Buying from a Developer: The Contract Is Drafted by the Developer, and It Can and Should Be Amended
In a purchase from a developer, and especially when buying off-plan, the property does not yet exist, so all you have is paper. The project's lawyer represents the developer alone. A lawyer acting for you on a purchase from a developer focuses on three things: that your money is secured, that the delivery date and compensation are clear, and that what is delivered matches what was promised.
The Sale (Apartments) Law, 5733-1973, and the Sale (Apartments) (Assurance of Investments of Purchasers of Apartments) Law, 5735-1974, give the buyer protections that cannot be waived. Under section 2 of the Assurance of Investments Law, the seller may not accept more than seven per cent of the price without securing the funds, and under section 7A of the Sale (Apartments) Law, the provisions of the Law may not be varied except in the buyer's favour.
Buying from a developer: a 30-second video
The video loads from YouTube only after you click. Go to the video page and transcript
In the video: Three things worth knowing when buying an apartment from a developer. The developer's contract can be reviewed and changes requested, and these are set out in a rider signed together with the contract. The money you have paid must be secured under the Sale Law, for example by a bank guarantee, and you should check that you have received it. And if the developer is late in delivering, the law gives the buyer compensation, and it is important to claim it in time.
When you need a lawyer for a purchase from a developer
- Before you sign a reservation form or pay a "good-faith deposit" at the sales office.
- When you have received the contract, the specification and the floor plan and want to know what to amend.
- When buying off-plan, with delivery expected only years from now.
- When buying under the Dira BeHanacha (discounted apartment) programme or another government scheme.
- When the developer is late in delivering and asks you to sign a waiver or a postponement rider.
- Before delivery, to record defects in the handover protocol.
How the work proceeds
Reading the contract and checking the project
Before you pay anything: reading the standard-form contract, the specification, the floor plan and the payment schedule, and mapping the gaps between what was said at the sales stand and what is written. In parallel, the ownership of the land, the status of the permit and the bank financing support are checked. In a project with bank financing support, the money is deposited into the project's escrow account and secured by a bank guarantee.
Comments rider and negotiation
Developers tend to say that the contract is standard and cannot be changed. In practice, a focused and well-reasoned comments rider does lead to amendments, particularly in the clauses on delivery, compensation, index linkage and security.
Signing and tracking payments
Every payment is made into the escrow account, and a guarantee is received against it. Close tracking ensures that no money is paid without security having been issued for it.
Delivery and defect inspection
Inspecting the apartment before taking possession, preferably with a professional inspector, recording the defects in the handover protocol, and demanding repair within the prescribed time limits. Under section 4A of the Sale (Apartments) Law, a nonconformity that could have been discovered at delivery must be notified to the developer within one year of the delivery date.
What the service includes
- Checking the project: the identity of the developer, the rights in the land, the permit and the bank financing support
- Checking the security for money paid under the Sale Law (Assurance of Investments): a bank guarantee, an insurance policy or alternative security
- Matching the contractual payment schedule against the security received for each payment
- Examining the mechanism of linkage to the Construction Inputs Index and limiting its scope
- The delivery date, the grounds for postponement the developer reserves for itself, and the compensation you are owed for late delivery
- Checking the technical specification, the list of credits and the mechanism for changes and additions
- The inspection and warranty periods, and how construction defects discovered after delivery are dealt with
- Where the purchase is under a government housing scheme, such as Dira BeHanacha: checking the eligibility conditions and the restrictions the scheme imposes on the apartment, and making sure they match the terms of the contract
- Limiting the agreed compensation and cancellation clauses, which tend to be one-sided in the developer's favour
- Checking the contribution to the developer's legal fees and to registration expenses
- Preparing an orderly comments rider and dealing with the sales department and the project's lawyers
3 points from a review of the developer's agreement
The video loads from YouTube only after you click. Go to the video page and transcript
In the video: The developer's agreement is drafted by the developer's own lawyer. For every payment you receive security under the Sale Law, for example a bank guarantee. A clear delivery date, and compensation if the developer is late. The rider of amendments shows what you will really get. And all of this can be changed only before signing, not afterwards.
What to bring to the meeting
- The draft contract, the technical specification, the floor plan and the payment schedule.
- Any offer or advertisement you received at the sales office: price, discounts, credits and upgrades.
