blog.cat.realestate7 min read10/5/2026

Signed a Memorandum of Understanding for an Apartment and Changed Your Mind: When Can You Walk Away Without Compensation?

The heading “memorandum of understanding” does not turn the document into a draft: if its content and the parties’ conduct indicate a finalized transaction, it may be binding as a sale contract. Unilateral withdrawal may lead not only to the loss of the deposit or payment of compensation, but also to a lawsuit seeking to compel the withdrawing party to complete the transaction.

Numbers and facts

•Section 8 of the Land Law: an undertaking to enter into a real estate transaction must be in writing
•10% of the consideration: a customary liquidated damages rate, if stipulated in the agreement
•30,000 shekels: the deposit in the example of a 2.85 million shekel transaction
•1,450,000 shekels: the price enforced in the Monarov case
•30 days: the extension for exercise granted from the date the rights were registered

When a Short Note Becomes a Contract

Under the Rabinai precedent, the court examines two elements: intent to be bound and specificity. Intent to be bound means that the parties intended to undertake a binding obligation at the time of signing; signatures, delivery of a deposit, and commencement of performance strengthen such a conclusion. Specificity is assessed according to whether the parties, the apartment, the price, and the performance dates can be identified without the court having to invent the transaction for them. Section 8 of the Land Law, 5729–1969, requires an undertaking to enter into a real estate transaction to be in writing, and a detailed memorandum of understanding may satisfy this requirement.

Regret Alone Is Usually Not a Cancellation Button

If the memorandum of understanding is already considered a binding contract, a notice stating “I changed my mind” does not automatically cancel it. The other party may seek compensation and even enforcement—that is, completion of the apartment sale at the agreed price. A liquidated damages clause equal to 10% of the consideration is common in apartment transactions, but it applies only if stipulated in the document and is not an automatic penalty that exists in every transaction. Under Section 15 of the Contracts (Remedies) Law, the court has the authority to intervene in excessive liquidated damages.

When You Can Walk Away Without a Penalty

The clearest route is an express condition stating that the memorandum of understanding is contingent on the signing of a detailed sale contract, approval by the attorneys, and legal or engineering inspections. If it states that the document will be canceled without penalty when the condition is not fulfilled, an exit route may become available in accordance with the precise wording. Another possibility is a claim of fundamental mistake under Section 14 of the Contracts Law or misrepresentation under Section 15, for example when moisture defects or building permit problems were concealed. However, discovering that the transaction is less worthwhile, that obtaining a mortgage is difficult, or that a better offer was received does not, in itself, establish grounds for cancellation.

A Party Cannot Frustrate a Condition and Then Rely on It

Section 27(a) of the Contracts Law permits the establishment of a condition precedent or a condition subsequent, but here too, actual conduct matters. In C.C. 55952-02-23 Aharon Lior Monarov v. Eli Raz, a memorandum of understanding granted the buyers a right of first refusal for an apartment in Holon at a price of 1,450,000 shekels, subject to registration of the sellers’ rights. After delays, the sellers demanded 1,750,000 shekels, but the court held that the document was valid and enforceable and extended the exercise of the right by 30 days from the registration date. The decision also relied on Section 28(a) of the Contracts Law: a party that prevented fulfillment of the condition may not benefit from its nonfulfillment.

The Deposit Is Evidence—and a Financial Risk

Payment of a deposit is not merely a gesture of seriousness; it may strengthen the conclusion that there was intent to be bound. A guide included in the research describes a case in which a buyer transferred 30,000 shekels directly to the seller as part of a transaction priced at 2.85 million shekels, and only afterward were moisture and a permit problem discovered, with an estimated repair cost of 120,000 shekels. The memorandum of understanding included a price and delivery date but was not contingent on the signing of a full contract, and it was therefore analyzed as a binding document; ultimately, 85,000 shekels were deducted from the price. Holding the deposit in escrow until the detailed contract is signed reduces the risk that the money will remain with the other party during a dispute.

The Tax Clock May Not Wait for the Full Contract Either

If the memorandum of understanding already constitutes a real estate transaction, one should not assume that only the detailed contract will be relevant to tax and reporting obligations. A seller should therefore immediately examine the land appreciation tax implications, and a buyer the purchase tax implications, based on the signing date and the document actually created. The research material provided does not specify the numerical reporting periods, so it should not be relied upon to calculate a deadline. Waiting for the final contract may be a practical mistake, and it is advisable to clarify the timetable with a professional and the Tax Authority immediately after signing.

FAQ

Can a memorandum of understanding for an apartment be canceled within a few days?

According to the research material, there is no automatic cooling-off period for a memorandum of understanding. The possibility of cancellation depends on whether the document is binding, whether it includes an exit condition, and whether grounds for cancellation exist, such as a fundamental mistake or misrepresentation.

If I have not yet paid a deposit, is the memorandum of understanding still binding?

Yes, it may be binding even without a deposit. Payment is evidence that strengthens intent to be bound, but the court examines the wording of the document and the totality of the parties’ conduct rather than applying a single test.

Can the seller change their mind because they received a higher offer?

A higher offer does not, by itself, cancel an existing undertaking. In the Monarov case, the sellers demanded that the price be increased from 1,450,000 to 1,750,000 shekels, but the court ordered that the memorandum of understanding be performed at the original price.

Is a “subject to contract” clause enough to walk away?

Not always; its meaning depends on the wording and the parties’ conduct. Clear wording should stipulate that validity is contingent on the signing of a detailed contract and approval by the attorneys, and specify what happens to the deposit and penalties if the contract is not signed.

Does signing a memorandum of understanding start tax deadlines?

A memorandum of understanding recognized as a binding contract may also be relevant to the transaction date for tax purposes, so one should not wait for the full contract before examining purchase tax, land appreciation tax, and reporting obligations. The research provided does not include the number of days for reporting, so the precise deadline must be checked separately immediately after signing.

What to do next

Anyone who has already signed should retain the document, correspondence, proof of the deposit, and all information provided about the apartment’s condition, and avoid sending a hasty cancellation notice or transferring additional funds before examining the situation. It is necessary to promptly check whether there are exit conditions, grounds for cancellation, liquidated damages, and tax reporting obligations; before signing in the future, it is preferable to conduct the inspections and arrange escrow for the deposit before the short document turns into a major transaction.