Real Estate Lawyer
Real estate combination transactions
A combination transaction is a type of exchange transaction in land / real estate, the transaction is made between a developer and a landowner.
In this transaction, the owner of the land sells to the developer the land he owns or a part of it, and in return he is entitled to receive rights in the future on some of the housing units / construction, which the developer built on this land.
מאת עו״ד ונוטריון יגאל מור
דיוק בייעוץ המשפטי. מצויינות בליווי המשפטי.
How does a combination transaction work and what are its different stages?
It is a type of real estate transaction where landowners exchange their rights in the land with developers or contractors for a portion of the future real estate that will be built on the land. This is in essence an exchange transaction in which a contractor receives land for construction without having to invest capital, while the land owner receives a share in the land to be developed. By doing so, parties reduce their expenses and sometimes reduce their risks.
In the first stage of a combination transaction, the contract between the parties specifies the portion of land that the landowner will sell to the developer and what portion will remain with him. Certainly, the extent to which the landowner will receive assets from the contractor will be determined. A second stage involves obtaining permission for the construction plan and then beginning the construction work. Upon completion of construction, the developer must transfer to the land owner the number of properties stipulated in the contract.
In general, you should be familiar with two types of combination transactions. The main difference between them lies in the amount of risk and profit expected by the parties. First, there is the net combination transaction, where the parties agree in advance on a net price that the land owner will receive and therefore the developer is responsible for paying the accompanying taxes. A “percentage combination transaction”, on the other hand, refers to situations where it is agreed in advance what percentage the landowner will receive from the property to be built.
There are several advantages and disadvantages to a combination deal.
Most of the time, it is a “win-win” situation, since the land owner makes a significant improvement to the property he owns, and the developer is not required to invest equity in the land or raise capital. It is true that, in most cases, the taxes imposed in a combination transaction will be lower than those that would apply in a normal real estate transaction, thus allowing the parties to reduce their expenses.
In contrast, the parties assume other risks, such as the contractor’s insolvency (bankruptcy) or disappearance to the landowner before the project is completed. There are also questions that arise in this case regarding those who legally purchased apartments from the executive contractor, and whether or not they are entitled to compensation from the landowner? These cases differ in the courts’ positions, and you can find judgments here and here:
In the case of Weinbard v. Rockman, the court ruled that when the agreement between the landowner and the contractor is canceled, the agreement between the contractor and the apartment buyers is also canceled. Following the Hovani and Nachshon rulings, the Supreme Court ruled that the land owner is obligated to the apartment buyers by way of a warning note that he must send them. According to Judge Amit’s ruling,Apartment buyers’ status has changed as a result of the cancellation of the agreement between the landowner and the contractor. It is known what has occurred, so I will not elaborate. Initially, the rule was… Rockman, Winbard N. In the Windbard Rule, it was held that the cancellation of the combination agreement in any case results in the cancellation of the warning notes of the apartment buyers, since the apartment buyer has no more than the contractor does. The Winebard rule ruled the cap until the rulings in the case of Hobani v. Dikla Construction Company and Investments Ltd…. Nachshon v. Shay (see “Hovbani Laws” and “Nichshon Laws,” respectively). The land owner’s agreement with the contractor to register a warning note in favor of the apartment buyers establishes a legal relationship between the land owners and the apartment buyers.”.
Furthermore, it is important to note that even a contract that allows the land owner to delete the warning notice in favor of apartment buyers may not necessarily be complied with by the court. As an example, in the ruling that dealt with the Burstein case, it was agreed that the owner of the land could cancel the warning note and all associated rights. In spite of this, the court prohibited the deletion of the comments where the contract did not explicitly state how this could be accomplished.
A lawyer can provide assistance in combination transactions in real estate -
What is the importance of this matter?
Additionally, there are “additional players” involved in the combination agreement. For example, the buyer of the future property that will be constructed on the land in question, or the bank accompanying the transaction. In view of this, a combination transaction is a complex transaction that entails certain risks.
By consulting a lawyer before making the deal, each party may be able to avoid mistakes and protect their interests. It is important to obtain legal support both during the stages of drafting the details of the contract, in which the lawyer will ensure that the formulation assures the client maximum profit with the lowest amount of exposure, and during the phases of planning taxation of the combination deal. Using a lawyer who specializes in taxation, you can conduct tax planning and lower the amount of taxes you owe by minimizing them.
Real estate, planning, and construction at Adv. Mor & Co. is a department that has a great deal of experience in both real estate transactions and planning and construction procedures.
Professional legal support is the value that leads the firm in real estate transactions and planning and construction procedures, and this in order to bring both to the desired and most efficient result for the client.
We can help you with real estate issues when you contact us by phone at 02-595-3322, via WhatsApp at 050-811-6181 or using the online contact form below.
