Real Estate Memorandum “Zikron Devarim”

Why do you need one?

The answer is simple: You do not need one, you should not sign one! Refrain from having any kind of memorandum in a real estate deal.

What is the purpose of a memorandum?

The memorandum`s purpose is to draw an outline of a future transaction that was not yet formulated in detail as part of a contract. A memorandum serves as a type of “protocol” to coordinate expectations and intentions of the seller and the buyer in the transaction and it’s generally a short document. We address a memorandum as a “preliminary contract” for the “final contract” that will be completed and signed, usually shortly after the signing of the memorandum. A preliminary contract is therefore viewed as a contract by the law and you should be aware that you are now signing a contract concerning a large amount of money with extremely complicated legal matters without a lawyer and without personal professional knowledge or legal representation for yourself!

In spite of the above warning, if you decide to have a memorandum - follow the Law:

The Israeli “Contracts Law” requires that a memorandum must keep three basic rules and if one of them is not provided, the document will be void/null and only the courts will decide its fate. The first is: A genuine intention (“Gmirut Daat”) from both sides to legally meet the memorandum’s obligation concerning the real estate deal. For example, if the seller wants you to pay a million dollars as “penalty” if you breach the contract and you just “crack up” on this absurdity, no contractual promise took place because there is no clear evidence you had accepted this proposal. The second: Bid acceptance (“Atsaa Ve Kibul”) AS IS where there is an offer of one party and the acceptance of that same offer from the other party with no reservations from the accepting part. The third: A Compensation/Value (“T’mura”) in return for the real estate being bought must be included in clear terms. It doesn’t have to be real payment on the spot but at least intention to give some value in return for the property.

What could be the consequences if you sign a memorandum?

The facts above (drawing a legal document by people who have no legal training) will not help you in court because the legal system refers to a memorandum “as a legal contract in every respect”, therefore, if you sign a memorandum you may find yourself committed to purchase that property or compensate the property’s owners if you desist from purchasing the property at any point even if you a have “an excellent reason to do so”.

What can you do to secure a deal you particularly desire?

The only solution is to ask a lawyer who has expertise in real estate law to draft a memorandum with you on the act of the agreement, however, it’s still not advisable to sign one with the expectation that the deal will be closed in the next day using a real and comprehensive contract drafted by lawyers of both parties.

A word of wisdom:

The only place a dispute concerning a memorandum can be resolved is the court and believe me this is the last place you want to find yourself when so much money is involved and time is a important factor for you.

Sincerely,
 

Tzvi Szajnbrum, Attorney at Law