Adi Cohen Law Firm provides guidance and representation for purchasing groups in Israel, offering direction and advice from the stages of incorporation and planning to comprehensive legal support in dealing with all the required entities for advancing the project and construction, until its successful completion. The firm’s team, led by Attorney Adi Cohen, brings extensive knowledge, experience, and deep familiarity with the process, the challenges, and the issues that may arise during it. The team also offers a variety of professional tools and a network of connections with authorities and institutions to efficiently promote and ensure the success of each purchasing group represented by the firm.
What is a Purchasing Group?
A purchasing group is a real estate initiative designed to reduce the costs of building and/or purchasing a constructed residential property. The group operates with the support of a real estate attorney specializing in this field, and through the collective effort of a group of individuals forming a purchasing power, it works to acquire available land for construction, handle the required bureaucratic processes to obtain the necessary permits, and advance the actual construction of a shared residential building.
The advantages of a purchasing group include:
- Purchasing power and bargaining to lower costs.
- Control over the building standards and construction quality.
- Savings on developer/real estate company brokerage fees by directly hiring professional service providers.
- Control over the selection of neighbors and the creation of a community.
There are several platforms for this type of organization, including a purchasing group that unites existing landowners for joint construction, forming a purchasing group based on residential area and other characteristics, locating suitable candidates and searching for suitable land for construction, and joining an existing purchasing group before or after land acquisition.
What is the Role of a Purchasing Group Attorney?
A purchasing group attorney is an experienced real estate lawyer specializing in guiding purchasing groups, whether representing developers and founders of such groups, accompanying the group’s representative body throughout the project, or providing advice, guidance, and representation to individuals interested in joining a suitable purchasing group.
A purchasing group attorney who assists an individual in joining a purchasing group will help protect their client’s interests by examining the feasibility, advantages, and risks offered by the group:
Land Status
The purchasing group attorney will conduct preliminary checks related to the status of the land that has been or is planned to be purchased by the group. These checks will focus on the landowners, ownership registration, the possibility of transferring the land in the Land Registry with the purchase, the land’s designation in relation to the Israel Land Authority, the registration of the land in the municipal master plan as “yellow land” (land for construction), which can be granted a building permit, as well as the maximum building percentages that can be utilized on the land and their suitability for the size of the group and the project.
The purchasing group attorney will also ensure that the proposed land is appraised and its value is determined by a real estate appraiser.
Joining and committing to a purchasing group without conducting the aforementioned checks may lead to delays, higher-than-expected expenses, and even financial losses due to purchasing land that is not designated for construction or land that is encumbered, has caveats, inheritance disputes, or other restrictions.
Group Organizer and Members
When joining an existing or forming purchasing group, it is important to carefully examine the identity of the group members and the person leading it. The cooperative process inherent in a purchasing group involves extensive communication, involvement, and joint decision-making regarding the building’s characteristics, standards, budget management, selection of service providers and construction teams, and many other decisions.
It is important to know the organizers and members of the group, their views, and positions on construction characteristics and management, the ability to interact with them respectfully, openly, and rationally, and, more broadly, the compatibility with the community fabric that prospective group members seek to join. At this stage, the social fabric, socioeconomic status, age group, family status, and religious/secular/traditional lifestyle of those who will become the future neighbors should be considered.
It is important to note that even careful selection of members does not guarantee control over the social fabric of the future building since there will come a stage in the project that allows each member of the group to sell their apartment to any potential buyer without the consent of the group members/neighbors.
Even more important is to ensure that the group organizers and members have the appropriate securities and are able to contribute their share of the land and construction costs, both through the required equity and eligibility for financing. Economic and financial capability assessments are essential checks that help identify initiatives aimed at imposing relatively higher costs on new members, developers making unbacked promises, and unnecessary risks.
Another important factor to examine is the compensation that the group organizer might request in return for their activities. In many cases, the organizer may see themselves as an equal member of the group regarding benefits and distribution, while in other cases, the organizer may seek additional rights both in decision-making and in receiving financial benefits, such as exemption from certain expenses or a smaller relative payment as compensation for their efforts.
It is important to note that, by law, there is no prohibition against compensation or benefits that the developer/group organizer may allocate for themselves. Nevertheless, the requested compensation should be examined in the engagement agreement, including its limits compared to the organizer’s commitments, to ensure fairness and transparency for the group members.
Purchasing Group Attorney – Economic Feasibility and Viability
A purchasing group can be a challenging economic venture, potentially leading to savings of 20%-25% compared to the cost of an existing apartment purchased from a contractor. However, the expected savings require careful financial planning, managed by experienced professionals, taking into account various costs and factors.
To assess the economic feasibility and identify pitfalls and risks that could turn the investment into a bottomless pit of expenses, the attorney will thoroughly review the project’s financial plan and not rely solely on promotional presentations.
Among the data that should be reviewed:
- Cost Estimate Document
- Agreement with a Purchasing Group Attorney to provide legal support and advice for the group and for all its members
- Measurement data and land division diagram
- Engineering/architectural plan and/or basic technical specifications of the expected building
- Economic report
- Appraisal report signed by a real estate appraiser – to verify the land value
- Exchange fees
- Details of commitments, advances, and payment installments
- Ensuring the payment transfer mechanism through a trust account
These documents will outline the expected costs, including extraordinary costs, based on the market value of the various services, along with quotes from suppliers and service providers required to implement the project.
Additionally, the attorney will conduct checks to identify conflicts of interest between organizers, group members, and potential service providers, to eliminate engagements that do not prioritize the group’s best interests.
Engagement Agreement
Upon completion of the aforementioned checks and if there is relevance and a desire to proceed, the attorney representing the clients joining the project will be responsible for reviewing the engagement agreement and the binding contract with the group, assessing the commitments and benefits, the proposed securities, the scope of involvement and authority of each participant, and their role in decision-making, the nature of the commitments, and how to withdraw if necessary, sanctions for breaches, and more.
It is important to note that signing the agreement commits the new members for a significant period, as exit points and the option to sell the rights may only arise in the advanced stages of the project.
Attorney Adi Cohen and her team specialize in representing and guiding purchasing groups, developers, and individuals interested in joining existing groups. They offer a comprehensive range of services, knowledge, and experience, ensuring the best protection of the firm’s clients’ interests at every stage, with deep familiarity with planning and construction, taxation, and relevant government and local regulations for advancing the process.
