Court ruling10/8/2026

Supreme Court Prioritizes Homebuyers Over the Construction Project’s Financing Bank

Israel’s Supreme Court ruled for the first time that a financing entity which decides to complete a project after the contractor collapses may not selectively perform the sale agreements. Compensation to the buyers for a certain period of delay will be paid from the project’s funds before the bank receives the portion due to it.

Key facts

•Subject of the dispute: a construction project in Bat Yam
•The project included 14 new apartments
•Contractual delivery date — within 24 months after obtaining the building permit
•The compensation applies to the delay from the start of lien enforcement
•The District Court will determine the payment amount
•The case number and date of the judgment are not specified in the source

What Happened

A contracting company undertook to reinforce a residential building in Bat Yam and, in return, received the right to build 14 new apartments. The financing entities financed the project in exchange for liens on the assets, but the company stopped repaying the loans. After enforcement of the liens began, a receiver was appointed, and the financing entities decided to complete construction on the basis of the existing agreements.

The Buyers’ Demands

Before the contractor’s financial collapse, it sold one of the new apartments to the applicants. The agreement stipulated that the apartment would be delivered no later than 24 months after the building permit was obtained and also provided for compensation for delay. The other buyers received their apartments, but the applicants’ apartment had not yet been delivered to them at the time of publication, and they therefore demanded the contractual compensation.

The Parties’ Positions

The receiver argued that the apartment delivery date bound only the contractor, as a party to the agreement, and that the receiver’s appointment did not create additional obligations toward the buyers. The financing entities likewise argued that their obligations were limited to providing guarantees in the event that the buyers were left both without an apartment and without the funds they had invested. The buyers responded that once the financing entities decided to perform the sale agreements and complete the project, they could not adopt only the terms that benefited them while repudiating the remaining obligations.

What the Supreme Court Ruled

The Court distinguished between two situations. As long as the bank merely finances and supervises an active project, it is not bound by the contractor’s contractual obligations toward the buyers. However, if the bank effectively takes the contractor’s place and completes construction, the bank’s rights to the project’s funds are subordinated to the buyers’ right to compensation for the delay arising from the start of the lien-enforcement proceedings. This is not a personal debt of the bank, but rather a rule governing the order of priority for payments. The District Court will determine the amount of compensation.

What this means for you

If a financing bank decides, after the contractor’s collapse, to complete the project and keep the agreements with the buyers in force, it cannot at the same time deny the compensation stipulated in those agreements for the subsequent delay. This compensation will be paid on a priority basis from the project’s funds in the insolvency proceeding and will not be collected as a personal debt of the bank. The judgment does not apply this priority to delays that arose before the start of lien enforcement.

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Case analysis based on court rulings