The Law is meant for residential apartments. In a commercial property the buyer's protection is the contract and the security set in it, so they are checked carefully.
Commercial real estate and the Israel Land Authority
A transaction in a commercial property, an office, a shop, an industrial building or land, differs from a transaction in a residential apartment: the protections the law gives an apartment buyer do not apply, the taxation is different, and the value of the property depends on the permitted use and on the tenants in it. The office accompanies the purchase and sale of commercial real estate, commercial leases, and transactions in land managed by the Israel Land Authority, formerly called the Israel Lands Administration.
What is different about buying commercial real estate?
- No apartment-buyer protections. The Sale (Apartments) Law and the rules on securing buyers' investments are meant for residential apartments. In a commercial property the buyer's protection is the contract and the security set in it.
- The permitted use. We check what may be done in the property according to the registration, the permit and the applicable plan, and whether the business planned there can obtain a business licence.
- Existing tenants. An income-producing property is sold together with its leases. We check the leases, the security and the state of the payments.
- VAT. In a commercial property transaction the question of VAT usually arises, and the contract should state whether the price includes it.
- The state of the rights. Ownership or leasehold, mortgages, attachments and cautionary notes, exactly as with an apartment.
Taxation on buying and selling commercial property
Taxation on buying commercial property. Purchase tax on a property that is not a residential apartment is calculated at a single rate, without the reduced brackets of a residential apartment. The question of VAT is added to this.
Taxation on selling commercial property. A seller of commercial property is usually liable for land appreciation tax, and the exemptions given on the sale of a qualifying residential apartment do not apply. We check which expenses are deductible, and the option of spreading the gain.
The office files the declarations, represents clients before the Real Estate Taxation Offices, and files an objection where there are grounds. Tax planning is best done before signing.
Commercial lease
A commercial lease sets the relationship for years: term and options, rent and linkage, management fees, who pays for fit-out and renovations, permitted use, security, and the right to assign the lease. The tenancy laws meant for residential apartments do not protect a commercial tenant to the same extent, so almost everything is determined in the contract.
Where a tenant does not vacate at the end of the term, see Eviction claim. Commercial lease disputes are often suitable for arbitration in commercial real estate.
Israel Land Authority: leasehold, registration of rights and representation
A large part of the land in Israel is managed by the Israel Land Authority, which many still call the Israel Lands Administration or "the Minhal". In such a property the right is usually a leasehold, and handling it includes:
- Reviewing the lease contract: term, purpose of the lease, and whether the lease is capitalised.
- Registration of rights with the Authority: transfer of rights at the Authority where the property is not registered in the Land Registry, including the required approvals.
- Representation before the Israel Land Authority: applications to transfer rights and to regularise deviations.
- Registration of the rights in the Land Registry where the conditions are met.
For more on registration, see Land Registry, Israel Land Authority and housing company: where the rights are registered.
Real estate project support and disputes with a developer
The office accompanies landowners and investors in combination deals, in purchase groups and in engagements with a developer or contractor, and represents clients in the disputes that arise from them: a developer's claim or a claim against a developer for delay, deviation from the specification or failure to deliver the consideration. See also Combination deal on the office's transactions website.
Brokerage contract for commercial property
Under the Real Estate Brokers Law, 5756-1996, a broker is entitled to a brokerage fee only if the client signed a written order for the brokerage. Before signing a brokerage contract, check the rate of the fee, whether exclusivity was given and for how long, and exactly when the right to payment arises.
The transaction in four stages
- Checks. Rights, permitted use, leases, taxation.
- Contract. Drafting, negotiation and setting security and a payment schedule.
- Reporting and taxes. Declarations to the Tax Authority and handling assessments.
- Delivery and registration. Transfer of possession, assignment of the leases and registration of the rights.
What to bring to the meeting
- A Land Registry extract or confirmation of rights, and the lease contract with the Authority if any.
- The existing leases in the property.
- A draft contract or memorandum of understanding, if already signed.
- The details of the transaction: price, dates, financing.
Timetable and cost
Timetable: depends on the scope of the checks and the approvals required. A transaction in a property managed by the Israel Land Authority usually takes longer, because of the approvals the Authority has to give.
Cost: the fee is set in advance in a written fee agreement, according to the scope and complexity of the transaction.
Before signing a commercial property transaction
It is worth making contact before signing a memorandum of understanding or a binding offer. At that stage the terms of the transaction and its tax structure can still be set.
Questions and answers
Does the Sale (Apartments) Law apply to buying an office or a shop?
What is the tax difference between an apartment and a commercial property?
For purchase tax a commercial property does not have the reduced brackets of a residential apartment, and for land appreciation tax it does not have the exemptions of a qualifying residential apartment. In addition, the question of VAT usually arises.
What is a property "in the Minhal"?
A property whose land is managed by the Israel Land Authority, formerly called the Israel Lands Administration. The right in it is usually a leasehold, and transferring it requires handling before the Authority.
I bought a leased property. What happens with the tenant?
As a rule the buyer steps into the landlord's shoes, and the lease continues. So the leases are checked before the purchase, and the sale contract arranges the transfer of the security and the rent.
Must a brokerage fee be paid without a written agreement?
Under the Real Estate Brokers Law, a broker is entitled to a brokerage fee only if the client signed a written order for the brokerage.
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