Supreme Court Rules Lenders May Owe Buyers Compensation for Delays

Israel's Supreme Court has ruled that financial institutions that take over failing real estate projects are also responsible for compensating apartment buyers for delivery delays. This landmark decision came in the case of a failed Tama 38/1 project in Bat Yam, where the lending companies had refused to compensate buyers for late delivery.

The case involved a project initiated in 2017, with a commitment to deliver 14 new apartments by the end of 2019. However, the original developer collapsed in 2021, and attorney Hagai Ullman was appointed as the receiver at the request of the financial lenders, including Yesodot Ein Real Estate and Ayalon Insurance Company.

Buyers faced significant delays, with most apartments delivered only last year. One family, who purchased a unit, took the matter to the Tel Aviv District Court seeking compensation for the delay, as stipulated in their contract and the Sale Law. The receiver argued that the lenders' only obligation was through the Sale Law guarantees.

The District Court initially dismissed the family's claim, stating the receiver's appointment was solely for liquidating collateral and that the lenders were not obligated beyond their guarantees. However, the Supreme Court overturned this decision. Justice Ruth Ronen, writing the main opinion, explained that when lenders choose to complete a project, they enter into a 'package deal' and cannot selectively fulfill contractual obligations.

The Supreme Court divided the liability for delays into two parts: those incurred by the original developer and those occurring after the receiver's appointment. Buyers are entitled to compensation from the receiver for the latter period. This ruling serves as a "warning sign for financing bodies," potentially increasing the cost of rescuing failing projects by making lenders liable for ongoing obligations to buyers, including compensation for late deliveries.