A New Client with a Unique Challenge
At the end of 2019, I was approached by a new client interested in purchasing a house in the beautiful, historical neighborhood of Ein Karem, Jerusalem. A local real estate agent had found the property, but from the start, it was clear the transaction would not be simple.
Uncovering Legal and Technical Issues
At the start there were several issues with the transaction:
- The house was a historical building, located in a historical neighborhood. This meant that certain rules concerning the preservation of a historical building needed to be adhered to.
- The house had been owned for the past 40 years by a woman who had passed away several years before.
- The will left by the deceased owner left her estate to a group of heirs, some of whom were non-Jewish foreign residents, which is problematic for this type of property.
- The will of the deceased owner appointed her lawyer as executor. He was instructed in the will to sell the house and distribute the money to the heirs in the manner set out in the will.
- The deceased owner had leasehold rights in the property, They were registered with the Israeli Land Authority (ILA,) which administers these types of properties. However, shortly before her death, she received notice from the ILA that the property could now be registered in the Israeli Land Registry Office (Tabu) and she was instructed to take care of this. Of course, she was unable to do this at that time.
- When checking the file of the ILA, I discovered correspondence about a court case against the owner filed by the heirs of her late common-law husband, who had died before her. They had sued for half the property and lost their case in court.
- There was the additional issue of my clients, the buyers, being foreign residents with no bank account in Israel. This meant there would be a problem with transferring funds to Israel and converting the funds to NIS for the transaction.
- This was a historical property. I had visited the house personally at the beginning of my work on the transaction. I noticed cracks forming in the historical part of the house. I also noticed that parts of the house were built at a later date.
Crafting the Strategy: Experts and Inspections
- I hired a preservation architect to visit the property to ascertain which parts of the house were historical and which parts were later additions. The architect also reported on what needed to be done for the preservation of the house.
- I hired an engineer who specialized in the preservation of historical buildings to assess the source of the cracks and determine what needed to be done to save the house. The engineer also provided an estimate of how much this would cost my client.
- I hired an appraiser to ascertain whether the additions were built after having received a building permit. In his report, he wrote that he was unable to ascertain whether there were building permits due to a fire in the archives of the municipality years ago, which destroyed the file for this house.
- In this case, the municipality would assume that the permits were in place. However, this did not solve the problem with the ILA. In the books of the ILA it showed that the owner had purchased long-term lease rights about 40 years before and that the size of the house in the contract was about 190 sq. meters plus “other areas”; however, the actual size of the house was over 400 sq. meters.
- In a case like this, the ILA could charge extra money from the seller during the transfer of title. This was a problem that should have concerned the seller more than the buyer, but a mistake made by the ILA would prove otherwise.
- I hired a surveyor to measure the plot of land and compare it with the registration in the Tabu. The surveyor also ensured the boundaries of the plot did not encroach over a neighboring plot or vice versa.
Navigating the Israeli Land Authority (ILA)
- I went to the ILA offices and discussed how to do the transaction. We needed to skip over a stage in the registration process, which would have seen the property registered in the names of the heirs. The ILA agreed to skip this stage and put a notation that there is an appointed executor.
- In cases where the Israel Land Authority (ILA) sends notice that rights can be registered in the owner’s name in the Tabu, this must be handled promptly. If not—such as in this case, where the owner had passed away—the ILA freezes the file until the registration is completed.
- This would have prevented us from transferring the rights in the ILA without first registering them in the names of the heirs in the Tabu. The ILA ultimately agreed to delay the Tabu registration until after the rights were transferred in their books from the deceased seller directly to the buyers, skipping over the heirs.
- I obtained a copy of the court decision in the case of the family of the deceased common law husband against the (now deceased) owner, and ascertained that there could be no appeals.
- I set my client up with an exchange company that would receive and convert his foreign currency and disburse the payments (i.e. legal fees, purchase tax, payments to professionals, and payments to the executor) of the transaction.
- I sent the buyers powers of attorney to be signed before the Israeli consul, allowing me to sign the contract in their names.
- Since the property was a sale by an executor of an estate, the law requires that the Family Court approve the transaction. Therefore, the sales contract to be signed would be a conditional contract. The condition was that the court approve the transaction.
- In the contract, I demanded that a considerable amount of money from the sales price be held in escrow with the executor of the estate against taxes (capital gains tax, betterment tax, and municipal taxes) and in case the ILA would demand money from the seller due to any illegal building.
The Transaction
At first, the transaction progressed according to plan.
The court approved the transaction. The buyers transferred the house’s price into the executor’s account and received the house. The buyers paid their purchase tax. The executor obtained confirmation of the taxes that the sellers are obligated to pay and submitted the documents to the ILA for transfer of rights to the buyers.
The ILA approved the transfer of rights without asking for any money from the executor. Therefore, the executor was allowed to release all the money to the heirs as set out in the sales agreement.
