We recently marketed an apartment in Jerusalem’s Greek Colony. After three families made similar initial proposals, one buyer raised his bid and the owner accepted his revised offer. While the lawyers were revising the contract and the buyer was completing his due diligence, another potential purchaser showed up at the seller’s door and submitted an offer that was 500,000 NIS higher than the accepted price. The owner, in an impressive show of menschlichkeit, refused to accept the offer, explaining that he already had a handshake on the deal.
This act of elevated ethics got us thinking about what Jewish law—Halacha—and Israeli law would say in this situation.
In Jewish law, the Shulchan Aruch, Choshen Mishpat 237, states that generally (and yes, there are many exceptions to this rule), once a buyer and seller have reached an agreement, another person may not interfere with the deal by offering a competing bid. One who does so is considered by the Talmud (Kiddushin 59a) to be a rasha—a wicked person (see also Bava Metzia 49a).
Let’s now consider Israeli property law. A verbal offer and acceptance is not sufficient; rather, a written document is needed for the agreement to be legally binding. According to the letter of the law, the document requires the following elements: the buyer and seller’s names, property address and description, price, payment schedule, vacancy date, statement regarding who will pay sale-related taxes and the signatures of both parties. In fact, there’s a famous Israeli Supreme Court case where a buyer and seller discussed a potential deal over coffee and jotted down these seven terms on a dirty napkin. That soiled napkin was deemed by the court to be a valid contract!
Recently, the courts have relaxed their requirement for a written document and have judged in some cases, based on the actions of the parties, that there was a binding agreement notwithstanding the lack of a signed document. In addition, there exists in contract law the concept of negotiating a deal in “good faith,” which requires both parties to act with honesty and integrity. The courts have determined that once the parties have agreed in principle on the main deal terms and the lawyers have begun contract negotiations, the parties are legally obligated to negotiate and attempt to finalize the deal in good faith, and a breach of good faith can be grounds for liability. In most cases where a deal is broken due to a breach of good faith, the aggrieved party will not be granted an order for specific performance, i.e., contract execution and fulfillment. However, one can sue and, depending on the circumstances, recover expenses and damages.
Jewish law and Israeli law take generally similar approaches regarding real estate transactions, with some subtle differences. Fittingly, the accepted practice among brokers and attorneys is that once there is a handshake on a deal and both parties’ lawyers have begun a dialogue, the property is taken off the market and the seller will not entertain other offers so long as the buyer works in good faith to expeditiously close the deal. Revisiting the story at the beginning of this article, we now know that the seller’s decency, although undoubtedly admirable, was merely in accordance with Halacha and Israeli law.
Thank you to Rav Avishai David, shlit”a, for the halachic guidance, and attorney Josh Portman for the legal guidance. This article is meant for informational purposes only. Please contact an attorney should you require legal counsel.
By Gedaliah Borvick