Part I

Some time ago, Mr. Slomowitz (name and details have been changed) rushed into Epstein & Co. Law office and appealed for help. Just a few months earlier, a family member had helped this anxious buyer to purchase an apartment in Israel. Everything had been going fine until two very disturbing incidents occurred suddenly and simultaneously.

While enjoying his morning coffee, Mr. Slomowitz heard a knock at the door. Opening the door, he was surprised to see a municipal building inspector standing there. The inspector proceeded to tell him that the apartment he had purchased had a building offense and that he might be prosecuted and issued an administrative demolition order by the municipality for the areas of the apartment that had been built illegally.

In the late afternoon, a second disturbing incident occurred. His bank informed him that he had not received an approved mortgage loan for the full value of the apartment as he had depended on. This placed him in an untenable situation of having to finance his last payment on his apartment purchase.

These two incidents are directly related. In Israel, many apartment owners have added sections to their apartment that were built without a valid building permit. Simply put, these seemingly “inoffensive” additional areas are real building offenses. Adding to this problem, these offenses affect the calculation of the mortgage which in turn can affect the viability and capability of the buyer to complete an apartment purchase. In the next two articles, I will explain the issues that are involved and give you a brief understanding of what to be aware of.

Stay tuned to the end of thesecond article where you will learn what happened to our anxious buyer, Mr. Slomowitz.

The Planning and Building Ordinances

The purpose of the Israel planning and building ordinances is to set standards for buildings in Israel and regulate the building process. Among other requirements, these laws state that one must first obtain a building permit from the appropriate government authority before building any structure. Any construction undertaken without an official and valid permit, or that deviates from the conditions of the permit, is considered illegal construction.

One must consider that even slight external renovations require a permit. One must request a permit before undertaking any external changes, and in some cases even ones that seem to be internal.

The enforcement authorities (usually municipal but also regional and in some cases the central government) have the authority to demolish and/or penalize construction offenses. In addition, the authorities can issue an indictment and/or serve a demolition order without a conviction and in extreme cases, can issue an administrative demolition order, which does not require court review. The goal of the authorities is to caution and restrain people from building without permits.

According to the ordinances the authorities can indict a wide circle of people for committing a building offense. Of course, the central focus is on the owner of the property. Yet, the authorities can and have indicted the building permit holder, the owner of the apartment, the current tenant and the individual who performed the actual construction. In addition, the enforcement authorities can indict or issue an administrative order to the current or previous tenants, and most relevant to our current discussion, to the new owner of an apartment who purchased the apartment with a violation.

Buying an Apartment That Deviates From Its Approved Plan and Valid Building Permit (Even on Part of the Apartment)

Prior to purchasing an apartment, you must check whether any part of the construction of the apartment deviates from the apartment’s approved building plan and permit. If this is the case, then one must check if there is a demolition order or a caveat on the property from the local authorities or by court order, or whether an indictment is yet to be issued.

If a building offense exists and an indictment has not been issued, the buyer faces the risk of being charged for the seller and as yet not adjudicated or discovered offenses, for as we explained above, even the buyer who was not involved in the actual illegal construction can be issued a demolition indictment or charged with penalties.

Even if the buyer purchased the apartment from someone who has already been indicted or even convicted and there is still no permit, this buyer must realize that he/she may also be charged. In all probability, there will be a demolition order on the property that will be realized should the offenses not be corrected. The court and law enforcement authorities do not consider that the apartment has changed ownership; as long as the offense remains, they may issue a demolition order.

In our next article, we will describe how illegal building offenses cause a parallel reduction in the appraised apartment’s value, thus causing the mortgage bank to offer a lower mortgage (or none at all), among other possible implications.

This information is not intended to constitute legal advice and should not be relied upon in lieu of consultation with the appropriate legal advisors in your own jurisdiction.

By Yaacov Epstein

Yaacov Epstein, attorney at law, a graduate of business and law schools, practices in Jerusalem, Israel. He specializes in real estate and contract law, is a popular lecturer on real estate and is the author of the series “The Ins and Outs of Real Estate in Israel.” For comments and additional column suggestions, please email [email protected].