Dissolution of co ownership in Israel (pirok shituf) is one of the most sensitive situations in real estate: siblings who inherited an apartment from their parents, spouses who are separating, or partners who bought an investment property together and now see the future differently. Israeli law is clear on the starting point, and every co owner may demand dissolution of co ownership, but the way the dissolution is carried out determines how much money each party keeps, how long it will take and how many relationships are burned along the way. In this guide we have gathered the rules, the economic difference between a sale by agreement and a sale by a court appointed receiver, the option of one co owner buying out the others, and where a real estate marketing and brokerage company can help. This is general information only: every case requires review by a lawyer, and on tax matters also by a tax advisor.
The principle: every co owner may demand dissolution of co ownership
Section 37 of the Land Law provides that every co owner of jointly held real estate is entitled at any time to demand dissolution of the co ownership. No consent from the other co owners is needed, no majority is required, and a co owner holding only ten percent can open proceedings against a co owner holding ninety. The court does not ask whether it is worth dissolving, but how to dissolve.
There are two main exceptions worth knowing:
- A co ownership agreement: if the co owners signed an agreement restricting the right to demand dissolution, the restriction is valid, but if it is for a period exceeding three years, the court may, after three years, order dissolution nonetheless if it is just in the circumstances.
- A residential apartment of spouses with minor children: a special protection applies here, which we describe below.
It is also important to understand the reverse side: under Section 34 of the law, every co owner may sell their share to another person without the consent of the co owners. In practice, the sale of an undivided share in an apartment is almost always made at a considerable discount, because the buyer is also buying the dispute. Some investors specialize in exactly this: they buy a third of an apartment cheaply and file a claim for dissolution of co ownership. A co owner who threatens to sell their share to an outside party usually harms themselves first of all.
How dissolution of co ownership in Israel is carried out: division in kind, a condominium or a sale
The law sets an order of priority. The first route is division in kind (Section 39): each co owner receives a physical part of the property, sometimes with balancing payments. For an apartment in a building this is almost never possible, but on a large plot with a house on its own land, for example in Tzahala or on the older plots of Ramat Hasharon, it is sometimes possible to split the plot or register the house as a condominium and allocate a unit to each co owner (Section 42), subject to planning and to the opinion of the Superintendent of Land Registration.
When the property cannot be divided, or division would cause a considerable loss, the dissolution is carried out by way of a sale and division of the proceeds (Section 40). Under the law, the default is a sale in the manner in which attached assets are sold in enforcement proceedings, unless the court orders a more efficient and just method. In practice, when the co owners cannot agree, the court appoints a receiver (kones nechasim) who sells the apartment under its supervision. Section 43 adds that the court shall take into account, as far as possible, the wishes of the co owners, including the wish of some of them to continue holding the property together.
A claim for dissolution of co ownership of real estate is usually filed in the Magistrate’s Court regardless of the value of the property. When family members are involved, and especially spouses, jurisdiction lies with the Family Court, and in family disputes there is an obligation to begin with a request to settle the dispute.
Sale by agreement versus sale by a receiver: what happens to the price
This is the most important economic question in any dissolution of co ownership, and it is worth understanding before filing a claim.
Sale by agreement
The co owners decide together to sell on the open market. The apartment is marketed like any other apartment: preparation, photography, pricing based on transactions, negotiation with several buyers. The buyer sees an ordinary transaction, with a lawyer acting for the sellers, a customary payment schedule and the opportunity to inspect the property at leisure. The price approaches full market value.
Sale by a receiver
The receiver is usually a lawyer appointed by the court, acting as a neutral arm of the court. The customary process includes ordering an appraisal from a real estate appraiser, advertising the apartment for sale and inviting offers, sometimes a bidding round among the leading bidders, and finally an application to the court to approve the sale. The co owners may usually submit offers like any other bidder, and may file objections to the approval.
The reasons a sale by a receiver tends to end at a price lower than market value:
- The audience changes: a significant share of the bidders are buyers who specifically look for receivership sales, and they arrive expecting a discount.
- Sale as is: the receiver does not renovate, does not prepare the apartment for viewings, and sometimes cannot even arrange convenient viewings when one of the co owners lives there and does not cooperate.
- Uncertainty and time: the buyer has to wait for court approval, deal with possible objections and sometimes with an eviction. All of this is priced into their offer.
- Costs deducted from the pot: the receiver’s fee, the appraiser’s fee, advertising expenses and legal costs are paid out of the proceeds, before the division among the co owners.
Regarding the receiver’s fee: in Family Court proceedings, the rules of procedure set a cap of 4% of the sale proceeds. In civil proceedings the fee is set at the court’s discretion, and case law shows rates of a few percent of the sale price, plus VAT. It is worth asking your lawyer what to expect in the specific case.
Buying out a co owner’s share: reaching a fair price
In many cases the best solution is for one of the co owners to buy out the others. They keep the property, and the others receive money quickly and without the discount of a receivership sale. The obstacle is almost always the price: the buyer thinks the apartment is worth less, and the sellers think it is worth more.
