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What happens if a buyer pulls out of an Israeli property purchase after signing?

There is no statutory cooling-off period for real estate purchase contracts in Israel. Once a buyer signs the purchase agreement and pays a deposit, withdrawing without legal justification constitutes breach of contract. Under the Contracts (Remedies for Breach of Contract) Law 5731-1970, the seller may rescind the contract and forfeit the deposit (typically 10% of the purchase price), or instead sue for specific performance to force completion of the transaction. If actual loss exceeds the forfeited deposit, the seller may also sue for the difference after first returning the contractual penalty amount.

Israeli property purchase agreements (heskhem rechisha) routinely include a penalty clause stipulating that 10% of the purchase price is forfeited if the buyer abandons the deal without cause. This clause is given legal force by Section 15 of the Contracts (Remedies for Breach of Contract) Law 5731-1970, which allows courts to enforce pre-agreed liquidated damages. The seller does not need to prove actual loss to retain this amount. Separately, the aggrieved seller has the option to seek specific performance under Section 3 of the same law, compelling the buyer to complete the purchase. Courts will generally grant specific performance for real estate because each property is treated as unique, making monetary compensation inherently inadequate.

Foreign buyers face an additional complication: if they registered a cautionary note (he'arat azharah) at the Land Registry (Tabu) to protect their position before pulling out, that notation will remain on the title until formally cancelled, making it impossible for the seller to resell the property to a new buyer in the meantime. The seller must apply to court to remove the notation as part of resolving the breach. If the buyer paid in installments and then stopped making payments, the seller must follow a formal rescission procedure under Section 7 of the Law before treating the contract as terminated, including giving the buyer a reasonable cure period. Foreign nationals contemplating withdrawal should take legal advice immediately, because the consequences differ significantly depending on how far the transaction progressed and what the contract says about default.

⚖ In Practice
  • Governing law: Sections 3, 7, and 15, Contracts (Remedies for Breach of Contract) Law 5731-1970
  • Standard penalty deposit: 10% of the purchase price; the exact amount is set in the signed contract
  • Seller's options: forfeit the deposit and resell, or sue for specific performance; the seller chooses one remedy and cannot double-recover
  • Cure period: seller must give the defaulting buyer a reasonable period (typically 14–30 days) to remedy the breach before rescinding
  • Cautionary note (he'arat azharah): the seller must apply to court to cancel any Tabu notation filed by the defaulting buyer before marketing the property to a new purchaser

From the full guide: Property Purchase Agreement in Israel: A Complete Guide

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Get a Free Consultation with Adv. Eli ShimonyPrepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy

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