Israeli Supreme Court Rules Lenders Must Compensate Buyers for Delayed Apartment Deliveries

The Israeli Supreme Court has ruled that a financial lender who takes over a real estate project after the developer's collapse must compensate apartment buyers for delays in delivery, starting from the date the lender's receiver was appointed. However, the lender is not obligated to compensate for delays that occurred between the initial delay and the receiver's appointment. This landmark decision was delivered by Supreme Court Justice Ruth Ronen.

Justice Ronen addressed the central question of whether a lending bank, which chooses to complete a project through its own receiver instead of enforcing sales law guarantees, is bound by the original sales agreements made between the buyers and the developer. Buyers argued that the lender, acting through its receiver, inherits all the developer's obligations, including compensation for late delivery. The Supervisor of Insolvency largely agreed, but limited this obligation to debts incurred after the receivership proceedings began.

The lender and its receiver contended that as a secured creditor, the bank has priority over the buyers. They argued that even when completing a project, they do not step into the developer's shoes regarding pre-existing agreements and therefore should not be liable for delays. They also warned that holding lenders liable for such delays could increase the cost of project financing, ultimately burdening future homebuyers.

Justice Ronen determined that when a lender takes over a project and steps into the developer's role, its rights are subordinate to the buyers' right to compensation for delivery delays during the receivership period. This ruling applies only to the period after the receivership proceedings commenced. She explained that this creates an incentive for the receiver to complete construction and deliver apartments as quickly as possible, as ongoing delays incur new monthly compensation obligations.

The ruling partially accepted an appeal by apartment buyers in a Bat Yam building where a Tama 38 renovation project was undertaken. The financial backing was provided by Ayalon Insurance Company, with Adv. Hagai Ullman appointed as receiver. The Tel Aviv District Court had previously dismissed the buyers' compensation claim, but Justice Ronen ordered a re-evaluation based on her new principles. Deputy President Noam Sohlberg agreed with the ruling but expressed reservations about the possibility of parties reaching agreements where buyers waive some of their rights. Justice Yael Vilner concurred with Ronen's main decision.