Calculating Late Penalty According to Contract or Law – part II | Various Rabbis | Beit Midrash

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P'ninat Mishpat

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The plaintiff (=pl) bought property from a building company (=def), which was supposed to complete construction by 20.06.2014. After negotiations, the contract included a penalty of 2,800 shekels a month against def for lateness, starting from two months after the target date. Pl received the apartment more than 18 months late. According to a new law, a buyer is compensated for more than 60 days of lateness (retroactively from the beginning) according to the following schedule – 150% of the apartment’s rental value for the first 8 months; 125% of the value after that. Buyers cannot waive their legal rights. Pl claims that the apartment’s value is 4,200 shekels and claims 105,275 shekels. Def claims the payment should be drastically reduced on two general grounds. Since the contract included an arbitration agreement to beit din, Halacha, which recognizes the sides’ agreement, rather than the law, should be binding. Therefore: 1. The monthly rate is 2,800. 2. Payments start only after two months. 3. The contract gives a two month extension for the buyer’s requesting building changes, which pl made. Furthermore, the following delays, which were beyond def’s control, push off the target date: 4. (Arab) workers could not come to the site during the fighting in the summer of 2014. 5. The water authority illegitimately delayed connecting the water supply, which delayed by months receipt of a Tofes 4, needed for legal occupancy. 6. The fire department improperly delayed approval for several weeks. 7. Pl refused to receive control of the apartment for two months after it was ready.

(based on ruling 75030 of the Eretz Hemdah-Gazit Rabbinical Courts)

Case: The plaintiff (=pl) bought property from a building company (=def), which was supposed to complete construction by 20.06.2014. After negotiations, the contract included a penalty of 2,800 shekels a month against def for lateness, starting from two months after the target date. Pl received the apartment more than 18 months late. According to a new law, a buyer is compensated for more than 60 days of lateness (retroactively from the beginning) according to the following schedule – 150% of the apartment’s rental value for the first 8 months; 125% of the value after that. Buyers cannot waive their legal rights. Pl claims that the apartment’s value is 4,200 shekels and claims 105,275 shekels. Def claims the payment should be drastically reduced on two general grounds. Since the contract included an arbitration agreement to beit din, Halacha, which recognizes the sides’ agreement, rather than the law, should be binding. Therefore: 1. The monthly rate is 2,800. 2. Payments start only after two months. 3. The contract gives a two month extension for the buyer’s requesting building changes, which pl made. Furthermore, the following delays, which were beyond def’s control, push off the target date: 4. (Arab) workers could not come to the site during the fighting in the summer of 2014. 5. The water authority illegitimately delayed connecting the water supply, which delayed by months receipt of a Tofes 4, needed for legal occupancy. 6. The fire department improperly delayed approval for several weeks. 7. Pl refused to receive control of the apartment for two months after it was ready.

Ruling: Now we will apply the Law of Sales (Homes), which, we saw last time, is binding here.
The law gives a grace period of 60 days, similar to the contract, but with the following difference. According to the contract, the first 60 days are exempted from payment. According to the law, if the 60 days are exceeded, the contractor has to pay also for the first 60 days.
The law allows the sides to agree to excuse the seller for "delays over which the seller does not have control and the risk for their occurrence and the consequences are not upon him." The sides’ contract does stipulate that, and therefore we will analyze each delay def claims. We reject pl’s categorical claim that def should have expected and taken into account all the delays in setting the target date.
We must distinguish between delays that affected construction of the apartment and those affecting utility infrastructure. Even if we accept the claims regarding each element, we will not add one on to the other in exempting def because delays in one did not stop def from progressing in the other. Delays claimed regarding the apartment covered less than six months, and therefore we will calculate the potentially larger delays in infrastructure.
We reject def’s claims regarding the fire department delay. Def’s correspondence with the municipality illustrates that def placed the sanitation room in an unauthorized place. Their attempt to negotiate an agreement to allow them to keep it was reasonable. However, the delay stemmed from def’s mistake, for which they are responsible.