As against the contractor, no. Under the Zlotsin rule, as applied in CA 8949/07, what you do with the money is no concern of the seller. Bear in mind that an unrepaired defect will affect the price of the apartment when you sell it.
How Much Compensation Is Awarded in a Construction Defects Claim: All the Components
In brief: Compensation starts with the cost of repair determined by the expert, usually the court-appointed expert. VAT and engineering supervision are added to that cost, without requiring the purchasers actually to carry out the repair. So held the Supreme Court in CA 8949/07 Ahim Ezra Building Company v. Zeev (18 November 2009). Alongside the cost of repair, compensation may be awarded for mental distress, loss of value, alternative accommodation and reimbursement of expenses. On the other hand, where the purchasers did not allow the contractor to carry out repairs, the compensation may be reduced to the cost the contractor itself would have incurred (CA 7799/01 Salim v. Sharbiv).
What does the compensation consist of?
| Component | What it includes | What the case law has held |
|---|---|---|
| Cost of repair | According to the opinion of the court-appointed expert | The appellate court is reluctant to intervene where the judgment relies on an expert appointed by consent (CA 8949/07) |
| VAT | On the cost of repair | An integral part of the cost of repair (CA 1772/99 Zlotsin v. Diur LeOle, PD 55(4) 203) |
| Engineering supervision | Where the expert determined that the repair requires supervision. A rate of 10% of the repair cost is customary in expert opinions | Awarded without being conditional on the repair being carried out (CA 8949/07) |
| Casual contractor premium | Where the purchaser will carry out the repair himself, at a price higher than the contractor's price | Various premiums have been awarded, for example 15% in CC (Krayot) 13552-06-22 Kasus v. Vradim (2024) |
| Mental distress | Nuisance, inconvenience and impaired enjoyment of the apartment | At the court's discretion (CA 5602/03 Segal v. Shikun U'Pituach) |
| Loss of value | A defect that cannot be fully repaired, or an area smaller than promised | In CA 8949/07, compensation for loss of value due to an area difference was upheld |
| Alternative accommodation | Where the repair requires the apartment to be vacated | Awarded where the court-appointed expert determined that the apartment could not be lived in during the repair. Where he determined that it could, it was rejected (CC (Herzliya Magistrates' Court) 44439-10-14 Boki; CC (Tel Aviv Magistrates' Court) 69533-11-17 Hanitzki) |
Why are VAT and supervision paid even if the purchaser does not carry out the repair?
In CA 8949/07 the contractor argued that engineering supervision should not be awarded without making it conditional on the repair being carried out. The Supreme Court rejected the argument. It held that the practice is to award engineering supervision and VAT alongside the cost of repair, and that what the purchasers do with the money is no concern of the seller.
The court relied on the Zlotsin rule (CA 1772/99), in which it was stated that it is no concern of the contractor "whether the residents carry out repairs or not". The logic is simple: even someone who sells the apartment without repairing it will receive less for it, because the next purchaser will pay the full cost of the repair, including VAT.
However, there are judgments in which supervision was not awarded, where the defects are simple and inexpensive and it is unlikely that a supervisor would be hired for them. This was the case, for example, in CC (Jerusalem Magistrates' Court) 11393-04-18 Dahan v. Boneich Bniya (2023).
When is the compensation reduced? The contractor's right to repair
The contractor has the right to repair the defects himself, under section 4B of the Sale (Apartments) Law. In CA 472/95 Zlotsin v. Diur LeOle (1996), the Supreme Court held that the choice between repair and compensation depends on the circumstances, and that delays or failed repairs justify monetary compensation.
The other side of the coin: in CA 7799/01 Salim v. Sharbiv (2002) it was held that where the apartment owners refused to allow the contractor to carry out repairs, the compensation would be calculated according to the cost to the contractor, not according to the price they would pay on the market. It is therefore unwise to refuse a repair without taking advice. More on this in the article Repair or Compensation.
Mental distress: how much is awarded?
There is no fixed tariff. In CA 5602/03 Segal v. Shikun U'Pituach LeIsrael (2005) it was made clear that the amount of compensation for mental distress is at the court's discretion. In practice, the relevant factors are the length of time, the extent of the defects, the disruption to life in the apartment and the contractor's conduct.
Ranges of amounts published online without a source are of no help. What counts is your documentation: photographs, letters, and a description of what the defect did to the daily routine at home.
Can the owner of the construction company also be sued?
Sometimes. As a rule, the party that signed the contract is the company. In CA 8949/07 the Supreme Court upheld the personal liability of the company's owner, because it was found that he had undertaken personal obligations towards the purchasers, for example by stating that he was "personally guaranteeing". Justice Rubinstein added that this must be examined on a case-by-case basis, particularly in family-owned construction companies.
It is therefore advisable to keep every undertaking given by the company's owner, orally or in writing, and to set out in the claim the facts that establish personal liability.
About the author
Amos Ilan, Advocate, is a lawyer (Bar No. 35320) and a notary (licence 214444). The office is at 17 Tzahal Street, Nes Ziona, and handles real estate transactions, construction defects, condominium disputes and civil litigation. Alongside his legal work he has practical knowledge, not based on formal training, of engineering, appraisal and electrical and building systems, and he personally conducts the cross-examination of experts in construction defects cases.
Disclaimer. Nothing in this article constitutes legal advice or a substitute for it. Each case is examined on its own facts and documents.
Questions and answers
I received compensation. Must I use it for the repair?
My engineer assessed a high amount. Is that what I will receive?
Not necessarily. In construction defects claims, the court usually appoints its own expert, and his opinion is generally decisive. Your own expert opinion is important for filing the claim and presenting the defects. See the article on engineers' expert opinions.
Are legal fees and expert costs reimbursed?
The court awards costs and legal fees at its discretion. They usually do not cover the full expense actually incurred.
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