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Legal Fees when Purchasing from a Contractor

One of the well-known expenses that anybody purchasing an apartment from a contractor is painfully familiar with, is legal fees paid to the contractor’s attorney. This payment, which the buyer is required to pay on top of the cost of the apartment, is generally a percentage (around 1.5%) of the cost of the apartment, plus VAT.

As a result of the resentment that accompanied this payment, legislative attempts have been made over the years to reduce and sometimes eliminate the obligation to pay the contractor’s attorneys’ fees, but so far no legislation has been passed.

Recently, the Bar Association issued a position which was even presented to the Knesset Economics Committee, wherein the Bar will support an amendment to Rule 5(b) of the Bar Association (Representing Transactions in Apartments), which require the contractor’s attorney to collect his fees in such a manner that the bulk of the fees shall be paid by the contractor himself.

It should be noted that the purchaser may still be required to pay for the legal work involved in registering the ownership of the property, but the payment will be a fixed fee and will be lower than what is accepted today.

Important note: due to the collection of fees by the contractors’ lawyers, courts have imposed increased responsibility on them towards homebuyers, and sometimes even obliged the contractors’ lawyers to compensate homebuyers who were damaged by improper legal services rendered by the contractor’s attorney. It is certainly possible that following the amendment of the law and prohibition on collecting fees from homebuyers directly, that the scope of responsibility which will be imposed on the contractor’s lawyers towards the homebuyer will be reduced.

Accordingly, before buying a property, it is highly recommended to consult with relevant professionals including an attorney on behalf of the purchaser, and not to rely on the contractor’s attorney.