Real Estate Combination Transactions in Israel
A combination transaction (also known as a “combo deal”) is a type of real estate exchange between a landowner and a developer. In this arrangement, the landowner sells the developer all or part of the land in exchange for a share of the residential units or built area that the developer will construct on the property. These transactions are a common and efficient tool in Israeli real estate development.
By Igal Mor, Adv. & Notary
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How Does a Combination Transaction Work?
In a combination transaction, the landowner exchanges rights in the land for a share of the future real estate that will be developed on it. This is essentially a barter arrangement: the developer acquires land for construction without investing upfront capital, while the landowner receives a portion of the completed project. Both parties benefit from reduced expenses, and in many cases, the transaction also reduces overall risk.
The combination transaction proceeds in several stages. In the first stage, the parties execute an agreement specifying the portion of land the owner will transfer to the developer and the share of the completed units the owner will receive in return. In the second stage, the developer obtains the necessary building permits and begins construction. Upon completion, the developer transfers to the landowner the number of units or the built area specified in the contract.
There are two primary types of combination transactions, distinguished by how risk and profit are allocated between the parties. In a net combination transaction, the parties agree in advance on a fixed price that the landowner will receive, with the developer assuming responsibility for all associated taxes. In a percentage combination transaction, the parties agree on a predetermined percentage of the completed property that the landowner will receive, with both parties sharing the tax obligations proportionally.
A combination transaction offers significant advantages for both parties, typically creating a mutually beneficial outcome. The landowner substantially improves the value of the property, while the developer avoids the need to invest equity in acquiring the land. In most cases, the tax burden in a combination transaction is lower than in a standard real estate sale, further reducing costs for both sides. However, there are notable risks as well—most critically, the possibility that the contractor becomes insolvent or abandons the project before completion. This raises complex legal questions regarding the rights of third-party apartment buyers who purchased units from the developer and whether they may seek recourse from the landowner.
Israeli courts have addressed these issues in several landmark rulings. In Weinbard v. Rockman, the court held that when the agreement between the landowner and the contractor is rescinded, the agreements between the contractor and apartment buyers are also voided. However, subsequent rulings in Hovani and Nachshon modified this approach, establishing that the landowner has certain obligations toward apartment buyers—particularly regarding cautionary notes (warning notices) registered in the Land Registry. These decisions reflect the evolving judicial approach to balancing the rights of landowners, developers, and apartment purchasers in combination transactions.
It is also important to note that even a contractual provision granting the landowner the right to delete warning notes registered in favor of apartment buyers may not be automatically enforced by the court. In the Burstein ruling, for example, the court prohibited the deletion of warning notes where the contract failed to specify a clear mechanism for doing so—despite the parties’ express agreement permitting such deletion.
Why Legal Representation Is Critical in Combination Transactions
Combination transactions involve multiple stakeholders beyond the landowner and developer—including future apartment buyers, financing banks, and tax authorities. Given this complexity, a combination transaction carries inherent risks that require careful legal management from the outset.
Engaging an experienced real estate attorney before entering into a combination deal can help each party avoid costly mistakes and protect their interests. Legal counsel is essential both during the contract drafting stage—where the attorney ensures that the terms maximize the client’s benefit while minimizing exposure—and during the tax planning phase. A lawyer with expertise in real estate taxation can structure the transaction to minimize the tax burden through strategic planning.
The Real Estate, Planning, and Construction Department at Adv. Mor & Co. brings extensive experience in real estate transactions, including combination deals and complex development agreements. Our attorneys provide professional legal representation designed to achieve the most favorable and efficient outcome for each client. To discuss your combination transaction, contact us by phone at 02-595-3322, via WhatsApp at 050-441-1343, or through the online contact form below.
