Israeli Supreme Court Rules Buyers Can Receive Compensation for Apartment Defects Without Contractor Repairs

The Israeli Supreme Court issued a landmark ruling affirming that apartment buyers are entitled to compensation for construction defects even if they did not allow the contractor to fix the issues during the statutory warranty period. However, the compensation must be reduced to account for the damage caused to the seller by denying the contractor the opportunity to perform repairs themselves.

The case originated from lawsuits filed by buyers who moved into their apartments in March and April 2021 and discovered numerous defects. They requested repairs from the construction company but later filed claims totaling approximately 241,000 shekels for compensation, including repair costs and additional damages such as emotional distress, before the warranty period ended in early 2022.

The construction company argued that the claims were premature and that it had not been given a fair chance to fix the defects. It estimated repair costs at 15,000 and 21,500 shekels for the two apartments. The Tel Aviv Magistrate's Court ruled in favor of the buyers, awarding 24,000 and 40,000 shekels respectively, while deducting amounts for the contractor’s lost opportunity to repair.

On appeal, the District Court overturned this decision, ruling that awarding compensation during the warranty period undermines the legal requirement to allow the seller to fix defects. The buyers then appealed to the Supreme Court.

Justice Alex Stein, joined by Justices Yael Wilner and David Mintz, overturned the District Court ruling and reinstated the Magistrate’s Court decision. Stein emphasized that while the law prefers repairs by the seller after the warranty period, denying the seller the chance to repair does not eliminate the buyer’s right to compensation. He explained that adjusted compensation prevents unfair gains by buyers who refuse repairs, as they do not receive full external contractor costs or additional fees, preserving incentives for both parties to resolve defects fairly.