What is the main purpose of an apartment sale contract from the sellers’ perspective?
An apartment sale contract may look simple and standard on the surface, but it is in fact a complex contract, with many legal aspects and significant risks. It should therefore be handled with the assistance of a professional, experienced, and skilled real estate attorney, who will take great care to protect the sellers’ interests.
While the buyers’ main interests in an apartment sale contract are to receive physical possession of the apartment and the documents transferring the rights to their name, the sellers’ main interest is to receive the consideration for the apartment from the buyers, in full and on time (especially if they intend to use the proceeds to purchase another apartment at the same time or shortly afterward).
In addition, sellers must protect themselves against claims by buyers that they breached their duty of disclosure and failed to report certain defects in the apartment.
These, as noted, are the parties’ core interests in an apartment sale contract, but they are obviously not its only terms, only some of them.
By convention, the apartment sale contract is drafted by the lawyer representing the sellers, and naturally every lawyer has his own contract wording. Still, it is accepted practice to include a series of key terms in every professional apartment sale contract, and it is very important to know them and understand what they mean.
Should the seller sign a memorandum of understanding?
Before we go through the main terms that belong in an apartment sale contract, let’s first answer a question that troubles many sellers who want to make sure the buyers don’t “run away” (and vice versa, of course): is it worth signing a memorandum of understanding at the end of the initial negotiation, recording an agreement in principle to do the deal at a certain price?
Well, the answer to this question, in one word, is usually: “no,” and in two words: “no and no” (!)
And why not? Few people are aware of this, but a memorandum of understanding can sometimes be treated as a binding apartment sale contract for all intents and purposes, even if it bears the title “Memorandum of Understanding,” and even if it is not as fully detailed as a regular apartment sale contract.
Take, for example, a situation in which the seller and the buyer sign a memorandum of understanding recording an agreement in principle that the seller will sell the buyer the apartment at a certain price. Shortly afterward, the seller backs out and decides not to sell to that buyer, because he has found another buyer willing to pay a much higher price.
In such a case, the buyer could sue the seller and ask the court to declare that the memorandum of understanding is in fact a binding contract for all purposes, and to enforce it against the seller.
For that claim to be accepted, the court must find that the memorandum meets the two basic requirements for forming a binding contract, namely, intent to be bound (gmirut da’at) – a firm intention to enter into a binding contract; and specificity (mesuyamut) – the presence of the contract’s key details, such as the names of the parties, the details of the apartment, the amount of the consideration, and the date possession of the apartment passes to the buyers.
If the court accepts the claim and holds that the memorandum of understanding is indeed a binding contract for the sale of the apartment, the buyer can enforce it against the seller like any binding contract. The buyer will also be able to register a warning note in his favor at the Land Registry (“Tabu”) against the seller’s rights in the apartment, on the strength of the memorandum alone, and both parties, buyer and seller alike, will have to report the sale transaction to the Tax Authority within 30 days of the date the memorandum was signed.
To avoid all this, the recommendation, as noted, is not to sign a memorandum of understanding. If the parties nevertheless insist on signing one, it should at least be qualified and limited by the following conditions:
First, a fixed and short period must be set for preparing and signing the complete apartment sale contract, with a provision that if the contract is not signed within that period, the memorandum is automatically void and neither party will have any claim against the other over it.
Second, the buyer must be required to carry out a series of preliminary inspections of the apartment within a set period, with a provision that if any defect is discovered, the memorandum is automatically void and neither party will have any claim against the other over it.
Third, it must be provided that the buyer may not, under any circumstances, register a warning note in his favor against the seller’s rights in the apartment, except upon the signing of a full and detailed apartment sale contract.
Now let’s go into detail on the main terms that belong in an apartment sale contract.
What are the main terms that must be set out in an apartment sale agreement?
(1) The parties’ declarations
The declarations section usually appears at the beginning of the contract and includes various representations and undertakings on behalf of each party.
It falls to the seller to declare what rights he holds in the apartment (private ownership? or a lease right from the Israel Land Authority?), and whether his rights in the apartment are free of any third-party rights (such as mortgages, attachments, or court orders).
