Every day we hear how the real estate market is boiling over and prices keep climbing, with every seller demanding a higher price than the one their neighbour sold for, because the benchmark for that area has already been set.
This leads to a kind of “real estate cannibalism” — that is, several potential buyers compete over a single apartment, and each interested party tries to get their hands on it, tempting the seller to back out of the negotiations and cancel the deal.
This raises a number of recurring questions about cancelling the transaction, such as:
- Can an agreement be regarded as valid even though it was not signed?
- What is the significance of signing the sale agreement?
- In which cases will the court “waive” the signature requirement?
- Can the agreed compensation be claimed even if no damage was caused?
- Important recommendations before entering negotiations.
So that you can understand how to conduct yourselves properly as buyers or sellers, let us take a real-life case that occurred not long ago and change the names.
And these are the facts:
Shimon is the seller and Avraham is the buyer. The parties began negotiating the sale of the apartment, exchanged drafts between the parties’ attorneys, and agreed on the main points between them. In time, and before the sale agreement was signed, Shimon received an offer 150,000 NIS higher than the one Avraham had given him.
Shimon decided not to sell the apartment to Avraham, and following the parties’ cancellation of the signing of the sale agreement, Avraham filed a claim against Shimon, arguing that the negotiations had been completed and that there was intent to be bound (a will to sell) and definiteness (all the terms of the agreement had been agreed) for the sale of the apartment.
Shimon argued that throughout the negotiations between the parties, it had been agreed and made known to Shimon that until they (physically) signed a sale agreement, he was not bound to Avraham in any way.
Can an agreement be regarded as valid even though it was not signed?
To answer this question in the affirmative, two cumulative conditions must be met in order for an agreement to become binding: intent to be bound and definiteness.
As for intent to be bound, we examine whether both parties wanted to sign a binding agreement. The examination does not deal with matters that were merely a thought or a wish, but rather seeks to assess them by parameters that can be tested. It is important to emphasise that when examining the facts, the tendency is to look at the case not from the worldview of someone who was part of the transaction, but from the perspective of other (external) people and in an objective manner. For example, a buyer who had the option of purchasing another home and relied on the deal, refraining from carrying out another transaction, had intent to be bound (a will) to proceed with the existing deal.
It is important to note that a party’s reliance on a transaction can exist not necessarily at the time the parties sign the contract, but even earlier, at the moment it was created (including at early stages).
What is the significance of signing the sale agreement
Under the Land Law, a real estate transaction requires registration with the Land Registry; otherwise the transaction is considered merely an undertaking to carry out a transaction and nothing more. As a result, parties to a transaction sign a sale contract, but this is not a substantive requirement — only an evidentiary one — that does not detract from a binding agreement.
This is a further indication of intent to be bound to carry out a real estate transaction, and it is the examination of all the circumstances together that determines whether the parties intended to enter into the transaction. There may therefore be situations in which the court is persuaded that there was intent to be bound between the parties, despite the absence of a signature or signatures on the agreement.
In which cases will the court “waive” the signature requirement?
The answer to this question relates mainly to cases in which a party to a transaction tries to hide behind formalistic requirements in order to evade the transaction and frustrate its performance. Here are a number of questions, by way of example, that the court will seek to examine:
- Did the parties determine that the signature is a condition for entering into the agreement, or merely an additional step on the way to performing the contract?
- Was there an explicit clause stating that the draft is for negotiation purposes only?
- In the final draft, did the parties omit the words “for negotiation purposes only”?
- Does the agreement include all the essential details, or are there substantive matters that were not agreed?
- Was the date set for signing the agreement postponed for a technical or a substantive reason?
Can the agreed compensation be claimed even if no damage was caused?
If the court finds that a binding agreement was formed and a party chose to breach it, the agreed compensation amount can be claimed even if the plaintiff suffered no damage at all.
What is agreed compensation?
Agreed compensation is exactly what it sounds like. Agreed compensation creates a right to receive the compensation the parties agreed on, even if no damage was caused at all. After all, the parties assumed in advance that damage might be caused as a result of the negotiations and dealings between them, and agreed in advance to compensate one another should either back out of the understandings reached.
Can agreed compensation be claimed even if the injured party actually profited from the breach of the agreement? The answer is yes. Receipt of the agreed compensation stems from the agreement itself, and even if the party who breached the agreement proves that no damage was caused to the other party — and moreover that the injured party profited from it — that party will still have to compensate them in the agreed amount.
The court can indeed reduce the agreed compensation amount, but this power is exercised only in exceptional cases, where there is an unreasonable ratio between the compensation and the damage that could have been anticipated from the breach, and only to a limited degree.
Recommendations and matters to define before entering negotiations
Before entering into a transaction and conducting negotiations, the parties’ intentions should be defined in advance: Are these non-binding negotiations? May negotiations be conducted in parallel? Is the signature substantive? Do the parties wish to set agreed compensation? What are the substantive matters without which the agreement will not be considered binding, and so on.
In summary, it is advisable to “tie your shoelaces” well before entering negotiations and to align expectations, so that you can conduct the negotiations and, at their conclusion, sign the agreement without finding yourselves exposed to claims that could ultimately cause you financial harm.
Good luck.
