Due Diligence is Vital Before Signing Real Estate Contracts
Real estate experts at the Globes and Bank Leumi conference emphasize that comprehensive legal and zoning due diligence is vital before signing contracts to prevent costly surprises and operational risks.
Due diligence in real estate transactions serves as an X-ray of a property or company. Before signing any agreement, buyers must ensure they are not purchasing a "pig in a poke." For instance, if legal claims arise against the seller prior to contract signing, the incoming buyer must receive all necessary information to make an informed decision.
Advocate Sagi Hammer, a partner in the real estate department at the law firm Fischer (FBC & Co), and Advocate Efrat Sharon, a partner and head of the planning and zoning department at the firm, discussed the due diligence process at the intersection of law, planning, and practice during the Globes and Bank Leumi Real Estate Conference.
Translating Legal Vision into Ground Reality
"When a client comes in with a business initiative, my role is to translate it into the legal and practical realm. We are essentially translators," Hammer explained. "In litigation, you look backward, argue for legal remedies, and examine whether grounds exist. Conversely, in transactions, you look forward, trying to anticipate future situations and provide solutions. A contract establishes in advance who bears responsibility if a specific event occurs later. Our intellectual challenge as attorneys is to foresee these scenarios."
Hammer noted that it is impossible to provide a solution for everything or predict every single scenario: "We present the risks to the client and explain which ones cannot be solved, so they can take everything into account when deciding whether to enter into the contract." The trick, according to him, is not merely raising "red flags," but presenting a report that includes practical solutions, such as insurance coverage. He added that to be a successful real estate attorney, one must think like a real estate professional and understand that you act as the "client's eyes," since the client cannot review every document personally.
When packaging the rules of due diligence, the Land Registration Office (Tabu) serves as the cornerstone. "Properties being purchased are frequently unregistered, and answers must be obtained from the seller. The review of the land registry excerpt dictates all subsequent checks," Hammer explained.
"Starting tomorrow morning, I step into the seller's shoes for all intents and purposes, which requires mapping all obligations: lease agreements, whether the land is state-owned, building rights and zoning plans (TAMA), and which building permit conditions might prove burdensome. We also examine lawsuits pending against the property owner, demands by the Israel Antiquities Authority, hazardous materials, and more."
Hammer cited an unexpected field incident: "During a certain project, we began excavation work, and the bulldozer stopped seconds before tearing through fiber optic cables servicing an entire central Israeli complex—something that was not marked anywhere. Had they snapped, the entire complex would have lost power, raising the question of who bears the risk."
Subsequently, Hammer addressed the importance of an anchor tenant as a magnet for visitors and additional businesses, while adding a caveat: "Long-term contracts with large, stable entities like banks or government offices may sometimes appear financially secure, but they can carry disadvantages. For instance, if a property is leased to the Ministry of Interior and it establishes an employment bureau there, it could harm the property's branding."
Planning and Zoning as the Key to Deal Success
Advocate Efrat Sharon of Fischer focused on the planning perspective. "There is no real estate without planning and zoning, and vice versa. The single most important element in real estate is planning and zoning, even before location," she stated at the outset, adding that in her role as an attorney, she occasionally acts as "part appraiser and part architect."
"We examine all planning elements so the developer's decision to enter the transaction is fully informed. All checks must be conducted prior to signing a term sheet to avoid buying a pig in a poke. We understand the deal's objective—acquisition, combination, financing, or tender—and that guides our planning approach," Sharon explained.
Sharon noted that checks determine whether property ownership is private or public, whether a lease agreement exists, planning cautionary notes, and discrepancies between building permits and actual construction. In condominium buildings, for example, lawyers verify which parts constitute common property and which can be annexed.
According to Sharon, attention must be paid to construction regulations, expropriations, permit conditions, comprehensive plans, affordable housing, unpublished policy plans, and TAMA 70 (the Metro plan), which entails high tax costs. "For example, a hidden clause may stipulate that construction must proceed simultaneously with public areas—if the local authority is building and you cannot exceed a certain height without them, you must know that in advance," Sharon concluded.
Ultimately, effective due diligence goes beyond merely surfacing problems; it requires translating legal and planning risks into practical solutions on the ground. Early identification of red flags is what enables developers and buyers to make informed decisions and prevent costly surprises.
