Purchase groups: why it pays to have your own lawyer

What is a purchase group under the law?

The accepted definition appears in the Real Estate Taxation Law: a group of purchasers that organizes to acquire a right in land and to build on it, through an organizer, where the purchasers are bound by a contractual framework.

Under section 1 of the Real Estate Taxation (Appreciation and Purchase) Law, 1963, an "organizer" is whoever organizes the group for the purchase and the construction, including preparing the contractual framework, for consideration. A "contractual framework" is a set of interrelated contracts through which the group acts to obtain a built property.

In practice, the framework usually includes a joining agreement with the organizer, a co-ownership agreement among the members, a land purchase agreement, an agreement with a main contractor, and sometimes a bank financing agreement and an agreement with a project manager.

Does the Sale (Apartments) Law apply to a purchase group?

As a rule, no. The courts have held that organizing as a purchase group is not an apartment sale, so the Sale (Apartments) Law does not apply to it as mandatory law. The parties may apply it, in whole or in part, by contract.

In CA (Tel Aviv District) 18158-11-22 Electra Construction Ltd. v. Pitskhadze (4 May 2023), the court held that organizing within a purchase group is not the same as an apartment sale, and therefore the Sale (Apartments) Law does not apply as mandatory law. In that case the agreement with the contractor applied the Sale Law to liability for defects, but not to late delivery, so compensation for the delay was set by the mechanism in the agreement and not under section 5A of the Law.

Along the same lines, in CC (Tel Aviv Magistrates') 12344-01-20 Ben Dror v. Israel-Canada (T.R.) Ltd. (22 April 2025), the court held that the company that organized the group is not a "seller" under the Sale (Apartments) Law.

What this means in practice: guarantees, delay and defects

Three things that a buyer from a developer gets from the law, and that a purchase group member needs to make sure appear in the contract: security for the money paid, compensation for delay, and liability for defects.

Security for the money: a buyer from a developer is entitled to security under the Sale (Apartments) (Securing Investments of Apartment Buyers) Law, such as a bank guarantee. In a purchase group this duty generally does not apply, so check how the money is protected: a trust account, bank project financing, and who may release money and when.

Delay: there is no statutory compensation for late delivery. What you have is what the agreement with the main contractor says, and that is usually limited too.

Defects: liability for defects is set in the agreement with the main contractor. Make sure the agreement applies the inspection and warranty periods of the Sale (Apartments) Law, and that there is security for the inspection period.

Cost overruns: as developers, the members bear the project's economic risk. If construction costs rise, or another member does not pay, the shortfall may fall on you.

When is a "purchase group" really an apartment sale?

When the economic substance is the purchase of a finished apartment: the organizer controls the project, commits to a final price and bears the risk. Then the courts and the tax authorities may treat the deal as a sale, not a purchase group.

In CA 11125/08 Kavei Nadlan Gindi-Yaron Ltd. v. Director of Real Estate Taxation, Rehovot (21 July 2011), the Supreme Court upheld a finding that in a project in Rishon LeZion the organizer had in substance bought the land, built on it and sold the houses, because the purchasers knew the total cost in advance, were not involved in the process until construction was finished, and the organizer controlled pricing and every stage of the project. The organizer was taxed as having bought and sold.

A position paper of the Sale Law Commissioner at the Ministry of Construction and Housing dated 28 June 2019, quoted in CC (Tel Aviv Magistrates') 29335-12-19 Brochim v. Ovadia (25 January 2024), proposes examining how far the organizer controls the project and who bears the economic risk. According to the paper, where the organizer committed to a final price for the units, the concern grows that this is a purchase from a developer disguised as a purchase group.

Purchase tax and VAT in a purchase group

A member of a purchase group for a residential apartment pays purchase tax on the value of the built apartment, not only on the value of their share of the land. In addition, registration also requires VAT clearance.

Under section 9 of the Real Estate Taxation Law, a right in land sold to a purchase group for an apartment intended for residence is treated as a "residential apartment", and the value of a group member's right is "the sale value of the built property". So the residential purchase tax brackets apply, based on the value of the finished apartment. The Tax Authority's procedure for purchase group transactions is set out in Real Estate Taxation Implementation Instruction No. 02/2013 (taxation of a purchase group). You can calculate the tax with the purchase tax calculator.

Under section 16(a)(2) of the Law, on the sale of a right in land to a purchaser who is a member of a purchase group, registration also requires confirmation from the VAT Director that the VAT was paid or that security was given for its payment.

A member whose apartment in the group is their only one, and who bought another apartment while construction was delayed, has a special provision that allows, subject to conditions, purchase tax at the single-apartment rates (section 9(c1c)(2)(b1) of the Law). Details are in Real Estate Taxation Implementation Instruction 2/2019 (8 May 2019), on the purchase tax rate for a residential apartment bought as a replacement for a single apartment in a purchase group whose construction has not yet been completed.

What to check before joining

The organizer and their fee, the price and what happens on overruns, protection of the money, the status of the land, the agreement with the main contractor, and the exit mechanism.

1. The organizer: who they are, their experience and their fee. Is the fee fixed or tied to the price?
2. The price: is it a final price or an estimate, what it includes, and who pays if costs rise.
3. The money: a trust account or bank financing, who the signatories are, and when money is released.
4. The land: a land registry extract or rights confirmation, the planning status, and whether there is a building permit or only a plan.
5. The main contractor: a performance guarantee, a timetable and compensation for delay, and liability for defects according to the periods in the Sale (Apartments) Law.
6. The other members: what happens when a member does not pay or wants to leave, and what majority decisions require.
7. Exit: when you can withdraw, and what you get back.

The group's lawyer or your own lawyer?

The lawyer who accompanies the group represents the group and drafts documents for everyone. A lawyer who represents you personally checks the contracts from your point of view, and explains your personal risk before you sign.

Timeline and cost

Timeline: reviewing the joining agreement and accompanying documents usually takes a few business days from receipt of all the documents. Ask for the whole contractual framework before paying a joining fee.

Cost: the fee is set in a written fee agreement, after seeing the scope of the documents.

Related articles and pages: Buying from a developer | Sale Law guarantee | Purchase tax | Purchase tax calculator | Checks before buying | Buying a plot