Buying an apartment from a contractor versus buying a second-hand apartment – the legal differences, risks, and rights

One of the most important financial and legal decisions in life

Buying a home is often the largest and most significant transaction a person makes in their life. One of the main dilemmas for buyers is whether to purchase Apartment from a contractor (new apartment) or Second-hand apartment.
Beyond financial and personal considerations, this is a decision with consequences. Substantive legalities – Regarding liability, guarantees, taxation, schedules, risks and the level of protection for the buyer.

מאמר זה יסקור בהרחבה את ההבדלים בין שני סוגי העסקאות, בדגש על הדין הישראלי, פסיקה מרכזית, והיבטים פרקטיים – תוך התאמה לשוק הנדל”ן בירושלים.

What is purchasing an apartment from a contractor??

The legal definition

Purchasing an apartment from a contractor It is a transaction in which the buyer enters into a sales agreement with a developer or contractor, to purchase a new apartment – sometimes “על הנייר”, before construction was completed.

The main legal framework

The law applicable to these transactions is mainly regulated in
חוק המכר (דירות), תשל”ג–1973.

The law is intended to protect buyers of new apartments, and is considered a cogent law (which cannot be conditioned to the detriment of the buyer).

The unique protections when purchasing an apartment from a contractor

Guarantees and collateral

Section 2 of the Sales Law (Apartments) requires the contractor to provide the buyer with one of the following collateral:

• Bank guarantee

• Insurance policy

• Registering a warning note under certain conditions

Purpose of the guarantee: Protection of the buyer's money in the event of the contractor's collapse.

See:
ע”א 449/85 היועץ המשפטי לממשלה נ’ אפרופים שיכון וייזום בע”מ, פ”ד מב(2) 673

Warranty and construction defects

The law states:

• Test period – Depending on the type of defect

• Warranty period – 3 more years

During which the contractor is responsible for correcting construction defects.

See for example:
ע”א 5602/03 סגל נ’ שיכון ופיתוח לישראל בע”מ, פ”ד נט(2) 385

Delay in apartment delivery

תיקון מס’ 5 לחוק קובע פיצוי סטטוטורי לרוכש בגין איחור במסירה:

• No need to prove damage

• Compensation is graded according to the duration of the delay.

What is buying a second-hand apartment??

Transaction characteristics

A second-hand apartment is purchased from a private individual, when the apartment is already built, inhabited, and sometimes registered in the land registry.

העיקרון המשפטי: “ייזהר הקונה”

When purchasing a second-hand apartment There is no specific law that protects the buyer. Similar to the Sales Law (Apartments).
The protection mainly stems from:

• From the sales agreement

• Contract politics

• The duty of disclosure and good faith

See:
ע”א 8068/11 עזבון המנוח שמש נ’ בנק דיסקונט – Disclosure obligation in real estate transactions.

Disclosure and representation obligations in a second-hand apartment

What must the seller disclose??

The seller must disclose material defects known to him, such as:

• Severe moisture problems

• Construction irregularities

• Significant neighbor disputes

• Graphical problems

Failure to disclose may be considered a deception under Section 15 of the
חוק החוזים (חלק כללי), תשל”ג–1973.

Comparison between a contractor's apartment and a second-hand apartment

Key legal aspects

Taxation aspects – a fundamental difference

Purchase tax

• Purchase tax rates are essentially the same

• But in a contractor's apartment there is sometimes Payment schedule More comfortable

מע”מ

• בדירה מקבלן – המחיר כולל מע”מ

• בדירה יד שנייה – אין מע”מ

Unique aspects of purchasing an apartment in Jerusalem

Characteristics of the Jerusalem market

Jerusalem has unique characteristics:

• Multiple transactions “על הנייר”

• Urban renewal complexes

• Old apartments with complex registration

• קרקעות בחכירה (רמ”י, כנסייה)

In transactions in Jerusalem, it is required Extremely in-depth legal examination, both in developer apartments and second-hand apartments.

Common mistakes made by buyers

❌ Signing a memorandum

May be considered a binding agreement.

❌ Waiver of a lawyer on behalf of the buyer

The contractor's lawyer Does not represent the buyer.

❌ Failure to check the wording of the taboo / building permit

In a second-hand apartment – a critical mistake.

Central ruling in the field of apartment purchases

• ע”א 3912/90 Eximin נ’ טקסטיל והנעלה איטל סטייל – Good faith and duty of disclosure

• ע”א 1932/90 קסטנבאום נ’ משרד השיכון – Interpretation of sales contracts

• ע”א 7991/07 רוזנברג נ’ שיכון עובדים – Construction defects

Summary: Which deal is better??

There is no single correct answer.
Apartment from a contractor provides Statutory protections But it involves planning and schedule risks.
A second-hand apartment allows for immediate certainty – but requires strict legal checks.

Buying an apartment in Jerusalem? Don't rely on luck.
Whether you are purchasing an apartment from a contractor or second-hand, Professional legal assistance It is the key to securing your rights, protecting your money, and preventing costly mistakes.

Halevi Law Firm Offers:

• In-depth legal checks before signing a contract

• Support at all stages of the transaction – from the negotiation stage to registration in the land registry

• Treatment of apartments from contractors, second-hand and urban renewal

📍 The office in Jerusalem, Accompanying buyers from all over the city and surrounding areas
📞 Contact us for an initial consultation. – and ensure a safe and smart transaction.