With the completion of the transfer of title, I began the work of registering the rights of the buyers in the Tabu. At this point, the property was registered in the name of the government as the owner, and I had to do a first registration of the property in the Tabu in the names of the purchasers.
My clients were also allowed to purchase ownership rights from the ILA. This would mean that instead of holding long-term leasehold rights, they would have direct ownership rights.
My clients opted for the purchase of ownership rights.
Overcoming Unexpected Complications
I was told by the ILA that I need to first apply to them for the purchase of the ownership rights and once this was paid for, the ILA would give me deeds with which to register my clients’ rights in the Tabu. The cost of the purchase of the ownership rights would be decided by the ILA based on the appraisal of the government appraiser.
I applied to the ILA as instructed.
After a couple of months, I was informed by the ILA that although they had the appraiser’s report (which they refused to show me), they discovered other problems. They claimed that a supervisor sent by them visited the property and discovered that the additions to the house were built illegally.
They wanted to charge my clients fees for use of the added areas to the house going back 40 years, and a fee for agreeing to a building permit allowing these additions retroactively.
This would have cost the buyers hundreds of thousands of NIS more.
I asked for a meeting with the head of the transactions department at the ILA in Jerusalem. I knew his family. His aunt, who also worked at the ILA, was one of my first clients when I opened my law office many years ago. When I was at the meeting, she walked in by chance and saw me. She remembered me and was happy to see me. She still works in the ILA. Anyway, I claimed the following:
- The money they are asking for should have been paid by the seller as per the law and as per the sales agreement.
- When the transfer of the leasehold from the seller to the buyer was done, they should have sent a supervisor then to check the issue of illegal building and claim this money from the executor. As per my request, there was money in escrow set up for just this purpose under the terms of the sales agreement.
- Since the ILA allowed the transfer of rights without asking for this money, thereby causing the executor to release the money held in escrow to be distributed to the heirs, the ILA cannot ask for this money now from the buyers.
- This is a historical building, the preservation work would cost a lot of money, and they should therefore be thankful that the buyers are doing this important work and therefore they should refrain from charging more money.
The Final Resolution: Victory for the Client
At first, the ILA refused to budge or admit their mistake. However, it turned out that at the time of the transfer of the leasehold rights to the buyers, the ILA did send a supervisor to check the property, and he found no illegal building and wrote as much in his report.
I immediately demanded to know the name of this supervisor and to see this report so that I could hold him personally responsible for his “mistake”. This scared the people from the ILA. They admitted their mistake in allowing the transfer of the leasehold rights without collecting this money from the executor. They therefore agreed to forego charging my clients for the use of the extra space going back 40 years. This meant that they waived their rights to collect a lot of money from my clients.
However, they still claimed that they couldn’t forego collecting money for their agreement to issue the permit, even though their negligence was the cause of the error in not collecting at least this fee from the executor at the time of the transfer of rights. I was not willing to accept this.
This meant war!
At this time, my clients were planning the project of preservation work on the house. There were cracks and dampness in the historical parts of the house, and they needed to preserve and restore the historical parts of the house.
By law, even though they were not adding onto the house, restoration of a historic property needed a building permit. One of the first things that needs to be done for the permit is the preparation of a dossier, which shows the history of the house (who lived there, what happened there, and who designed the house). It includes historical photos of the house through the ages.
The preservation architect, hired to obtain a building permit for the preservation work, prepared this historical dossier. In it he included pictures of the building going back over a hundred years.
These pictures showed that at the time the deceased owner had purchased the house back in the 1970’s all the additions to the house had already been built!
When the contract she had signed back in the 1970s stated that the size of the house was 190 square meters “plus other areas,” it meant that the 190 sq. meters was the new additions to the house and the “plus other areas” was the old historical part of the house.
When the deceased owner had purchased the rights in the house then all the areas of the house that existed then were factored into the price she had paid. To measure the size of the historical part of the house, it was necessary to bring in a professional surveyor who was able to measure and calculate the size of rooms that had arched and vaulted ceilings like his house did.
The ILA was too lazy to do this back in the 1970’s.
Even now, these measures were provided by my clients who hired a professional surveyor to measure the house as part of their efforts to obtain a building permit for the restoration work.
I presented this to the ILA. They then admitted to their error completely and agreed to allow my client to purchase the ownership rights without paying for any of the extra charges they were demanding before. My clients happily paid for the ownership rights, and I completed the registration of the ownership rights in the Tabu in their names.
Reflections on a Long Battle
The above story took place over several years. During this time, I met with the clerks of the ILA, fought with them, threatened them, and in the end found the solution that solved the problem for them (how could they explain to the boss the loss of funds due to their mistake) and for my clients.
Key Takeaways from the Case
This transaction, which stretched over several years, tested every skill I have as an Israeli real estate lawyer:
- Navigating complex historical property issues
- Managing government bureaucracy
- Negotiating fiercely to protect client interests
- Solving financial and legal hurdles for foreign buyers
Success in Israeli real estate is not just about understanding the law — it’s about persistence, creativity, and standing up for what’s right.