- The reservation form, if you have already signed it.
- A certificate of eligibility, if the purchase is under the Dira BeHanacha programme.
- Mortgage approval in principle, if you have one.
- Details of any other apartments you own, for calculating purchase tax.
Timeline and cost
Timeline: a comments rider to the contract is usually returned within a few business days of receiving the contract, the specification and the floor plan, depending on the length of the contract. Negotiations with the project's lawyers usually take from a few days to a few weeks. After signing, the payments are monitored until delivery, and the delivery date is set in the contract; for a delay of more than one month, compensation is payable under section 5A of the Sale (Apartments) Law.
Cost: the fee is set in a written fee agreement, according to the scope of the work and the complexity of the rights, and a quote is given after an initial conversation. What affects the price and what it should include are explained in the article "How much does a lawyer for buying an apartment cost". Expenses, fees and the charges of outside professionals are not included, as set out in the box "What the fee does not include". In addition, the developer's contract usually requires a contribution to the legal expenses of the developer's lawyer. That contribution is capped under section 6C of the Sale (Apartments) Law and the Sale (Apartments) (Limitation of Legal Expenses) Regulations, as explained in the article. Purchase tax can be calculated in advance with the purchase tax calculator.
The developer's lawyer and a lawyer acting for you
| Subject | The developer's lawyer | A lawyer acting for you |
|---|---|---|
| Whom they represent | The developer | You alone |
| The standard-form contract | Drafted it in the developer's favour | Reviews it and proposes amendments in a comments rider |
| Security under the Sale Law | Issues it on the developer's behalf | Checks that security has been received for every payment |
| Delivery and compensation for delay | As worded in the contract | Checks the grounds for postponement and the compensation under section 5A |
| Registration of the apartment | Handles registration on the developer's behalf | Follows up until registration is complete |
| Payment | A capped contribution under section 6C | Under a fee agreement |
Questions that come up repeatedly in these transactions
When must the developer give me a guarantee?
The Sale (Apartments) (Assurance of Investments of Purchasers of Apartments) Law provides that the seller may not accept from the purchaser any amount exceeding a set proportion of the price, roughly seven per cent, unless the funds have been secured by one of the securities listed in the Law: a bank guarantee, an insurance policy, a charge, a cautionary note or a transfer of ownership. In a project with bank financing support, payments are made into the project's escrow account and guarantees are issued against them.
What am I entitled to if the developer is late in delivering?
Under section 5A of the Sale (Apartments) Law, a delay of up to one month carries no compensation. Beyond that, compensation is payable without any need to prove loss: until the end of four months from the date in the contract, an amount equal to the rent of a similar apartment; from the fifth month to the tenth, the rent multiplied by 1.25; and from the 11th month onwards, the rent multiplied by 1.5. These rules apply to contracts signed on or after 7 July 2022. It is also important to check which grounds for postponement the developer has reserved for itself in the contract.
How much of the price may be linked to the index?
For contracts signed on or after 7 July 2022, section 5C of the Sale (Apartments) Law permits up to half of each payment to be linked to the Construction Inputs Index, provided that the 20% of the price paid on signing is not linked. Linkage ends no later than the delivery date set in the contract.
Can the developer's contract be changed?
To a degree, yes. Clauses that contradict a mandatory provision of the Sale Law are void in any event, and on other clauses there is room to negotiate, particularly the delivery date, compensation, index linkage, the scope of credits and the mechanism for changes. Even where not every amendment is accepted, the comments rider creates a record that helps later on.
What is the inspection period and what does it cover?
The inspection period is a period fixed by the Sale (Apartments) Law during which the developer is responsible for repairing defects, and its length varies with the type of defect: from plumbing and flooring to waterproofing and structural failures. It is followed by a further warranty period. It is important to document every defect in writing soon after it is discovered and to keep that record.
Why am I being asked to contribute to the developer's lawyer's fees?
It is a customary demand, and its extent is limited by law. Bear in mind that this lawyer represents the developer and handles the registration on the developer's behalf; he does not represent you and does not review the agreement for you. This payment is worth examining and checking against what the law permits.
Related articles and pages
Not sure the deal is safe? Let's start with a conversation
In an initial conversation we will go over the property, the other party and the payment schedule, and tell you what needs to be checked before you sign.