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David Page
US Lawyer and Israel Attorney

Israeli Real Estate Due Diligence – 5 Main Risks

It’s easy to get wildly enthusiastic about real estate deals in Israel. Whether residential or commercial, a real estate acquistion in the Holy Land can be a dream come true for Olim and others.  But it’s important to keep in mind that like any real estate deal anywhere, your real estate lawyer will have to perform due diligence, together with your real estate agent, in ensuring that you’re really getting what you think you you’re getting.  It’s no accident that the largest share of legal malpractice cases hit lawyers in the Israel real estate space, there are a lot of mistakes to make.

In particular, when it comes to real estate purchases in Israel, conducting thorough due diligence is of utmost importance. Due diligence involves a comprehensive assessment and investigation of the property’s legal, financial, and physical aspects to ensure that the buyer is fully informed about the potential risks and benefits of the transaction. Failing to perform due diligence can lead to several risks that may have serious consequences for the buyer. Here are five risks of not conducting due diligence in real estate purchases in Israel.

1. Undisclosed Liens or Encumbrances:

One of the primary objectives of due diligence is to identify any existing liens or encumbrances on the property. Liens can arise from unpaid taxes, mortgages, or other financial obligations. Failure to uncover these hidden liabilities can result in the buyer assuming responsibility for these debts upon acquiring the property. This oversight may lead to unexpected financial burdens and legal complications.

2. Title Defects and Ownership Disputes:

Without conducting proper due diligence, there is a risk of purchasing a property with title defects or unresolved ownership disputes. These issues can arise from incomplete land registrations, missing or fraudulent documentation, or conflicting claims to the property. Acquiring a property with title defects or unresolved ownership disputes can jeopardize the buyer’s ownership rights, potentially leading to costly legal battles and even loss of the property.

3. Legal Non-Compliance and Zoning Issues:

Due diligence also includes verifying that the property complies with all applicable legal requirements and zoning regulations. Failure to identify legal non-compliance issues or zoning violations can have significant consequences. The buyer may be subject to fines, forced corrective actions, or even demolition orders if the property does not adhere to the necessary regulations. This can result in financial losses and the inability to use or develop the property as intended.

4. Historic Preservation and Archeological Issues:

Israel has strong regualtions and laws in place from the time of British rule involving historic preservation when renovating properties as well as the need to preserve archeological sites and the treasures they may contain.  By not performing an assessment of any historic preservation or archeological requirements, the buyer risks taking on the responsibility for remediation costs and potential legal consequences resulting from the contamination.

5. Financial Misrepresentation and Hidden Costs:

Inadequate due diligence leaves the buyer vulnerable to financial misrepresentation or hidden costs associated with the property. This can be particularly true in the area of taxation, where transactions in Israel real estate are often not fully mapped out from a tax planning point of view by your real estate lawyer involving the many types of taxes involving land in Israel.  Sellers may not fully disclose financial obligations such as outstanding debts, mortgages, or pending litigation related to the property. The buyer could be liable for these undisclosed financial burdens after the purchase. Without a thorough assessment of the property’s financial aspects, the buyer may face unexpected financial obligations, impacting their ability to finance the property or achieve the desired return on investment.

In conclusion, failing to perform due diligence in real estate purchases in Israel can expose buyers to several risks with potentially significant consequences. These risks include undisclosed liens or encumbrances, title defects and ownership disputes, legal non-compliance and zoning issues, environmental contamination, and financial misrepresentation. By conducting thorough due diligence, buyers can identify and mitigate these risks, ensuring that they make informed decisions and protect their interests in real estate transactions. Given the complexity of Israeli real estate law, engaging professional assistance from lawyers, real estate agents, and due diligence experts is highly recommended to navigate the process effectively and safeguard against potential pitfalls.  It’s important in this regard not to allow a starry-eyed enthusiasm to cause buyers to overlook real estate law issues.

About the Author
David Page is a US and Israeli attorney practicing law in Jerusalem as the principal of David Page Law. David is a graduate of Harvard University and the University of Chicago Law School, after which he went to study European law at the University of Paris and to clerk on the US Court of Appeals. David also has learned at the Mir Yeshiva, and has taught at the Faculty of Law of the Hebrew University of Jerusalem and published in the field. He served as regulatory counsel in an American Israeli high-tech company for more than half a decade and heads his own law firm in the real estate law, litigation, business and corporate law, wills, trusts, and estates and probate, tax, and trademarks fields, and is the founder and CEO of the innovative business legal-tech platform NoGranite ("some prefer their lawyering straight up, not on the rocks") www.nogranite.com. You can write David at david@davidpagelaw.com, david@nogranite.com or visit him at www.davidpagelaw.com or www.nogranite.com