Ashkelon Price-Per-Resident Buyers Accuse Developer K. Kovav HaNegev of Holding Them “Hostage”
Dozens of apartment buyers in a Price Per Resident project in Ashkelon say they have been abandoned by the Housing Ministry and by the developer, which is demanding large sums from them for linkage to the construction cost index as a condition for handing over the apartments, an addition that can reach about NIS 125,000 per unit. According to them, they are being held hostage by the developer, while the Housing Ministry stands by and does not help them in their fight.
The project, also known as YAM TOWER, is located in Ashkelon and went through many twists and turns before recently reaching its final stages and the handover of apartments. It is located in the Ir Yamim neighborhood at 1 Zevulun Street, and was among the first projects under the Price Per Resident program. The developer, K. Kovav HaNegev, owned by Yitzhak Cohen, won an Israel Lands Authority tender for the land in Ashkelon in 2016, and in November 2017 the first group of 62 buyers won apartments in the project in a lottery. However, despite the win, the agreements with them were signed only in 2020, and the delivery date was set for December 2023.
During the three years that passed, the contractor requested an increase in the building rights and succeeded, and the Housing Ministry approved additional floors on the condition that all the additional apartments would be sold under Price Per Resident. As a result, about a month after the first group had already signed an agreement with the developer, the second lottery for the same project took place. In that lottery, 72 buyers won, but in this case too, the contracts with the buyers were delayed for a long time, and they signed with the developer only three years later, at the end of December 2023.
Between the date the members of the second group won the lottery and the date they signed the purchase agreement with the developer, a significant decision was made that pushed the buyers into a scenario they had not anticipated. In July 2022, Amendment 9 to the Sale Law took effect, meaning that a contractor may link only up to 40% of each payment to the construction input index. From the date of signing the contract with the developer until the scheduled handover date set in the agreement.
The developer, apparently concerned that under the decision it would not be able to collect the full index-linked amount from the new buyers, filed a lawsuit two months later against the Housing Ministry, the Israel Lands Authority and the Ashkelon Municipality, asking the court to rule that the linkage to the construction input index, based on the original price of the apartment in the tender, should be full linkage starting in May 2016, the last date for submitting the bid, until the date when all payments were actually made to the company, in December 2025.
If the developer’s demand is accepted by the court, buyers in the second group would be required to pay the construction input index at 100% linkage on the apartment price for a period of 9.5 years. In addition, the developer asked the court to change the handover date from 24 months from the start of construction to 36 months, since, according to it, the delay in delivery was not caused by it, and it would therefore not be liable for compensation for the delay in handing over the apartments to these buyers.
Following the lawsuit, which was filed a few months before the second group signed the agreement, the Housing Ministry did not want to stop the project, and added a clause to the agreement stating that the buyers must be aware that there may be changes in the index-linked payments, depending on the court ruling. The developer is suing the state and the local authority, the consequences will be imposed on the buyers.
The case is still ongoing, and so far an interim decision has already extended the developer’s delivery months, and accordingly increased the number of months for which the buyers must pay the linkage. This means that buyers of 3-room apartments, the smallest apartments in the project, paid NIS 1.06 million for them, an addition of about NIS 117,000 to the apartment price, which had previously stood at about NIS 940,000.
At the same time, the main proceeding, in which the developer is demanding continuous payment for the indexes, has not yet been decided. According to estimates, if the proceeding is decided in the developer’s favor, the buyers will be required to pay additional sums ranging from about NIS 80,000 to NIS 125,000 per apartment, depending on its price.
While the legal proceedings continued, construction advanced and the project reached completion and the stage of handing over the apartments. The buyers, who were preparing to receive their apartments, got a letter from the developer at the end of March this year in which it conditioned the transfer of the amount for the additional indexes it was demanding on depositing the money into an escrow account.
In the letter, the developer wrote that the transfer was being made in case the court ruling requires them to pay after the apartment is handed over to them, and that if the ruling goes in their favor, it will return the money. Buyers who refuse to do so will not receive the apartment. For example, buyers of a 4-room apartment in the project received a demand to pay about NIS 94,000. "This amount will be deposited by the company in escrow, and the company will act with it according to a final decision that will be handed down in the legal proceeding.....Delivery will not be possible to a resident who does not complete a full settlement of accounts as required," the letter said.
It should be noted that the court has never ruled that the buyers must pay the amount into the developer’s escrow account, and according to them, this is an illegal act. The buyers say they are being held hostage, and that while the developer’s lawsuit is against the state and the local authority, the ones who pay the price and ultimately bear the cost are the buyers.
The Housing Ministry, which from the outset allowed the unusual clause to be included in the agreement between the buyers and the developer, is not responding and has taken no action at all against the developer’s moves, despite appeals from the buyers. A buyer in the project told Calcalist that they feel abandoned, "The developer decided on its own that the clauses in the contract referring to ‘final settlement of accounts’ also include payment for a future ruling that it assumes it will win. This despite the fact that we paid and met all the payments so far."
In addition to this demand, buyers who contacted the developer received a surprising compromise offer, to pay half of the amount it is demanding for index linkage, in exchange for waiving any compensation or delay in delivery of the apartment. Any decision made in the legal proceeding would also not apply to them, for better or worse. "It is agreed between the parties that for the period until the updated delivery date, including the agreed delay period, the company will not have to pay the buyer any compensation and/or any payment whatsoever for the postponement of the stated apartment delivery date, including rent and/or fair use fees, and the buyer hereby irrevocably and unconditionally waives any claim and/or demand and/or lawsuit against the company regarding the updated delivery date of the apartment, including the agreed delay period," the compromise letter said.
K. Kovav HaNegev said, "During the court hearings, the judge suggested that the parties, the company, the state and the buyers, reach a settlement, even though only 6 apartment owners entered the legal process out of more than 70 apartments (according to the buyers, the process includes about 24 buyers, D.L.). In some of the hearings, the attorneys for the residents were present, as well as some of the residents. Some of the winners filed a request with the court, in the same proceeding that is being conducted, as a request to cancel the company’s demand, and this was rejected. Out of consideration, and with the understanding that these are young couples and additional winners, the company agreed to compromise and waive 50% of the amount required in order to ease the burden on the young couples waiting for their first apartment. In addition, the winners also have the option of depositing the full required amount into an escrow account and waiting for the court’s decision. The company worked tirelessly לאורך הדרך to build the project in the most professional way, despite the many challenges we have experienced and are experiencing as a country, and this can be seen in the character and height of the tower and the special elements invested in it. We are happy and proud to have received Form 4 and wish the winners great success."
The Housing Ministry said, "The matter is in legal proceedings between the buyers and the developer company, and therefore we cannot comment on the substance of the case. It should be emphasized that the state is not a party to the purchase agreements signed between the buyers and the developer, and it has no ability to intervene in the contractual relationship between the parties. However, should issues arise concerning the developer’s compliance with its obligations to the state, they will be examined by the authorized bodies."
