Court Rules Buyers Cannot Offset Defect Claims Against Purchase Price
The Jerusalem District Court ruled that apartment buyers cannot offset construction defect damages or late delivery penalties from the purchase price if contracts prohibit it.
The Jerusalem District Court ruled in a temporary injunction that apartment buyers are not entitled to offset damages for construction defects or delayed delivery from the purchase price if the sales contract explicitly prohibits it. The court determined that developers are legally permitted to waive the statutory right of offset in purchase agreements, overriding general provisions in the Sale Law that allow offsets.
The ruling means that buyers must first pay the full apartment price in order to take possession, and wait for a court verdict on their claims for compensation. The buyers announced plans to appeal the decision to the Supreme Court. Real estate developers routinely include clauses canceling the offset right in their contracts, and this decision reinforces the legal interpretation that such contractual conditions are enforceable.
The case centers on a couple who purchased a 16 million NIS penthouse on Dizengoff Street in Tel Aviv in 2022 from N.Z. Hoshen Residential Entrepreneurship and Construction as part of an urban renewal project. The apartment was originally scheduled for delivery in September 2023 but was only ready in January 2026. The buyers had paid most of the sum, leaving a remaining balance of approximately 2 million NIS.
Disputed Claims and Legal Arguments
The buyers claimed the apartment suffered from severe defects and failed to match the agreed specifications, lacking an attached parking space, an electric sun roof, and pergolas. They also argued the company failed to pay adequate rent for the two-year delay. Estimating their total damages at 2.8 million NIS—including 2 million NIS in rent based on 39,000 NIS per month—they issued an offset notice against the remaining balance despite the contract banning offsets. The developer refused the offset and withheld possession.
The couple filed a financial lawsuit alongside a request for a temporary injunction forcing the developer to hand over the apartment. Judge Yaron Mintkevitch ruled that offset is merely a payment mechanism rather than a substantive right, and parties can contract out of it. He noted that waiving the offset option does not detract from the buyers' right to claim damages later through standard legal channels. The judge ordered the buyers to pay 12,000 NIS in legal expenses to the developer.
Market Impact and Future Outlook
Adv. Moshe Moyal, founding partner at Moyal Malachi Law Firm, noted that the ruling clarifies an important issue in real estate transactions, providing strong certainty for construction companies and reducing the likelihood that buyers will unilaterally withhold payments over financial disputes.
"The rationale emerging from the court's decision is that an apartment buyer must complete the full payment of the apartment's price in order to receive possession of their home," noted attorneys Paz Rimer and Tzuk Rimer, representing the developer.
Conversely, the buyers' attorney, Noam Floyvinsky, stated that this was merely an interim decision on a temporary injunction. He warned that if standard contract clauses override statutory protections, the consumer safeguards enacted by the legislature are emptied of substance, forcing buyers to pay a breaching developer and wait years for compensation. The case is expected to reach the Supreme Court.
