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Buying into a Pinui-Binui Building: What You Inherit

Q: Can I refuse to join the pinui-binui agreement after buying?

Usually not without consequences. The sale contract will require you to assume it, the caveat secures it, and the Pinui-Binui (Compensation) Law allows other owners to claim against an unreasonable refuser once the required majority has signed.

Q: Who represents the owners against the developer?

Typically an owners' representative committee and a lawyer paid by the developer but owing duties to the owners. As a new owner you are entitled to their information and should ask for it.

Q: Is the new apartment guaranteed?

Only to the extent the agreement provides security. Ask what guarantee is given, when, and by whom, and have your lawyer compare it with the securities listed in the Sale (Apartments) (Assurance of Investments) Law.

Old apartment block beside a rendering of a planned replacement tower

If the apartment you are buying sits in a building whose owners have signed a pinui-binui (evacuate-and-rebuild) agreement with a developer, you are not only buying an old apartment. You are stepping into the seller's contractual position: the right to a new apartment on completion, the obligations to vacate and cooperate, and whatever conditions and risks the agreement contains. Everything you inherit is written in that agreement and in the documents around it, so the diligence is mostly reading.

How the seller's agreement binds you

Pinui-binui agreements almost always contain a clause requiring an owner who sells to make the buyer sign on to the agreement, and the developer usually registers a caveat (he'arat azhara) in the Land Registry under the Land Law 5729-1969 to secure its rights against the apartment. The sale contract between you and the seller will therefore include an assumption of the developer's agreement, and the developer may need to confirm the transfer. Check whether the developer's consent is required, whether it can be withheld, and whether a fee or a new signature is involved.

What stage the project has reached

The value of what you inherit depends heavily on how far the project has progressed. Ask for written evidence of the stage, not a verbal summary.

Signature stage: the developer is collecting owner signatures. Under the Pinui-Binui (Compensation) Law 5766-2006, once the majority set in that law has signed, an owner who refuses without reasonable grounds can be liable in damages to the other owners. As a buyer you become one of those owners.
Planning stage: a plan has been submitted or approved by the planning committees under the Planning and Building Law 5725-1965. Ask for the plan number and status.
Permit stage: a building permit has been applied for or issued, and the conditions precedent in the agreement are being met.
Vacating stage: notices to vacate have been issued and rent payments during construction are due to begin.

What the agreement promises you

The new apartment: its size, floor, orientation, parking and storage, and whether these are fixed or subject to final planning.
The specification (mifrat) of the new apartment, which the Sale (Apartments) Law 5733-1973 requires to be attached to a sale of a new apartment.
Rent during the construction period and who pays it, including the mechanism if construction overruns.
Guarantees: what security the developer gives for the new apartment and for rent, when it is delivered, and whether it is a bank guarantee as contemplated under the Sale (Apartments) (Assurance of Investments) Law 5735-1974 or something weaker.
Who pays the taxes, levies and fees that arise from the project, including betterment levy and the tax treatment set out in the Real Estate Taxation Law 5723-1963 for pinui-binui transactions.

Tax treatment can differ for a later buyer

The Real Estate Taxation Law 5723-1963 contains specific provisions for pinui-binui deals that affect how the exchange of the old apartment for the new one is taxed. Whether a buyer who purchases after the agreement was signed is treated the same way as the original owner is a question for a tax adviser and depends on the facts and on the current wording of the law. Do not assume the seller's position transfers to you automatically.

Checks a foreign buyer should not skip

Read the full developer agreement, including annexes, not a summary prepared by the seller or the agent.
Confirm the developer's identity and that the caveat in the Land Registry matches the company named in the agreement.
Ask the owners' representative committee and their lawyer, who in pinui-binui projects normally act for the owners, about any disputes with the developer.
Check whether the Government Authority for Urban Renewal has published guidance or a standard agreement that the project follows, and compare the terms.
Decide whether you intend to live in the old apartment, rent it out, or hold it; each has different exposure to the vacating timetable.

Common mistakes

Pricing the purchase on the promised new apartment while the project is still at signature stage.
Not noticing that developer consent to the transfer is required.
Assuming the rent during construction is guaranteed when it is only a contractual promise.
Ignoring that the agreement may have an expiry date or conditions that allow the developer to walk away.
Relying on the seller's tax status instead of getting advice on your own.

FAQ

Can I refuse to join the pinui-binui agreement after buying?