A meaningless ‘revolutionary’ law

The new law that limits attorneys’ fees on new apartment purchases is ineffective and unjust.

A renovated Israeli apartment (photo credit: URIEL MESSA)
A renovated Israeli apartment
(photo credit: URIEL MESSA)
An amendment to the law limiting attorneys’ fees on the purchase of new apartments came into effect during January almost without notice. Although the law purports to be a dramatic change in favor of the apartment-buying public, in effect it is meaningless and even harmful to buyers.
Under the new law, contractors may no longer demand that apartment buyers pay the project’s attorney at the customary rate of 1.5 percent of the apartment’s value, but only 0.5% of its value or NIS 5,000 – whichever is lowest. This amendment is not final and will soon be reviewed by the High Court of Justice.
On the face of it, the amendment is a revolution, a reduction by half and more of one of the most substantial expenses involved in purchasing a new apartment.
However, in effect the new law is meaningless, as contractors simply raised apartment prices accordingly immediately as the amendment was passed; the total cost from the apartment buyers’ perspective did not decrease at all.
Furthermore, the limitation in the new law does not apply to the amount of the attorney’s fee, as attorneys can continue demanding the full fee of 1.5% from contractors, but only to the apartment buyers’ rate of direct participation in that fee.
A real estate lawyer’s job is to accompany the entire project from beginning to completion. His or her duties include a legal examination of the land and the owners’ rights; preparing the purchase or combination deal; taxing the deal; reducing tolls and levies with regard to construction; negotiating with the representative of each apartment buyer concerning the purchase agreement; preparing the agreement and related documents for any deal and signature meeting; reporting on all sales to a series of authorities; working with the buyer’s mortgage banks; and upon completing construction registering the project as a condominium and registering the apartments to the buyers’ names. This work and all its parts takes months, sometimes years, requires the highest degrees of thoroughness and meticulousness and is quite painstaking.
This workload, and the substantial professional responsibility it entails, merit with a doubt the customary 1.5% fee. This issue was even examined and authorized as fair and reasonable in the Tel Aviv District Court in a judgment in Civil Case 2713/06 (the Be’eri Towers case), that was upheld on appeal by the Supreme Court in 2013. Given that the Supreme Court has ruled that the fee is fair, is it then reasonable or justified to expect this work to be performed for half and even a third of the compensation? Experienced, skilled lawyers will always collect a fair fee that reflects the professional, high-quality product they provide during a their accompaniment of a project. Contracting companies that seek to offer buyers high standards of service, both in terms of legal security and construction quality, will continue to charge full market price to maintain that high standard. Indeed, this is what contracting companies have already done; the clear market trend is not decreasing attorney fees but increasing apartment prices.
Had the new law truly lowered real estate lawyers’ compensation, it would have probably had major adverse effects on the real estate market.
In my estimate, based on over 20 years of experience including in professional liability claims, the result would have been twofold: fewer professional lawyers entering the field, and poorer quality of work overall.
All apartment buyers know how solemn the occasion of signing a purchase contract is, and the potential for anguish and financial and other harm that can arise due to legal complications.
As the saying goes, “It’s expensive to buy cheap.”
The author is a founding partner of the Miller & Co. Law Firm, which specializes in real estate, and frequently deals with the accompaniment of residential projects.