In accordance with the Property Law, 5729 – 1969, for a property transaction to be binding it must be in writing.
It is strongly advisable not to sign a memorandum of understanding or any other document, but rather only the sales agreement after a lawyer acting on your behalf has checked it, carried out negotiations and implemented changes in your favor.
The signature on a MoU or any other document of understanding is considered as a signature to a property contract in all respects and is binding on the signatories. Further, its limited phraseology limits the parties later on in their negotiations over the contract and will lead to the impairment of the rights of one or other of the parties. For example, the purchaser might discover at a later stage defects and/or hidden problems that impact on the seller’s rights in the apartment, such as liens, mortgages, demolition orders and the like that apply to the apartment.
The cancellation of a memorandum of understanding may drag you into legal action and unnecessary costs, and even into the payment of compensation to the other party for breach of contract.
Furthermore, from the moment you have signed a memorandum of understanding, even if thereafter no contract is signed and the MoU is cancelled, you may still have to pay fees to the agent (assuming one had been involved in the deal, and in accordance with the cumulative rights detailed in the Agents’ Law), despite the fact that at the end of the day nothing ever came of the transaction.
In terms of reporting obligations, the tax authorities view the date of signature of the MoU as the date of the transaction (even if a full contract is subsequently drawn up). The count of the number of days for submitting reports (e.g. Betterment Tax forms) starts from the date of signature of the MoU.
To summarize, do not rush to sign a MoU, but rather wait patiently to sign the detailed sales contract after your lawyer has completed their work and has informed you that you may sign the final version of the contract.
The above is offered as general information only and should not be considered legal advice and/or an alternative to a lawyer and/or the provision of an expert opinion. To obtain legal advice you should consult a lawyer specializing in real estate and property taxes.
Eyal GUR, Law Offices & Notary
1 AZRIELI Center
The Rond Tow- 34 th Floor
132 Derech Menahem Begin TEL-AVIV
Tel : 00972-3-6074666
Fax : 00972-3-6095500