A very important declaration by the seller concerns his duty of disclosure toward the buyer: he must disclose every defect in the apartment that he knows about, even if the buyer was given the opportunity to inspect the apartment and for some reason did not take advantage of it and never bothered to inspect. Under the case law, the governing rule of disclosure is “let the seller beware,” as opposed to “let the buyer beware.” So if the seller knows of any defect in the apartment, such as a moisture problem, a plumbing problem, or a fault in the electrical system, he must report it to the buyer explicitly and record it in the contract.
It falls to the buyer, at the same time, to declare that he has inspected the apartment’s physical, legal, and planning condition, that he is purchasing it in its condition at the time of signing, AS IS, and that he has no claim whatsoever regarding the apartment, including regarding any non-conformity or defect, except a hidden defect that was known to the seller and not disclosed to the buyer.
In addition, the buyer must declare that he is able to finance the full consideration for the apartment and undertakes to pay it in full and on time. If the buyer intends to finance the purchase with a mortgage-backed loan, he must also declare that his obligation to pay the full consideration is not conditional on receiving the loan from the bank, so that it stands even if the bank ultimately refuses to grant the loan.
(2) Payment of the consideration for the apartment
The consideration section must set out the amount of the consideration and the payment schedule, according to the number of installments agreed between the parties. Naturally, the shorter the closing timetable, the fewer the installments, and vice versa.
As for the first payment, it should be made by bank check delivered to the sellers upon the signing of the apartment sale contract, against registration of a warning note in favor of the buyers over the transaction.
As for the final payment, it too should be made by bank check delivered to the sellers, against the transfer of physical possession of the apartment from the sellers to the buyers, and against delivery of the documents for registering the rights in the apartment in the buyers’ name, detailed below:
- Deeds of sale / deeds of lease transfer.
- Appreciation tax clearance for the Tabu, confirming there is no appreciation tax debt or that an exemption applies.
- Municipal clearance for the Tabu, confirming there are no debts to the municipality, including betterment levy, or that an exemption applies.
- An irrevocable power of attorney on behalf of the sellers (to register the transfer of rights in the apartment from the sellers to the buyers).
- A power of attorney on behalf of the buyers (to delete the warning note registered in the buyers’ favor in the event the contract is canceled).
If, by the time of the final payment, the sellers have not yet obtained all the clearances for the Tabu, that is, the appreciation tax clearance from the Tax Authority and/or the clearance from the municipality (or any other local authority), part of the payment must be deposited in trust with the sellers’ attorney.
If the sellers fail to pay the tax amounts required of them on time, the sellers’ attorney will be entitled to use the deposit to pay those amounts, obtain the Tabu clearances, and deliver them to the buyers.
(3) Tax payments and additional expenses
As for the taxes and additional expenses that apply to the transaction, the customary terms are as follows:
- Appreciation tax: paid by the sellers.
- Purchase tax: paid by the buyers.
- Betterment levy and development levies: levies imposed for a plan that took effect up to the date the apartment sale contract was signed are paid by the sellers, while levies imposed for a plan that took effect after the signing date are paid by the buyers.
- Current taxes and payments: all current taxes that apply to the apartment, such as municipal property taxes and other municipal and/or government charges, and all other running payments on the apartment, such as water, electricity, and building committee fees, are paid by the sellers up to the date possession actually passes to the buyers, and by the buyers from that date onward.
- Attorney’s fees for the transaction: each party pays its own attorney’s fees.
- The costs of registering the transfer of rights in the apartment in the buyers’ name: paid by the buyers.
- Any other payment that applies to the apartment sale contract and is not specified in it: paid by the party legally obligated to pay it.
(4) Remedies for breach of the apartment sale contract
The contract must define, among other things, which of its terms are fundamental, so that their breach constitutes a fundamental breach entitling the injured party to agreed compensation (usually 10% of the consideration), and even to cancel the agreement immediately, without the need to give notice to the breaching party, along with any other remedy available under the law.
These are usually the terms dealing with the parties’ declarations, the payment provisions, and the delivery of possession and of the transfer documents. It is also common to provide that a delay of a few days, say 7-14 days, in paying installments of the consideration (beyond the first payment at signing) or in delivering possession and the transfer documents will not constitute a breach at all, while a longer delay will constitute a fundamental breach carrying the remedies above.
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* Updated for 2026
