Fundamental breach of contract
- Buying an apartment in Israel
- Contract Structure
It is customary for the breach of contract to be considered as such when a party refrains from performing an action that was required under the contract, then the breach becomes a fundamental breach after another event has occurred beyond the elapsed time. This is usually a cautionary letter that warns the same party to correct another violation that will become a fundamental violation.
It is possible to define in the sale contract which provisions are fundamental provisions whose violation will constitute a fundamental violation of the sale agreement.
Not all instructions can be set as basic instructions. Important provisions relate to the seller’s obligations regarding statements related to the physical and legal condition of the apartment, as well as the seller’s obligation to deliver the apartment on time.
On the part of the buyer, these are provisions related to the timely payment of the amount due.
These provisions are important because in case the buyer is late in paying, he may cause the seller to be late in paying towards another apartment he is buying.
In the case of a chain of contracts, in which the seller, on the one hand, sells his apartment, and on the other hand and at the same time buys another apartment, and so on.
In addition, it is customary for the breaches in the contract of sale to become fundamental breaches only if the infringer has not rectified the breach despite the notice he received in writing, within a certain period of time.
It is customary for a person who violates a contract for a fundamental breach to be liable to the other party for an agreed compensation amounting to 10% of the amount of the balance due, all without the need to prove damage.
In addition, it is customary that the agreed compensation will be paid in addition to any compensation of the same party due to him under the sale agreement and the law. In this regard it is important to emphasize that by law, the courts are entitled to intervene and reduce the amount of the agreed compensation, even though the parties have agreed on it in the contract of sale.
Agreed compensation can be defined as ‘fine’ or ‘compensation’, with each definition having advantages and disadvantages. If it is a matter of a fine, then it is not possible to enter into a proportion of the amount of the fine. On the other hand, if the compensation is defined as a fine, the courts will more easily resort to intervening in reducing the fine.
If the payment is defined as compensation, then on the one hand it is worthwhile to show an appropriate ratio between the amount of the payment and the damages that may be caused to the injured party. But on the other hand, if such a reasonable ratio is found, the courts will be less inclined to intervene and reduce the amount.
The contract of sale may specify the legal proceedings that a party may take if a party fundamentally violates the contract. It can be defined that if the injured party is the seller, he will decide the agreed compensation when the balance of the funds is returned to the buyer. If he received money from a mortgage bank from the buyer, he will return it to the same bank. It will sometimes be agreed that these funds will be transferred to a lawyers’ trust account.
The seller will then cancel a cautionary note recorded in favor of the buyer, as well as a cautionary note recorded in favor of the mortgage bank if the buyer has received her mortgage money.
The seller must then apply to the court for a declaratory judgment regarding the cancellation of the agreement, and after receiving a judgment he must apply to the Real Estate Taxation Office with a demand to cancel the agreement. It is important to note that while the contract sets out the mechanism of cancellation of the contract if there is a case of a fundamental breach of the agreement, the real estate tax authorities will not recognize such cancellation unless both parties apply to the real estate tax office for it, or after receiving a judgment in the matter.