You want to buy real property in Israel. How do you do it?

There are two main types of property in Israel: privately-owned and state-owned, which are treated differently by the law.

The main difference is that the title to private land is registered in the land registry under the name of the purchaser. But the buyer cannot gain title to state land: what you get is a long-term lease to the property, usually 49 years with an option to extent for an additional 49 years.

Extending the lease may require payment to Israel Land Administration.

Consequently, the first thing that you should confirm prior to purchasing property in Israel, is whether the property is registered as private land or state land, and in the latter case - the date of renewal of the lease should be ascertained.

Note that only 8% of the land in Israel is privately held, and most of that is in urban areas.

Is the seller the owner?

Unlike in the U.S., where it is customary to obtain title insurance from an insurance company, in Israel - to verify the title to the property - you must rely on the Land Registry and the seller's contractual representations and warranties.

In other words, be careful to make sure that the seller properly owns the property before agreeing to buy it.

Buying a new apartment from a contractor

Before finalizing a contract to buy an apartment that hasn't been built yet from a contractor (or from a private owner of an apartment, who acquired the apartment from the contractor for resale purposes), carefully review the specification and the blueprint of the planned apartment.

Under the Sale (Apartments) Law - 1973, the contractor is obligated to append the specification to the contract.

These documents set forth a salient part of the contractor's commercial commitments regarding the apartment. Without them there may be material differences between what you were expecting to receive and what you get.

Verifying the documents

A few important verifications should be made regarding these documents:
 
1)  It is important to insist that the contractor lists the apartment size in the specification in net rather than gross terms (excluding "common property", wall areas, etc.).

2)  "Joint buildings" (buildings containing two or more apartments) must have a set of by-laws that regulate the relations between the tenants. A standard set of by-laws is annexed to the Real Property Law ? 1969. It applies automatically unless the apartment owners have duly adopted a different set of By-Laws.

3)  Ensure that there is a precise definition of the building's "common property" that will be attached to the purchased apartment.

4) The law requires a contractor to provide the purchaser of an apartment from a contractor with at least one of five different types of guarantees, prior to receiving from the purchaser a sum exceeding 15% of the purchase price:

(a) Bank guarantee

(b) Insurance policy -This type of guarantee is rarely granted

(c) Lien - This type of guarantee is likewise rarely provided by contractors

(d) Caveat - registered at the local land registry, and grants the purchaser preference over any later conflicting transactions;

(e) Transfer of title to the property under the purchaser's name at the land registry - contractors will almost never agree to the transfer title before receiving payment in full from the purchaser.

The two commonly used types of guarantees are the bank guarantee and the caveat. It is imperative to demand from the contractor both types of guarantees.

The bank guarantee provides the purchaser with a money-back guarantee, while the caveat grants a preference over later transactions and protects the buyer's rights to the property from encroachment by contractor's creditors.

The bank financing the project often has a lien registered in its favor over the entire property. That necessitates a waiver from the bank in order to allow registration of the caveat.

The waiver granted by the bank is usually conditional: when the buyer pays in full, the bank will discharge the lien.

Following full payment, the bank should provide a final and irrevocable waiver, confirming that its lien over the relevant apartment has been discharged.

It is important to demand that the contractor produce and append to the purchase contract a signed conditional waiver from the bank, as well as a draft of the final waiver to be provided by the bank upon full payment by the purchaser.

Purchasing a used apartment

When purchasing a second-hand apartment, it is important to carefully review the registration documents of the building, including the building's registration extract, and the by-laws.

These documents regulate the reciprocal rights and obligations of each apartment owner.

These documents should address issues such as use of common property; entitlement to use unused building rights, the share of each apartment in building maintenance, and so on.

If when you buy the flat, the building has yet to be registered as a joint building, then you should know that the attachments of certain parts of the building to specific apartments - for example roofs, parking spaces, backyards - aren't registered either. Check if every exclusive usage/attachment has been approved by all the neighbors.

If the apartment is bought from a contractor who has entered into a Development Agreement with the ILA, verify with the ILA whether the contractor has satisfied all its obligations and is entitled to receive the property.

Long-term lease of an ILA apartment

State property can only be leased, not purchased. The "purchaser" is rather granted the right to enter into a long-term lease with the ILA.

In the past, most apartment lessees paid annual rent to the ILA. Today most apartment leases are capitalized: the developer/contractor pays the rent for the entire lease term in advance and the lessee is exempted from annual payments.

Once the lease agreement is signed, the lessee has no further dealings with the ILA until the lease expires, unless he wishes to modify the existing structure or change its designated use. Then approval of the ILA as land-owner is required, and if the property has not been capitalized, that may involve transfer fees to the ILA.

When leasing property from the Minhal, verify that the property is capitalized and that in the event of transfer of rights in the lease - there will not be any transfer fees due to the ILA.

To sum up, it is not simple to buy property in Israel. One needs to be familiar with the different types of property, the law affecting each type and the measures that need to be taken in the course of such transaction.

The author is an Israeli lawyer admitted to the  Israel and in New York bars, specializing in business and commercial Law.  He is the  founder of a business law firm in Tel Aviv.