Justice Minister signs off on new rules that allow apartment owners to cancel contracts with developers who didn’t meet obligations. But lawyers warn the compensation mechanism could encourage middlemen. Ministry: “The fines are much lower than normal contract penalties.”

By: Amiram Gil

If you’ve owned a flat in a renewal project in recent years, you probably know the feeling: the project stalls, nothing moves forward, and you’re stuck with a developer who doesn’t deliver. This happens in both demolition-rebuild (Pinui-Binui) and TAMA 38 (seismic reinforcement) tracks.

The law already allows residents to cancel deals in such cases and sign with a new developer, but many are hesitant. Why? Because canceling the deal might mean owing large compensation to the original developer.

It’s a complicated situation. Developers may have already invested heavily in the project — only to get stuck in bureaucratic approval stages through no fault of their own.

That’s why Justice Minister Yariv Levin recently signed new regulations that define exactly how much compensation developers can receive if residents cancel their contracts. The goal, says the Ministry of Justice, is to balance between the rights of developers and the need to let homeowners move on and work with someone who will actually get the job done.

Key Points of the New Regulations:

Pinui-Binui (Demolition-Rebuild Projects)

• If the developer signed with less than 20% of apartment owners → No compensation
• After 2 years, if the developer hasn’t signed at least 50% → residents owe ₪5,000 per apartment
• After 4 years, with less than 60% signed → ₪7,000 per apartment
• After 4.5 years, if the developer hasn’t submitted plans to planning authorities → ₪10,000 per apartment
• If the developer is a public body (like a municipality) → All compensation cut in half

TAMA 38 Projects (Seismic Reinforcement)

• If the developer signed with less than one-third of residents → No compensation
• After 18 months, with less than 50% signed → ₪500 per apartment
• After 3 years, if less than two-thirds signed → ₪700 per apartment
• After 3.5 years, if no permit request submitted → ₪1,800 per apartment

In all cases, the developer must remove any lien (“warning note”) registered on the property to receive the payment.

Goal: Cut Down on “Signature Traders”

The National Authority for Urban Renewal, which helped draft the rules, believes this will reduce cases where developers collect signatures just to resell them to someone else.

“Many homeowners avoided signing before because they didn’t know how much they’d owe the developer if they canceled,” says Adv. Idan Ben-Yacov. “Now there’s clarity. This puts pressure on developers to stop dragging their feet.”

Lawyers: Developers Shouldn’t Be the Only Ones Getting Paid

Some lawyers argue that residents should also receive compensation if they waste years stuck in failed projects.

“It’s unfair that homeowners lose years and miss out on better opportunities without compensation,” say attorneys Amir Adika and Tal Kadari in a legal opinion. “In some cases, people lose thousands of shekels a month due to the value gap between old and future apartments.”

Adv. Yaron Tikotsky agrees: “Developers who delay the process should pay damages to residents.”

But others worry the new rules reward “signature contractors” — middlemen who get people to sign deals they can’t deliver on.

“Developers are being penalized generically, even when delays are caused by external factors,” say Adika and Kadari. “There’s no distinction between serious developers and negligent ones. That’s illogical.”

Ministry’s Response: This Helps Residents

The Ministry of Justice responded:
“These regulations are designed to help apartment owners exit bad deals without having to go through lengthy legal battles. The fines are much lower than standard breach-of-contract penalties. This gives homeowners flexibility and legal certainty.”

They also noted the rules prevent shady practices:
“If a developer signed only a small portion of the residents, they’ll receive no compensation — eliminating the incentive for signature traders.”

_{**This translation is an approximation of the original article published in Hebrew by Globes. While care was taken to convey the main ideas and details accurately, certain phrases and legal terminology may have been simplified or adapted for clarity in English. For the full and official version, please refer to the original Hebrew publication.}