The procedure involved in buying or selling a property differs substantially between Canada and Israel. Here is information that will help you avoid the pitfalls. (This article will deal exclusively with the buying and selling of private residential property as opposed to vacant land or commercial or industrial property even though there are many similarities involved).
When does the lawyer get involved?
In Canada, the process of purchasing a property is by “offer” and “acceptance” of the offer. One party – either the seller or the buyer – initiates the process by making an offer in writing (the “Offeror”). In the offer he lists the price at which he is prepared to purchase/sell the property. The offer will also include certain conditions which the other party must comply with before there is a legal contract. If the party (the “Offeree”) accepts the offer in the form received within the time prescribed in the offer, then a legal contract comes into being. Alternatively, the “Offeree” can reject the offer and make a “counter offer” wherein he states the terms under which he would agree to do the deal. The “Offeree” then becomes the “Offeror” and the parties keep exchanging “titles” until all the terms of the Offer are accepted by both parties.
In most cases, the conditions requested (usually referred to as “requisitions”) are usually the same in transactions which are similar and, basically, the purchase price is the determining factor as to whether the offer will be accepted or not. Until this stage, there is usually very little involvement by a lawyer. Most of the negotiations between the parties in a “standard” transaction are performed by the real estate broker on a prescribed form document. In most cases an experienced broker is familiar with the conditions which are required to be inserted in the offer though at this stage, the lawyer is often requested to review the conditions of the offer. Once the economic question has been agreed to, the lawyer gets involved to ensure that the conditions are met. These conditions may relate to title issues, planning issues, zoning issues, etc… The lawyer has to be satisfied that all the conditions which are significant or “deal breakers” are resolved prior to “closing” (“closing” is the end of the transaction when the buyer transfers the balance of the money to the seller and clear title and possession are given to the buyer). In Israel the situation is different in that a lawyer in engaged at the outset. The parties negotiate a price as well as the other terms (usually orally) and then the lawyer of either the buyer or the seller drafts the document. The contract is then sent to the lawyer of the other party and the two lawyers finalize the terms of the contract as per the directions they receive from their respective clients. (As an aside it should be pointed out that, under Israeli law, in certain cases a lawyer can act for both the seller and purchaser simultaneously! Something unheard of in most Canadian provinces! I will deal with that issue below).
The purchaser’s lawyer is basically expected to have executed all the necessary searches before a legal contract is signed or alternatively to have included safeguards in the contract to adequately protect his client until the condition is fulfilled. For example, the purchaser’s lawyer is expected to check the title of the property before the contract is signed. As mentioned above, it is very common for a lawyer in Israel to represent both the seller and the purchaser. This usually results in a minor saving of the lawyer’s fee by the buyer and seller. Needless to say, if there is any conflict of interest the lawyer must resign and is not allowed to represent either side. This is one of the differences between the two legal systems which is difficult for a Canadian lawyer to comprehend. Therefore, it is my practice to recommend that each party has its own representation unless both parties themselves convince me otherwise (such as in a close family situation). The saving of a few hundred dollars is not worth ruining a relationship with a relative or friend especially when the transaction may involve hundreds of thousands of dollars.
Another major difference is the treatment of escrow/trust funds. In Ontario, there are strict requirements as to the treatment of escrow/trust funds. A lawyer is required to open up a separate bank account in the beneficiary’s name. The lawyer is obligated on an annual basis, to provide all details relating to the use and investment of such funds he is holding. The lawyer’s statements are also audited on an annual basis. When I first began practicing law in Israel in 1986, I was shocked to learn that there is no such mechanism in place in Israel. The Law Society in Israel does not monitor trust accounts. So if you are entrusting your attorney with escrow funds, it would be wise to use a lawyer who has been recommended.
Contract or memorandum?
Another practice common in Israel is the signing of a “memorandum”. A memorandum is a document which is supposed to contain all the necessary terms to show that the buyer and seller had a common intention to buy/sell the apartment. For all intents and purposes, the “memorandum” is a binding contract if all the material terms are included in the document and is signed by both parties. The memorandum is usually initiated by pressure from the real estate jerusalem israel agent who receives his commission when the agreement is signed. It is my practice to recommend that a “memorandum ” not be used because on the one hand the memorandum binds the parties but since it is a document which is prepared at the meeting of the parties and is usually drafted on the spot, it often happens that a necessary term may be omitted and the question arises as to whether it is a binding document or not. Many cases have turned on whether the memorandum does or does not fulfill the legal requirements of a contract. The last thing you will want to do is litigate on an issue like this.
Another major difference between the two systems is the issue of “title insurance”. To the best of my recollection, every transaction of the sort described above in Canada would warrant the purchase of title insurance. This minimal expenditure basically protects and insures the purchaser that if there are any defects or claims against the title to the property, and this title insurance will compensate him for his loss. In Israel, the concept of title insurance does not exist! When one purchases a property in Israel, the lawyer acting on your behalf is basically ensuring your title to the property.In other words, if you purchase a property and it turns out that you did not get good title, then your recourse is to sue your Israeli lawyer for negligence – not a pleasant thought but that’s the situation in Israel. (As an aside there was an attempt to introduce title insurance into Israel several years ago but, unfortunately, it never got off the ground).