Background
The appellants bought an apartment in a residential reinforcement and expansion project in Bat Yam. The contractor financed the project through a closed financial-accompaniment arrangement with two financing companies, granting them security interests over project assets and receivables. After the contractor defaulted, the financiers obtained the appointment of a receiver to enforce their security. Instead of paying the statutory sale-law guarantees and selling the project free of the buyers’ contracts, they chose to complete construction under the existing sale agreements.
The apartment was contractually due within 24 months after the building permit, which was issued on December 20, 2017. The agreement provided compensation, by reference to section 5A of Israel’s Sale (Apartments) Law, for a delay exceeding 60 days. The apartment was not delivered by the contractual deadline and remained undelivered because of continuing litigation, although the other buyers received their apartments by April 2, 2025. The buyers sought compensation from the receivership estate or, alternatively, permission to set it off against any unpaid purchase price. The District Court rejected the request, reasoning that the receiver was enforcing the financiers’ security rather than assuming all of the contractor’s obligations.
The Court’s Holding
The Supreme Court unanimously allowed the appeal. It held that when a project financier elects, through a receiver, to step into the contractor’s position and continue performing the buyers’ existing sale agreements, the contracts cannot be adopted selectively. Although the financiers incur no personal liability for the contractor’s obligations, delayed-delivery compensation accruing after commencement of the enforcement proceeding is an expense of the proceeding and therefore takes priority over the financiers’ secured claims. Compensation attributable to delay before the receiver’s appointment remains a pre-existing debt subordinate to those claims.
The Court remanded for the District Court to determine whether the buyers satisfied the contractual conditions for delivery and compensation and, if so, to calculate the amount due. It further held that compensation accruing after the receiver’s appointment may be set off against the remaining purchase price; compensation accruing earlier may not. The Court did not decide the buyers’ separate parking-space claim. The respondents were ordered to pay NIS 25,000 in costs.
Deputy President Noam Sohlberg agreed with the disposition and principal reasoning but cautioned that any agreement conditioning project completion on buyers’ waiver of statutory rights may conflict with the Sale (Apartments) Law’s mandatory protections. Justice Yael Willner left that issue open because no such waiver was presented in this case.
Key Takeaways
- A financier that chooses project completion instead of paying statutory guarantees must accept the continuing sale agreements as a package, rather than enforce only provisions favorable to it.
- Delayed-delivery compensation accrued before receivership is a pre-existing debt, while compensation accrued after the receiver continues the contracts is an expense of the proceeding with priority over the financier’s secured claim.
- Buyers may set off post-appointment compensation against unpaid purchase money, subject to proof of entitlement and calculation on remand.
Why It Matters
The decision establishes a priority rule for failed residential projects completed under financial accompaniment. It preserves secured financiers’ priority for liabilities generated before enforcement while preventing them from obtaining the benefits of continued buyer contracts without bearing the post-appointment costs of delayed performance.
The ruling also gives receivers an incentive to complete construction promptly and directs them to account for post-appointment buyer compensation when deciding whether completion is economically preferable to honoring statutory guarantees. Whether buyers may validly waive mandatory statutory protections as part of a completion arrangement remains unresolved.