Israeli Court Rules Buyers Cannot Offset Property Defects Against Payment
Translated & summarized from Globes by baba
The Jerusalem District Court ruled that property buyers cannot offset claims for defects or delays against their payment if the sales agreement prohibits it. This decision, which buyers plan to appeal to the Supreme Court, requires full payment before property handover. The ruling provides developers with greater certainty regarding payment collection. In this specific case, a couple who bought a penthouse for 16 million shekels was denied the right to offset 2.8 million shekels in claimed damages against their remaining balance.
The story in 6 lines · by baba
- Buyers cannot offset property defects or delays against payment if the sales agreement prohibits it, a court ruled.
- The ruling allows developers to waive the right of setoff in contracts, overriding general Israeli law.
- A couple seeking to offset 2.8 million shekels against a 16 million shekel penthouse purchase had their request denied.
- Buyers must pay the full price before taking possession and pursue compensation separately.
- The buyers intend to appeal the decision to the Israeli Supreme Court.
- The ruling is seen as providing greater payment certainty for property developers.
The Jerusalem District Court has ruled that property buyers cannot offset claims for defects or delays against the purchase price if the sales agreement explicitly prohibits it. The court determined that developers can waive the right of setoff in contracts, even though Israel's Sale Law generally allows for the offsetting of debts and states that such provisions cannot be waived unless they benefit the buyer. This decision means buyers must pay the full purchase price before taking possession of the property and must then pursue separate legal action for compensation regarding defects or delivery delays.
The ruling came in a case involving a couple who purchased a penthouse in Tel Aviv for 16 million shekels in 2022. The apartment was scheduled for delivery in September 2023 but is now expected in January 2026. The buyers had paid most of the amount but still owed approximately 2 million shekels. They claimed the apartment had defects, lacked an assigned parking space, and was missing a solar roof and pergolas. They also sought compensation for a two-year delay, totaling 2.8 million shekels, which they attempted to offset against the remaining payment.
The developer, N.Z. Choshen Residential Entrepreneurship and Construction, refused the offset, citing the sales agreement's clause prohibiting it. The developer also argued that the delay was due to the October 7th events and the subsequent state of emergency. Judge Yaron Mintzkevich stated that the right of setoff is not a fundamental right but a payment mechanism and that waiving it does not negate the buyer's right to compensation, only the method and timing of payment. He denied the buyers' request for an interim order to take possession of the apartment, finding their claim's chances of success unlikely and the request for an order to be exceptional.
Attorneys in the real estate field suggest the ruling provides greater certainty for developers regarding payment collection and reduces the likelihood of buyers withholding payments due to financial disputes. The buyers' legal representative stated their intention to appeal to the Supreme Court, arguing that if a standard contract clause can override the law, the buyer protections are undermined. The couple was ordered to pay 12,000 shekels in legal costs to the developer.
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