I was about to leave the office when the text message arrived from Noam: “I need your help.” I had met Noam when he was marketing a project our office accompanied, but Noam wanted more - he wanted to move from marketing real estate to being a developer, and in recent months he has been traveling through several countries looking for opportunities to buy an old building to renovate or a hotel in distress.
“What's the problem, Noam, how can I help?” I replied by text, and a phone call came immediately after.
“I'm in Italy. I signed here on a deal to buy a building that used to be a hotel in a town near Bari. I paid the deposit, started preparing plans and tried to sell in Israel. The payment date has arrived and I don't have all the money required to complete the deal.”
“And what does your Italian lawyer say?” I asked.
“That he has no way to help me,” he replied, “according to him the agreement we signed is unequivocal, and the lawyer for the bank we're supposed to buy the hotel from won't talk to him at all.”
“Look, I don't know what's written in the agreement you signed or how it was drafted, but if you send it to me I can take a look and see what can be done.”
When I received the agreement, I immediately understood what had gone wrong. The Italian lawyer had indeed done a technically correct job, but he did not understand the unique needs of an Israeli developer who plans to raise investors in Israel. The agreement was rigid and contained no clause for extending deadlines or any ability to postpone the completion date, which is standard in international real estate transactions. Worse, it did not include a condition precedent for obtaining financing, as is customary in the field.
“Noam,” I told him in the next call, “the problem is that the agreement was drafted according to the Italian mentality. They are used to working with local buyers who bring cash or with local banks. They did not understand that you need time to raise investors in Israel and that you need flexibility.”
“But I explained this to Andrea. He knows the outline I planned and he knew I don't have the money and that I bring it from the buyers,” he replied.
Noam's story ended, unfortunately, with the loss of a 50,000 euro deposit. He did not manage to raise the required money in time, and the Italian bank was not willing to extend the period. The agreement was clear - a breach by the buyer leads to forfeiture of the deposit.
The lesson we should all learn
Noam's story illustrates a problem that is all too common in international transactions. Often, developers and investors rely on local lawyers who do know the local law in detail, but do not understand the unique needs of foreign clients.
An academic study published in the journal International Business Review in 2022 examined 1,200 international real estate transactions and found that the most common reason for failure (34% of cases) was a mismatch between the legal structure of the transaction and the cash flow and financing needs of the foreign buyer.
What could have been done differently?
In Noam's deal, the local lawyer should have been aware of Israeli practices in raising capital and understood that Israeli investors need time to carry out due diligence and obtain regulatory approvals. He should have included in the agreement:
An automatic extension clause - the option to extend the period by paying a reasonable penalty or an additional deposit, instead of full forfeiture of the deposit.
A financing condition precedent - a condition allowing the buyer to cancel the transaction if he fails to obtain financing within a defined period. It too can serve as a solution, although the other side will usually not agree to it.
The solution: dual legal advice
The most important lesson from Noam's story is the need for “dual” legal advice. When you are engaged in international transactions, you need two kinds of lawyers:
1. A local lawyer - well versed in local law and local custom
2. A lawyer who understands both the local law and your business culture - someone who knows your unique needs as an Israeli raising capital in Israel
This is not true only of real estate transactions. In a study conducted by McKinsey in 2023 on international M&A transactions, it was found that when companies used “hybrid” legal advice - a team that included both local lawyers and lawyers who understand the acquirer's business culture - the success rate was 52% higher than in transactions that used only local advice.
The money Noam lost was not only 50,000 euros. It was his dream of becoming an international developer. Sometimes, investing in the right advice from the start saves not only money, but also years of work and broken dreams.
My message to you: before you sign the next agreement abroad, make sure you have someone who understands both the local law and what you need as developers/Israelis. This can save you far more than the cost of the fees of the additional/Israeli lawyer.
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית