Two apartment buyers sued the company that built their building over construction defects before the warranty period ended, without giving it a real chance to make repairs. The District Court denied them any compensation for the defects, but the Supreme Court reversed, holding that the rule is to reduce compensation to the contractor's own repair cost, not to deny it.
What happened
Two buyers each bought an apartment in a residential building built by a development and construction company. The sale contracts were signed in 2016 and 2017, and the apartments were handed over in March and April 2021. After moving in, the buyers complained of many construction defects and asked the company to fix them.
In January 2022, before the warranty (inspection) period had ended, the two filed a joint claim for ILS 240,942, based on a report by their own expert. The company argued that the claim was premature, contrary to section 4B of the Sale (Apartments) Law, and that it had not been given an opportunity to repair. The court-appointed expert assessed the cost of repairs carried out by the contractor itself, noting that if the contractor had no right to repair, 20% should be added.
The road through the lower courts
The Magistrates' Court found that the buyers had not given the company an adequate opportunity to repair: one sued after a single request, and for the other there was no justification for suing during the warranty year, except for a defect in the safe-room door, which the company had been given a chance to fix and did not. The court therefore reduced compensation to the company's own repair cost. It awarded one buyer ILS 24,177 (including ILS 3,000 for distress over the safe-room door) and the other ILS 40,248, and ordered the company to pay ILS 9,000 in costs.
The District Court allowed the company's appeal. In its view, any compensation, even reduced, would empty the contractor's right to repair of meaning. It cancelled the compensation for the defects, except for the safe-room door, left the ILS 3,000 for distress in place, and cancelled the costs award.
The question decided
Does a buyer who sues during the warranty period, without giving the seller an adequate opportunity to repair, lose entirely the right to compensation for proven defects, or is the compensation only reduced? The Supreme Court noted that case law had followed two approaches and that it was time to choose between them.
The ruling
The Supreme Court unanimously adopted the rule of "adjusted compensation". Its main reasons:
- Section 4B(a) requires the buyer to give the seller a chance to repair, but does not say that a buyer who fails to do so loses compensation. When the legislature wants to take away a right, it says so expressly, as it did in the Contract for Work Law.
- The purpose of the section is to let the contractor make repairs itself and more cheaply, not to exempt it from liability for proven defects.
- Under the duty to mitigate damage, someone who failed to limit the loss forfeits only the part that could have been avoided, not the whole award.
- Adjusted compensation keeps the incentives right: the buyer does not get the open-market repair cost, and the contractor does not profit from delivering a defective apartment.
- The Sale (Apartments) Law is consumer legislation meant to protect the buyer.
Under the new rule, compensation will generally equal what the repair would have cost the seller had it done the work itself. In this case the gap was 20%, and in other cases it may be larger. In exceptional cases of blatant bad faith and deliberate frustration of the repair mechanism, a larger reduction is possible, and in extreme cases even denial of compensation, with the conduct also reflected in costs. Conversely, if the buyer had a justified reason to refuse repairs, such as a genuine breakdown of trust with the contractor, the buyer may receive full compensation.
The outcome
The application for leave to appeal was heard as an appeal and allowed. The District Court's judgment was set aside and the Magistrates' Court's judgment reinstated. The company was ordered to pay costs of ILS 5,000 to each buyer.
Key takeaways
- Found defects in a new apartment? Notify the contractor in writing, give it a real chance to repair, and keep a record of every request.
- Suing during the warranty year without allowing repairs will not wipe out your compensation, but it will likely cut it down to the contractor's own repair cost.
- An urgent defect the contractor failed to fix after a proper request may justify suing before the warranty period ends.
- If you have a genuine reason to refuse the contractor's repairs, such as a deep loss of trust, document it. It may justify full compensation.
- Bad-faith conduct, such as deliberately blocking repairs, can be costly, both in compensation and in legal costs.
This article summarizes a published Israeli court decision in plain language and is not legal advice. Every case depends on its facts. The parties' names have been omitted. This is a first-instance decision and may be appealed.
