WHAT YOU NEED TO KNOW BEFORE SIGNING A RENTAL AGREEMENT IN ISRAEL?
By Debbie Rosen-Solow, Adv
A common misconception is that because a rental agreement may be a short term commitment, which seems simple, it is unworthy of some of the more significant wrangling and negotiating that is typical of other real estate transactions. A rental agreement is a legally binding document that can or cannot properly protect your rights as a tenant, and that might or might not expose you to unnecessary risk. The good news is that it is usually open to negotiation.
As a tenant, try to negotiate all terms to your advantage prior to signing a lease agreement, as once you sign, you will be expected to carry out all the terms of the contract with little (if any) ability to change them. Since the landlord is usually in the pilot seat if his property is desirable, and since he is allowing someone, who might be a complete stranger to him, to make use of his valuable asset, he will try to tailor an agreement that works to his advantage.
An Israeli licensed attorney specializing in real estate law will help you negotiate an agreement that will best suit your needs and interests. Here are some of the main issues that should be addressed:
Identifying the owner of the property
It is vital that the person signing the agreement is the owner of the apartment or someone who is legally qualified to sign on the owner's behalf. It has happened that tenants have signed a rental agreement with someone who was not the owner and found themselves without a place to live and without their rent money. This situation can be checked and avoided.
Option to renew the contract
It would be preferable to the tenant to be able to extend the rental period by an additional period (or two), while keeping all of the terms of the contract intact. It is common for the landlord to demand an increase in the rental fee during the option period. An increase of 5% is considered reasonable, but can sometimes be avoided. In the contract, the option clause should be worded in a way that enables the tenant to decide if they would like to exercise the option or not. Leaving this to the tenants’ discretion will secure the tenants ability to stay in the apartment for an additional period, should they decide to do so.
Dollar or NIS
It is common in Israel to stipulate the rental fee in NIS, and many times, in long term agreements, payments may be linked to the Israeli Consumer Price Index. If you have an income in U.S. dollars or if most of your money is in U.S. dollars, you may prefer to link the payments to the dollar so that your exposure is minimized.
Payments and taxes
It is customary that the tenant pays Arnona (municipal tax). Students, soldiers, Olim and seniors may qualify for a significant discount, so it is worth checking if the tenant is entitled to a discount in Arnona. Additional payments that are usually the tenant's responsibility are water, gas, electricity, and building maintenance fees (called Vaad Bait). It is important to clarify in the agreement that the tenant shall only be responsible for payments generated by his use during the rental period and not for all payments of the property. For example, if the Vaad Bait decides to fix the elevator or install a new path in the garden, or paint the building, these fees should be covered by the landlord. If the water company decides to upgrade the meters and charges for this, this should be covered by the landlord.
Responsibility for wear and tear
In order to avoid conflict, one should stipulate a clear arrangement in the contract so that both parties understand their responsibilities, especially when it comes to repairs. Tenants are usually responsible to cover damage caused by misuse or negligence. When it comes to regular wear and tear caused by reasonable use, it is usually the Landlords responsibility to repair. A recent amendment to the Rent and Borrowing Law stipulates that damage that is the landlord’s responsibility to repair, and is essential for reasonable use of the rental, must be repaired within a reasonable amount of time, and if not, the Tenant can repair the damage and demand reimbursement of the cost of the repair. If such damage has not been repaired, the tenant is entitled to deduct the value by which the property has diminished as a result of the damage, from the rent.
Securities and insurance
The landlord will usually request securities in order to protect himself from situations where the tenant may breach the contract, damage the property, leave early, or default on payments. There are many types of securities that the landlord may request. Some securities are better for the landlord and worse for the tenant. The security amount should be no more than 1/3 of the rent and up to 3 months of rent. Here are some common ones:
Cash Deposit / Bank Guarantee: Sometimes the landlord will demand a payment of 1-3 months rent as a security for the fulfillment of the tenants’ responsibilities. This is actually cash sitting in the landlord’s pocket and should the landlord suspect that the tenant didn't meet his responsibilities, all he needs to do is to inform the tenant that he is keeping some or all the sums that were given to him as a security. If the tenant doesn't agree with the landlord, he will have to sue the landlord in court. There are ways to minimize your risk as a tenant, so talk to your lawyer before agreeing to a cash deposit.
Guarantors / Promissory Notes: With these guarantees the landlord will demand that you provide one or two people to sign and vouch for your commitments according to the rental agreements. This is a better option for the tenant. Although it may seem rather uncomfortable to ask a friend or relative to sign a financial commitment that allows the landlord to come after them, if you should breach the contract, it is common in Israel. With these guarantees, if the Landlord should feel that the tenant was at breach and would like to use the security, the tenant will have the ability to submit his response and defend himself. With these securities, the compensation to the landlord will not be automatic, and will usually require a process filed by the landlord.
The bottom line: Although it may seem like your risks are limited in a rental ("what's the worst that can happen in 1 year?"), a difficult landlord can make your life miserable, and your first impression of life in Israel could be ruined forever. For this reason, try to avoid conflicts later on by signing a rental agreement that clearly states each party's responsibilities, so that each side knows what is expected of them. Try to tailor an agreement that will foresee future situations and protect your interests so that your rental experience can be enjoyable and worry free.