Legal Ground: The downside of owning rental properties

Legal Ground The downsi

Investment in rental properties is popular with business entrepreneurs the world over. And while the buying of new apartments in Israel is down somewhat, more and more locals and foreign investors are investing in rental properties here. Returns of 8 percent up to 13% in some localities are certainly very attractive in these days of virtually vanishing interest rates. The favorite venues have been the smaller towns on the periphery of the country's population and business centers. Beersheba, with its lower-than-average property prices - but with a strong student population that needs rentals - is an example that springs to mind. Savvy investors are also looking at Safed, with its traditionally low house prices, especially now that a large university medical school is going to be established there. That will attract thousands of students, faculty members and service givers to the area - more so as Route 6 opens up the previously remote Galil. But does Israeli law provide you, the prospective investor-landlord with sufficient protection to safeguard your investment? Can you be sure of your ground if faced with problematic tenants? Will the courts protect you if rents are not paid or if your property is damaged by the occupants? When former justice minister Daniel Friedmann announced last year - with no small media fanfare - that he was overhauling the laws protecting landlords, the Israeli public was introduced to two salient facts: that recalcitrant and deadbeat tenants are a widespread phenomenon, or, as it was called by the legislators, makat medina (loosely translated as a national plague); and the existing laws gave inadequate protection. Horrific stories surfaced in the media regarding tenants, sometimes claiming poverty, settling in for years in rental apartments as if they were their own. Or worse, incalculable damage caused by recurring acts of vandalism causing much cost and angst to small landlords and greatly affecting their livelihood. The courts were at the time extremely slow in dealing with these cases; landlords found the cases slowly wending through the overburdened court system - sometimes taking years before any sort of resolution to the problem. The courts, including the Supreme Court, indicated clearly that landlords were not permitted to take unilateral action against recalcitrant tenants. Rulings were made that landlords were not allowed to cut off the electricity or the phones of a nonpaying tenant. Landlords were censured and sometimes even ordered to pay compensation to tenants when they attempted to take more robust action, such as changing the locks on doors of apartments where tenants had caused damage or were in fundamental breach of contract. So when Friedmann announced his reform of the law, he was applauded by hundreds of small (and larger) landlords across the country. His reform of the law was meant to change the ground rules. No longer would cases take months and years. From December 2008 onward, cases regarding evictions of tenants in breach were to be heard and decided upon by the court in no more than 60 days. At first, some jurists expressed skepticism. Would the much-harried courts be able to live up to the tight schedule laid down by the Friedmann reform? Doubtful, said many. But the courts have lived up to these requirements, and most have given judgments within the shortened period. More than nine months since the law took affect, it transpires that the courts are not the problem. It's the law that has severe structural faults and simply does not serve the landlords or provide them with adequate protection. The courts may indeed give their judgment within 60 days, but that is only half the answer. The landlord, having received such a judgment, cannot eject a tenant from the apartment. For this, he needs to take the judgment and present it to the Hotza'ah Lapoel - the court system's implementation arm. This is a whole legal procedure in its own right and can take months. And once the Hotza'ah Lapoel orders that the judgment be enforced, the long-suffering landlord has to dip into his pocket and pay for the moving van to take away the breaching tenant's belongings, as well as bear the cost of their storage. A further payment is required for a policeman to accompany you during the eviction procedure. If the tenant is an animal lover, you also will need to pay for a veterinarian. And once the truck and the tenants have disappeared into the far distance, you enter your apartment and are confronted with damage to your furniture and the walls, as well as the debts for the utilities and the telephone company. Does your judgment cover that? No, the fast-track, 60-day system does not deal with financial claims - solely with eviction. To get your money, you are invited to return to the court system and sue. Dr. Haim V. Katz is a senior partner in a prominent Israeli law firm with offices in Jerusalem and Tel Aviv. He has written several legal works on probate and land law including Buying Your Home in Israel.