The Sales (Apartments) (Assurance of Investments of Persons Acquiring Apartments) Law, 5735-1974 is a consumer law which provides arrangements the purpose of which is to protect the monies which a purchaser of a new apartment pays to the seller of the apartment and to ensure that in the event of failure of the transaction the purchaser's money will not go down the drain. So, for example, the law provides that the seller shall not receive from the purchaser - on account of the price of the apartment - an amount in excess of 7% of the price to be paid for the apartment if no security is given in respect thereof. The law provides for 5 means of security: (i) bank guarantee; (ii) insurance; (iii) pledge; (iv) caution; (v) ownership. The security most widely used is a bank guarantee and this is given, generally, when the project is accompanied by bank support.
Currently, according to the Value Added Tax Law, 5736-1975, value added tax is to be added to the price of the apartment which the seller is selling. Since according to the Sale law the 'price of the apartment' is defined as any amount which the purchaser is required to pay the seller under the sale agreement in connection with the acquisition of the apartment, it appears that – by law – the bank guarantee given according to the Sale law includes also the amount for the VAT component in respect of the sale. This is so even though the VAT component paid by the purchaser to the seller is transferred by the seller to the VAT Authority and in effect does not remain in the coffers of the project. Moreover, when the acquisition is made by a business, the purchaser is credited with the VAT component paid to the seller. Notwithstanding all of that, due to the definitions which were in place prior to the amendment of the Sale law, the seller was still required to provide the purchaser with a bank guarantee in the full amount which was paid by the purchaser, including the VAT component. Accordingly, it was required that a bank guarantee issued pursuant to the Sale law and funded from the project's coffer would also include amounts held by the VAT Authority and in the case of a sale a business which would be credited with the amount of VAT which had been paid, this would be even higher than the net amount.
In light of this, it was decided to amend the Sale law such that the seller will provide the purchase with a full bank guarantee after deduction of the VAT component which had been transferred to the VAT Authority, and this component is to deposited in a government fund to be established with the Ministry of the Treasury in order to secure its return to the purchase in the event of termination of the transaction and realization of the bank guarantee by law. This mechanism is intended to make financing less burdensome by reducing the costs related to the issue of the security in respect of the VAT component. In this manner, the legislature hopes to decrease the costs of apartment sales' transactions, without damaging the level of monetary protection afforded to the purchaser.
Section 18(a) of the Amendment provides that as a general rule (subject to exceptions concerning construction projects where the sales agreements for each of the apartments included in its were entered into on or after May 14, 2017), it will apply to an apartment where the sale agreement therefor was entered into as from the date the law is published, ie: as from March 30, 2017.
Reference: Sales (Apartments) (Assurance of Investments of Persons Acquiring Apartments) (Amendment No. 9) Law, 5777-2017.
