Sometimes it is incorporated into the price.Typically each side pays their own fees but this can vary by agreement.
Long term leaseMuch of the land is held under a long-term lease. The buyer gets a long-term lease for 49 or 99 years from the government. Due to a change in the law in 2010 this is beginning to change and many long-term leaseholders will get direct ownership in the land.The State is not a substantial landowner. Virtually all land and most houses are sold freehold. In the case of apartments, they are virtually always sold by a developer on a long lease – say 125 or 150 years and sometimes 999 years. Lessees have the right by law to force lessors to sell them a 90-year extension to the lease, to alleviate the dwindling term. The government is currently looking into amendments to the law surrounding long-term leases.

At the present time V.A.T. in Israel is 17% of the fee. In the U.K. V.A.T. is presently 20% of the fee.

I would like to thank Daniel Flowers of LFBB Law for assisting with the English side of real estate transactions.

LFBB is a law firm based in Paradise Square in the heart of Sheffield City Centre’s legal quarter that has been assisting clients with all their legal needs for over 100 years. You can rest assured that we have the knowledge and experience required to provide the advice you need. We pride ourselves on our friendliness and the quality of the service we provide. We aim to always exceed your expectations. It is the way we work that sets us apart. We take time to get to know our clients.

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Nicole Levin

Nicole Levin Law Offices

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