Comparison between Israeli Residential Real Estate Transactions and British Residential Real Estate Transactions

Many people are nervous about entering into Real Estate transactions in Israel for many reasons. In Israel the real estate transactions are conducted in Hebrew, a language they are not completely familiar with. They are not used to Israeli business mentality. Purchasers who are not native Israelis feel that the process is different in Israel than in their native countries, thereby exposing them to more risk. Below you will find a list of practical differences between U.K. real estate transactions and Israeli real estate transactions.

ISRAEL ENGLAND
Real Estate Agents’ Fees 2% of the price from both buyers and sellers, plus V.A.T. Sellers pay fees. Negotiable, but usually between 1.25% – 2.5% of the price plus V.A.T.
Lawyers’ Fees Fees vary between 0.5% – 2% of apartment price, plus V.A.T. This depends on whether or not the lawyer has to do additional work such as keep escrow accounts or procure the mortgage for the client. Fees vary between 0.2% and 0.5% of the price plus V.A.T. plus a fee of 200 – 300 pounds plus V.A.T. for handling the legal work on a new mortgage.
Title Search Completed by the lawyer. Title insurance exists but is not very prevalent. The Buyer’s lawyer registers a notation in the land registry after the first payment is made to prevent sale of the property to a third party. This notation gives the purchaser precedence against any future impediments that might be registered on the property after the signing of the contract and before registration of title in the Buyer’s name. The Seller’s solicitor supplies copies of title documents and before completion the Buyer’s solicitor effects a search to ascertain whether or not any new entries or impediments show up on the land register. The Buyer’s solicitor also commissions local authority searches and often a search on environmental matters.
One Lawyer for Both Parties Permitted. However, the lawyer may not represent one party to the contract against the other in case of a law suit resulting from the deal. If the lawyer has a personal connection with one of the parties (for example is a relative) or has a personal stake in the transaction he may not represent both sides to the transaction. Not permitted. In restricted circumstances, two lawyers in the same firm may represent seller and buyer if they are both established clients of the firm.
Payment Schedules The payment schedule varies depending on the needs of the parties. Some money is held in escrow against fulfillment of certain duties by the seller, but it is usually never 90% of the price. 10% at the signing (exchange of contracts). 90% at the completion of purchase. This applies to both existing properties and new construction.
Mortgages Mortgages can be transferred from one apartment to another (“Grirat Mashcanta”). The reason for this is that some mortgages have special rights attached (such as the oleh mortgage). The seller can transfer such a mortgage to his new apartment so as not to lose these rights. This whole process also affects the payment schedule and is subject to the rules of the lending institution at the time of the new transaction. Mortgages can be transferred from one apartment to the other (“porting”) if the original loan terms so state – but subject to the lending institution’s lending criteria at the time of the new acquisition.
Taxes The purchaser pays Purchase Tax and the seller pays Capital Gains Tax.The purchase tax is calculated according to a sliding scale that is updated periodically. Olim and disabled individuals have a partial exemption from the tax. Buyer’s pay a higher purchase tax on a second apartment. Purchase tax for land, commercial property or vacation units is 5% of the price. The buyer pays a direct tax at the time of completion called “Stamp Duty Land Tax” (“SDLT”). The amount depends on the price ranging from 0% and 4%. From January 2011 properties above 1,000,000 pounds will suffer 5% SDLT. The seller pays Capital Gains Tax (“CGT”) on sale at profit, but no tax on sale of principal residence. Overseas investors pay not CGT. 
Linking of Price In the past when the U.S. dollar was strong the prices of second hand apartments were usually linked to the U.S dollar. Now due to the fall of the U.S. dollar against the Shekel the prices of second hand apartments are written in shekels and usually not linked to anything (except occasionally to the Israeli Consumer Price Index). The prices of new apartments under construction are usually linked to the Building Index, but are sometimes linked to the Consumer Price Index. Prices are not linked. Everything is in Pound Sterling.
When Is The Deal Binding? Upon signature of both parties on the contract. At the point of formal “Exchange of Contracts”. This is customarily effected over the telephone between the lawyers, in which they undertake to each other to dispatch the signed contracts and (in the case of the buyer) the cheque for the deposit. A memorandum of the exchange is prepared during the conversation. Often the solicitors sign the contract for their clients.
Protection of Monies In contracts for new apartments still under construction, the money is protected by a bank guarantee or insurance policy.In a second hand sale a notation to the benefit of the Buyer is registered with the land registry or a pledge to the benefit of the Buyer is registered by the Registrar of Pledges The deposit of 10% (sometimes 5%) is paid to the seller’s lawyers as stakeholder in which case the money must be retained by the Seller’s lawyer. In this case no protection is necessary. In some cases the deposit is paid to the Seller’s lawyers as agents for the Seller (the money is not retained by the Seller’s lawyers) in which case it may be appropriate to protect the deposit by lodging at the Land Registry a Unilateral Notice.
Who Pays the Construction Company’s Legal Fees? Usually the buyer. Sometimes it is incorporated into the price. The construction company.
Long term lease Much of the land is held under a long term lease. The buyer gets a long term lease for 49 or 99 years from the government. Due to a change in the law in 2010 this is beginning to change and many long term leaseholders will get direct ownership in the land.  The State is not a substantial land owner. Virtually all land and most houses are sold freehold. In the case of apartments,  the are virtually always sold by a developer on a long lease –  say 125 or 150 years and sometimes 999 years. Lessees have the right by law to force lessors to sell them a 90 year extention to the lease, to alleviate the dwindling term.

 
At the present time V.A.T. in Israel is 16% of the fee. In the U.K. V.A.T. is presently 17.5% of the fee but is scheduled to go up to 20% from January 2011.

I would like to thank John Chart, a (partner/ solicitor) with the firm of Barnett Alexander Conway Ingram LLP in London for writing the U.K. side of this article. John Chart can be reached at J.Chart@bacisolicitors.co.uk or at 020 8349 7680.

Leave a Reply

Your email address will not be published. Required fields are marked *