An inheritance dispute over jointly owned property exposed the complexities of relying on Israel’s Land Registry. When a buyer purchased land from someone whose ownership was later contested, the court had to decide whether the buyer was protected under the “market regulation” rule. Despite earlier, unregistered claims to the land, the buyer’s good faith reliance on the official records—and thorough due diligence—ultimately secured their rights. This case highlights how legal protections can apply even amid conflicting ownership claims.

Written by Adv. Roni Barzilai, with assistance from intern Ofir Madmoni

A fundamental principle in property law is that a person or corporation cannot acquire rights to property from someone who does not possess rights to it. This fundamental principle is subject to exceptions applicable to various “market regulations.” Market regulations allow, under certain conditions, the recognition of a third party’s superior right to a property, even though the transferor of the property did not hold rights to it. A condition attached to any market regulation is the requirement of good faith and payment of consideration by the party claiming rights under it. When dealing with the market regulation anchored in Section 10 of the Land Law, 1969, the legislature protected a purchaser who relied on the registry in good faith and was misled by an erroneous entry in the Land Registry. The burden of proof regarding the fulfillment of the conditions for the applicability of the market regulation defense lies with the party seeking its protection. Furthermore, any purchaser with doubts or questions about the seller’s rights must conduct a proper investigation before entering the transaction.

This case brief reviews the court’s ruling on whether the market regulation under Section 10 of the Law applies, focusing on the requirement of good faith.

Case Circumstances:

The case concerns real estate rights registered in joint ownership under the names of two brothers who passed away. This case focuses on the rights of one of the brothers who held half of the rights in the real estate. After his death, his rights passed to his heirs – his wife and two daughters – and when the wife passed away, her rights passed to her daughters, so that each of them held 2/8 of the rights in the real estate.

After the death of one of the heirs (“Heir 1”), her rights were transferred to her heirs, and among the heirs is the plaintiff in this case. Subsequently, under an estate distribution agreement, Heir 1’s rights were transferred to the plaintiff, but were not duly registered in his name in the Land Registry due to a dispute regarding the validity of the said agreement.

In 2012, the other heir (“Heir 2”) gave her rights in a gift transaction to her grandson (respectively: “the grandson” and “the gift transaction”), who was registered as the owner of 2/8 of the rights in the Land Registry. At the same time, the grandson filed a lawsuit with the court for partition of the property, among others, against the plaintiff.

The plaintiff claimed, in his defense in the partition of property case, that Heir 2 sold all her rights in 1986 to Heir 1 and her husband (the plaintiff’s father). Therefore, upon Heir 1’s death, her rights should have passed to the plaintiff, under the estate distribution agreement, the validity of which was disputed at the time.

In 2013, the grandson sold 1/8 of his 2/8 rights in the real estate to the defendants. In the purchase agreement, the defendants declared that they were aware of the plaintiff’s claims to rights in the property, which were raised in the partition of property lawsuit. Subsequently, a cautionary note was registered in favor of the defendants; the transaction payment was made, the transaction was reported to the Israel Tax Authorities, and it was even completed in registration in the Land Registry in the defendants’ name.

In 2014, the plaintiff filed a claim against the grandson seeking to register the plaintiff’s ownership in half of the rights in the real estate, arguing that the 1986 sale transaction prevails over the 2012 gift transaction detailed above. The court accepted the claim that the 1986 sale transaction should be preferred. Consequently, since Heir 1 and her husband (the plaintiff’s father) purchased Heir 2’s rights jointly, and the husband did not claim his rights within this legal proceeding, the court ruled that Heir 1 was entitled to be registered as the owner of 3/8 of the rights in the real estate. At the same time, due to disagreements regarding Heir 1’s estate distribution agreement, the court did not grant a remedy to register the rights in the plaintiff’s name.

The implementation of the judgment led to the result that the property rights were divided as follows: 3/8 owned by Heir 1 and 1/8 owned by the defendants, by the sale agreement signed with the grandson. Therefore, since there was no dispute regarding the authenticity of the sale transaction in which the defendants purchased the grandson’s rights, the court had to rule on whether the transaction was made in good faith, as required by the market regulation rule.

Parties’ Claims:

The plaintiff’s main claim was that the defendants knew of his claims to rights in the property before signing the sale agreement. Thus, they took advantage of the opportunity to purchase land at a low price, avoiding efforts to investigate the real state of ownership of the property. This, he argued, reflects their lack of good faith, and thus the purchase transaction does not meet the conditions of Section 10 of the Law.

On the other hand, the defendants argued that at the time of the sale agreement, no documents had been presented in the partition of property lawsuit that could support and establish the 1986 sale transaction. These documents were only discovered on July 21, 2014, i.e., after the sale agreement was signed. They also argued that they had consulted with the plaintiff’s father and informed him of their intent to purchase the real estate, and he even blessed the transaction. Therefore, they asked the court to dismiss the claim for lack of legal standing or based on the market regulation defense.

Decision:

The court ruled that the defendants were entitled to the market regulation defense under Section 10 of the Law. Based on the information available to them when the sale agreement was made, no defect was found in their good faith. The judge examined whether the defendants’ inquiries regarding the rights in the real estate—considering their knowledge of the claims about the seller’s rights—were sufficient to support their good faith during the transaction.

As part of the inquiries conducted by the defendants, when they examined the issue with the seller, he claimed that the claims against him were unfounded, and there were no documents indicating that the rights registered in his name were not his. The purchasers even hired a lawyer to examine the claims and review the case documents in the partition of property lawsuit. Moreover, they approached the plaintiff’s father, who gave his blessing for purchasing the real estate.

Since the documents proving the existence of the earlier agreement were discovered only after the signing of the sale agreement, and since the plaintiff was aware of their intent to purchase the real estate but took no legal action to prevent the transaction—it can be determined that the defendants were unaware of this information at the time of signing and could not have anticipated it. The defendants’ good faith is judged based on the information they had when signing, not afterward. One cannot expect the defendants to act based on claims unsupported by evidence, especially when the property was registered in the seller’s name.

(Civil Case (Jerusalem) 62391-06-21 Abu Katish v. Abd al-Rahman et al.)