What to Check Before You Buy a Second-Hand Apartment

Buying a second-hand apartment is usually the largest transaction a person makes in their lifetime, and it is normally closed within a matter of weeks. Most of the problems that come to light after signing could have been discovered before it, through checks that take days rather than months. This guide sets out what to check, and in what order.

The First Question: Where the Right You Are Buying Is Registered

Before you examine what the documents say, you need to know which document is relevant at all. In some properties the right being sold is registered at the Land Registry (Tabu), in which case you obtain a registry extract (nesach rishum). In other properties the land is state-owned and registered in the name of the Israel Land Authority (Rama'i), while the leasehold right you are buying is administered by that body, in which case the document is a confirmation of rights. There are also properties in projects that have not yet been registered as a condominium, where the rights are administered in the books of a housing corporation. Whoever maintains the register is also the body with whom the transfer will actually be carried out, and that affects both the timetable and the means of protection available to you.

The Registry Extract: What You Actually Look At

In the extract you check who the registered owner is, and whether that is the same person who has signed the agreement with you. You check registered mortgages, attachments, caveats (he'arot azhara) in favor of other parties, and third-party rights such as a right of residence or a note recording a court order. In a confirmation of rights from the Israel Land Authority or from a housing corporation the information is usually more limited than in a registry extract, so supplementary checks are needed alongside it. A clean extract cannot be taken for granted, and an extract that is not clean does not necessarily disqualify the transaction: in most cases it simply calls for a contractual mechanism governing the removal of the entry before the money is transferred.

Who Signs, and With What Authority

Checking ownership answers the question of whose the property is, but not the question of whether the person signing with you is entitled to sell it. Where the sellers are heirs, a succession order or a probate order establishing their entitlement is required. Where the seller is a minor or has a guardian appointed for them, court approval is required. Where the signature is given under a power of attorney, its validity and the scope of the authority it confers must be checked. Where the seller is a company, you check the authorized signatories and the charges registered at the Registrar of Companies, as well as whether insolvency proceedings are pending against it. Transactions not infrequently blow up at precisely this point, after money has already been paid.

What Exactly You Are Buying: Attached Areas and the Condominium Plan

This is where a substantial share of disputes arise. A parking space, a storeroom, a roof, a yard or a balcony are not necessarily part of the apartment merely because the seller uses them. You need to check in the condominium order, in the plan and in the bylaws what has been formally attached to the apartment, and anything not attached remains common property. The gap between what is shown to you on the viewing and what is recorded is one of the most expensive gaps in second-hand transactions.

Building Irregularities and Permits

A balcony that has been enclosed, a room added on the roof, a separate dwelling unit created in the basement: all of these may be entirely lawful or exposed to enforcement proceedings, and the difference depends on the building permit and on the building file at the local committee. An irregularity also has financing implications: an appraiser acting for the bank will not attribute value to an area built without a permit, so an irregularity may reduce the mortgage or prevent it altogether. This is a check carried out before signing, not after.

Who Is Living in the Apartment, and On What Basis

Checking the documents does not cover the question of who is actually in possession of the property. You need to establish whether there is a tenant in the apartment, when the tenancy ends and whether that fits the handover date agreed, and whether any third party holds a right of residence or possession. A handover clause in the contract that is not backed by such a check is a promise that is hard to enforce.

Debts: What Actually Blocks Registration

Precision matters here, because not all debts are equal. A debt to the house committee (va'ad bayit) and a debt to the water corporation are personal debts of whoever held the apartment, and they do not block the registration of the rights in your name. It is still worth establishing what they are and dealing with them in the agreement, because the house committee may turn to you as the available address. A municipal tax (arnona) debt and a betterment levy (hetel hashbacha) debt, by contrast, do block registration in practice: the transfer of the rights is conditional on a clearance from the local authority and on a confirmation from the local committee, and without them the apartment will not be registered in your name even after you have paid the full consideration.

The Seller's Mortgage

Where a mortgage is registered over the apartment, the rights cannot be transferred until it has been discharged. The accepted route is a letter of intent from the seller's bank, setting out exactly how much must be paid in order to discharge the loan and undertaking to remove the registration once payment is made. The payment schedule in the agreement should be fitted to that document, and not the other way round.

The Agreement: Matching the Money to the Rights

The central principle in the contract is that payments and securities advance in step with the advance of the rights. In a property registered at the Land Registry, a caveat is recorded immediately after signing and before the substantial payment. Where the rights are administered by the Israel Land Authority or by a housing corporation there is no caveat, and the protection is built from other mechanisms: recording a notice in the relevant register, notifying the housing corporation, an irrevocable power of attorney and contractual securities. In addition, part of the consideration is held in escrow until registration is completed, and the handover date, the condition of the apartment on handover and compensation for late delivery are all expressly defined.

Why Money Is Held in Escrow at All

Registering the rights in your name is not a single act but the end of a chain of approvals: a clearance from the Israel Tax Authority in respect of capital gains tax (mas shevach) in the seller's name, a clearance in respect of purchase tax (mas rechisha) in your name, a clearance from the local authority confirming that there are no municipal tax debts, and, where required, a confirmation from the local committee in respect of the betterment levy. A single missing link is enough for the apartment not to be registered. That is the real reason part of the consideration remains in escrow until registration is completed, and it is also what turns the escrow clause from a formality into your central protective mechanism.

Taxation: What Each Side Pays

The buyer pays purchase tax, and for a residential apartment it is calculated according to graduated tax brackets that are updated from time to time and depend, among other things, on whether this is a sole apartment or an additional one. Note that the bracket regime applies to a residential apartment only: on the purchase of land or of a property that is not a residential apartment a flat rate applies, and that is a material difference in the cost of the transaction. The seller may be liable for capital gains tax, and in some circumstances is entitled to an exemption. Both parties are subject to fixed reporting deadlines to the Israel Tax Authority. The tax position should be examined before a price is agreed, because it directly affects the true cost of the transaction.

What the Documents Do Not Tell You

All of the checks above are legal and registration checks, and they say nothing about the physical condition of the apartment. A second-hand purchase is generally made on an as-is basis, without the inspection and warranty periods that apply on a purchase from a developer. A clean extract and a valid permit are no guarantee of sound plumbing or of the absence of damp, which is why it is customary to commission a home inspection or an engineer's survey in parallel with the legal review.