When You Go Hiking, You Don’t Expect Rain – But You Pack an Umbrella: what you should know about arbitration clause

No one enters a real estate transaction expecting conflict. Like hikers starting their journey on a sunny day, nobody anticipates a storm. But experienced travelers pack an umbrella – just to be safe. In the legal world, that “umbrella” can be an arbitration clause.

Foreign investors entering the Israeli real estate market typically lack familiarity with the local legal system. This involves not just a different language, but also different legal procedures that can drag on for years, procedural uncertainty, and unexpected costs. An arbitration clause can become a critical tool in times of crisis.

Arbitration as a Solution for Foreign Investors

Unlike court proceedings, arbitration allows almost complete customization to the parties’ needs. Arbitration can be conducted in English, French, or any agreed language. Parties can appoint a professional arbitrator from the real estate field and agree on familiar procedural rules.

Arbitration timelines are controllable – typically short, focused, and lasting only a few months. Hearings occur privately, providing complete discretion unlike public court proceedings.

How Arbitration Works

Arbitration begins with filing claims and continues with presenting evidence and witnesses – similar to court proceedings but without the formality and bureaucracy. Each party presents their position before a pre-selected arbitrator, concluding with a final, binding arbitration award.

A preliminary mediation stage can be incorporated, allowing parties to reach agreements before formal arbitration begins – saving time, resources, and stress.

Case handled in our firm: A foreign investor and Israeli developer reached an impasse when the investor couldn’t transfer funds on time due to banking compliance difficulties. Instead of lengthy litigation, they used mediation and arbitration. Within months, they reached settlement and continued their cooperation.

A Successful Arbitration Agreement Includes:

• Selection of a recognized arbitration institution
• Clear definition of arbitrator qualifications
• Advance agreement on language and procedure
• Authority to grant interim relief when necessary

In multi-million shekel transactions, arbitration clauses aren’t marginal technical items – they’re integral to transaction structure. Arbitration isn’t a sign of conflict concerns – it’s a sign you’re planning ahead.

If you’re considering real estate investment in Israel, ensure your agreement includes a well-drafted arbitration clause suited to your needs. It’s the small step that makes the big difference.