Many people dream all their lives of a house in the country. Birds chirping in the morning. Green views from the window.
However, the path to realize the dream involves no small risk and a few landmines.
In this paper I shall address the inspections required to avoid these landmines foreseeable at a relatively early stage of the process – the legal risks in purchasing a lot designated for the construction of the home or in purchasing an existing private home.
- The identity of the property owners – this is the most initial and basic examination required from anyone wishing to purchase a lot or a home – it is meant to ensure that the person with whom the buyer is talking and negotiating the terms of the purchase is its true owner. The person presenting himself as title holder must provide confirmation from the Land Registration Office/ the Israel Lands Administration/ the housing company or any other entity managing the registration in respect of the property, testifying to him being the owner of the property.
- The property is free of any debt or charge – another basic, and just as important, examination. It is important to ensure that the property is not under foreclosure/ charged/ mortgaged against debts of the title holder.
The examination is a combined one – with the entity managing the registry in respect of the property (Land Registration Office, the Israel Lands Administration, a housing company or the relevant entity) and with the Registrar of Pledges and/or the Registrar of Companies (in the event that the title holder is a company).
- Are the plans applying to the property suited to its designation – this examination can be performed at the offices of the local committee in whose territory the property is located. One asks for a detailing of the planning state in respect of the property (preferably in writing). This detailing includes of all the plans that apply to the property. The detailing can show the designation of property (residential, commercial, offices, etc.), what are the possible building rights (exercised or not exercised), and whether the structure planned by the buyer can really be built on the property.
- Is there correlation between the building permit and the actual property constructed – this examination can be performed at the archives of the building portfolios of the local authority in whose territory the property is located. You ask to review the building portfolios of the property. This portfolio contains all of the relevant material for the property from the applications submitted to obtain a construction permit, the permit given in practice and any other correspondence relevant to the property that was made over the years. As many properties contain unauthorized building violations (without the issuance of an appropriate permit) it is important to ensure that there is correlation between what was duly approved and what is built in practice.
It should be noted in this respect that use of property without a permit exposes both the user and the owner to criminal proceedings.
- Were any planning and construction proceedings initiated against the title holders in the past or at present – this examination, much like the previous examination, can be carried out in the property’s building portfolio. For any planning and construction proceeding there should be correspondence (such as a report from the inspector who visited the property, warning letters sent to the title holders, etc.).
It is important to review these documents before effecting the transaction, if they exist. Their meaning is that the local authority has initiated/ is initiating proceedings against title holders and if the matter was not settled, the buyer may be required to enter into the seller’s shoes in this matter.
- What is planned in the property’s surroundings? – in the event that the lots bordering the property currently have a garden, a private home, an empty lot, etc. – it is possible that the construction of a multi-storey tower, a shopping center or any other use which may constitute a nuisance, or use that had the buyer known of it he would not have bought the lot, is already being planned.
This examination can be carried out at the offices of the local committee in whose territory the property is located. Usually this requires setting up an appointment. One asks for information on the plans applying to all of the lots bordering with the property.
- What are the payments the buyer will pay upon purchasing the property? – The buyer must examine the payments applying to him in respect of the purchase of the property, to prepare accordingly.
Even in respect of the known payments of purchase tax there are sometimes “surprises” when the property is not classified as a residential property (for example – its construction was not completed or it is classified as a “vacation apartment”).
In addition to the purchase tax, realtor fees and lawyer fees, there are at times payments that need to be made to the Israel Lands Administration and/or the local committee (for example – when the buyer wishes to exercise the unused property construction percentages).
- What are the payments the seller will pay upon the sale of the property? – Ostensibly, these are payments imposed on the seller, and therefore they are of no interest to the buyer of the property.
In practice, for the buyer to protect his interests properly and ensure that he can ultimately register the rights in the property in his name (a procedure conditional on the seller paying all of the taxes due), he must assess the payments applicable to the seller and ensure these are held in trust in the hands of the lawyers until the payment of all taxes are settled by the seller.
- Does the property contain hidden defects? Hidden defects are just that – defects hidden from the eye at first glance (and sometimes second).
At times, these are defects even the seller is not aware of. Sometimes these are defects the seller wishes to hide.
Hidden defects are diverse in nature and sometimes require several inspections of the property and at times they require its inspection using experts from various fields – from moisture or drainage problems, changes made to the property in the past where a beam or support wall were removed (that could destabilize the structure), the neighbor in the adjacent property is troublesome or a professional drummer practicing many hours every day, and so forth.
For defects which the buyer views as intolerable – it is recommended the required inspections are carried out.
- Does the buyer have the economic ability to complete the transaction? Ostensibly, this is a trivial question. However, failure to pay on time is a breach of the sale agreement, which usually involves the payment of substantial damages. Many buyers plan to take a loan backed by a mortgage to finance the purchase of the property. It is advisable to approach a number of mortgage banks, to apply (with all required paperwork) and make sure the bank approves the extension of a loan in the desired amount.
In addition, sometimes the purchase of property involves the sale of another property. It is important to ensure that the timetables in both contracts coincide. For example – payment for the acquired property is expected to be made soon after receiving a similar amount for the property sold.
Furthermore, the price of many transactions is stated in dollars. In a world where the exchange rate is volatile, it is advisable to make an adjustment between resources for use – that is, if the money used to pay for the property is received from the sale of another property in accordance with the dollar exchange rate – the price of the acquired property will be linked to the dollar. If, however, most of the money comes from savings in shekels or a shekel mortgage – the price of the property should be stated in shekels, thus avoiding exposure to unnecessary risks of exchange rate differences.
The above examinations are the preliminary and general examinations required for the acquisition of a lot designated for construction or of a private home. Depending on the type of transaction and the condition of the property, additional examinations are often required. In order to successfully complete the transaction it is advised to use the services of an attorney specializing in real estate and sometimes even the services of an architect and/or real estate appraiser.
Even during the construction and/or renovation phases, there are landmines that one can and should avoid and I shall address these in the following articles.
Comment:
This paper is for general and preliminary information only and is not intended in any event be construed as legal counsel and/or as a substitute for legal counsel for any case and its circumstances.
The above must not be relied upon without consulting with a lawyer specializing in the field before taking any action or making any decision. The above is true only as of the date it was written, and its veracity may change from time to time.
Adv. Tali Kessler is a partner in the “Rechnitz, Kessler & Co. Law Office” operating in the field of commercial law, contracting and real estate. www.rk-law.co.il
This document and/or part thereof may not be used, distributed and/or reproduced and/or photocopied without permission.
This document may not be construed as consultation and/or any professional opinion.
