A recent court case examined whether a tenant who paid a brokerage fee when renting an apartment is also required to pay an additional fee to the real estate agent if they later purchase the same property. The dispute arose after the tenant bought the apartment two years after moving in, and the agent demanded a 2% commission based on a clause in the original rental agreement. The tenant argued that the clause was not properly explained and that the agent played no role in the eventual sale. The court ultimately ruled in the tenant’s favor, finding that the real estate agent was not the effective cause of the purchase and that the agreement did not clearly establish the tenant’s obligation to pay a second fee.

Edited by Adv. Yonatan Yosef and Adv. Idan Ilani

According to the Real Estate Agents Law, 1996, the definition of real estate brokerage is “bringing together two or more parties in exchange for payment for the purpose of entering into a real estate transaction.” Furthermore, under this law, in order for an agent to be entitled to a brokerage fee from the client, several cumulative conditions must be met:

1. The real estate agent held a valid license at the time of the brokerage activity or was under a temporary exemption.
2. The client signed a written agreement authorizing the agent to carry out the brokerage activity.
3. The agent was the effective cause that led to the signing of a binding agreement between the parties.
4. The agent conducted marketing activities during the exclusivity period.

In this legal brief, we will review the court’s decision regarding a dispute over a brokerage fee in the purchase of an apartment and whether the broker was the effective cause of the transaction.

Case Background:

A real estate broker and a client entered into a brokerage agreement with the purpose of helping the defendant rent a residential apartment. The agreement signed by both parties included a clause stating that if the apartment were to be purchased in the future, the agent would receive 2% of the transaction value as a fee. About two years later, the tenant bought the apartment, and the agent claimed he was entitled to 2% of the deal’s value based on the original agreement.

The tenant argued that the real estate broker never explained that he would be required to pay a fee if he eventually bought the apartment. He also stated that over the years, he had signed dozens of similar brokerage agreements while searching for rental apartments, and all seemed alike, without him understanding their full meaning.

The tenant further claimed that his original intention was to rent the apartment, not to buy it. He only became interested in purchasing it when the landlord later decided to sell. He clarified that during the rental period, he was actively searching for other properties to purchase. The tenant emphasized that the real estate agent was not involved in the sale process in any way and provided no brokerage services for the purchase.

Meanwhile, the broker maintained that he was an effective cause in the transaction, despite the long time that had passed, and that he had shown the apartment to other potential buyers, with the defendant being aware of this.

Legal Question:

Does the original brokerage agreement for renting the apartment require the tenant to pay a fee if they later buy the property?

Court Decision:

The court ruled that the agreement was not sufficiently clear to obligate the defendant to pay a brokerage fee for the purchase. Such a clause requires explanation and full understanding by both parties. The court stated that an explanation is necessary at the time of signing the agreement, and in this case, the agent did not provide evidence that he explained the clause’s significance to the tenant at the time.

In addition, Section 14(a) of the Real Estate Agents Law, 1996 states that a broker is only entitled to a fee if they were the “effective cause” of the transaction. The court determined that the broker was not the effective cause in the purchase. Two years had passed since the rental transaction, during which the tenant did not use the broker’s services to purchase the property. The agent did not participate in negotiations or provide brokerage services related to the sale.

As a result, the claim was dismissed. The broker was ordered to pay the tenant NIS 2,500 in court costs and NIS 27,323 in attorney’s fees.

(Case: Meni Adato Real Estate Management & Brokerage Ltd. and Meni Adato v. Ariel Sternberg, Tel Aviv)