A few practical rules:
- Start from a figure everyone accepts: an agreed appraiser chosen jointly, or two appraisals and the average between them. At the same time, it is worth obtaining a transaction based valuation showing what buyers actually pay on the street and in the building, because an appraisal and a market price are not always the same number.
- Define what is offset: when the buying co owner saves everyone the brokerage fee, time and the costs of proceedings, it is sometimes customary to offset part of that saving from the price. On the other hand, they should not receive the discount of a receivership sale, because they do not bear its risk.
- Check financing before agreeing: a co owner who needs a mortgage to buy out the others must have approval in principle before signing, otherwise the agreement may fall apart and send everyone back to square one.
- Settle usage fees: a co owner living alone in the jointly owned apartment may be required to pay the other co owners reasonable usage fees (dmei shimush re’uyim). In a purchase agreement it is best to close this account explicitly as well, one way or the other.
- Plan the tax: buying a share is usually considered a partial sale. The selling co owner may be liable for capital gains tax (mas shevach) on their share, and the buying co owner may pay purchase tax (mas rechisha) on the share bought. If the buyer has no other apartment, the purchase may be calculated according to the single home brackets. Between spouses, a transfer under a judgment in divorce proceedings is not considered a sale under Section 4A of the Real Estate Taxation Law. These are matters a tax advisor or lawyer should review before signing, and it is also worth understanding in advance who is considered an apartment owner for tax purposes.
Special protections: the home of spouses and children, and the right of first refusal
Section 40A: the residence protection
This provision appears in Section 40A of the Land Law, not in Section 40 itself. It provides that when the court decides on dissolution of co ownership by way of a sale of an apartment of spouses that serves as their residence, it shall not order the sale to be carried out, and the sale will be stayed, as long as it is not satisfied that the spouses’ minor children and the spouse who has custody of them have another housing arrangement suited to their needs, including a temporary interim arrangement.
Two points worth stating precisely:
- The protection applies to spouses and to an apartment that serves as their residence. It does not apply, for example, to siblings who inherited an apartment.
- It does not cancel the right to dissolution, but stays the execution of the sale until a suitable housing solution is found for the minor children and the parent with whom they live.
Right of first refusal: when it exists and when it does not
One of the common misconceptions is that every co owner has a right of first refusal (zchut kdima) to buy the other co owner’s share. The Land Law contains no general right of first refusal between co owners. It exists in three situations only:
- A right of first refusal registered by agreement (Section 99): co owners may register such a right at the Tabu, and then whoever wishes to sell must first offer to the holder of the right.
- Heirs of an agricultural holding (Section 100): relevant to moshavim and farms, not to an ordinary city apartment.
- Spouses in a residential apartment, business or farm run jointly (Section 101).
When there is a right of first refusal, the offer is sent in writing by registered mail with the asking price, and the holder of the right has thirty days to pay or deposit the amount. If they decline, the seller may, for six months, sell to someone else, but not at a price lower than the price offered. Outside these situations, siblings or investment partners can receive priority only by agreement or by a court decision within the receivership proceedings.
Timelines and costs to calculate in advance
Court proceedings for dissolution of co ownership often last more than a year, and in cases with disputes over rights, usage fees or eviction, even longer. A sale by agreement on the open market usually takes a few months from the decision to the signing.
The list of costs worth including in the calculation:
- Legal fees for each party throughout the proceedings.
- Court fees.
- The fee of the receiver, the appraiser and the receiver’s marketing expenses, deducted from the proceeds.
- The possible gap between a receivership price and an open market price.
- The cost of time: an empty or rented apartment that is not maintained, arnona, building committee fees and a mortgage that keep running.
- Capital gains tax and purchase tax, which do not depend on the method of dissolution but do affect the net amount.
A numerical example: an inherited apartment in Ramat Aviv Gimel
The example is for illustration only, and the figures are not based on any particular transaction. Three siblings inherited in equal shares a four room apartment in Ramat Aviv Gimel with a market value of about ₪4,800,000. One sibling wants to sell immediately, the second wants to wait for an urban renewal project, and the third is undecided. The stages before the sale, from the order to the capital gains tax exemption, are detailed in our guide to selling an inherited apartment.
Scenario A: sale by agreement on the open market. The apartment sells for ₪4,800,000. Assume a brokerage fee of 2% plus VAT at 18% (on the level of the fee, see brokerage fees), that is, ₪113,280. That leaves ₪4,686,720, about ₪1,562,000 per sibling before tax and legal costs.
Scenario B: a claim and a sale by a receiver. Assume the apartment sells after about a year and a half for ₪4,450,000, about 7% below market value. Assume a receiver’s fee of 3% plus VAT, ₪157,530, and legal costs of about ₪30,000 per sibling, ₪90,000 in total. That leaves ₪4,202,470, about ₪1,401,000 per sibling.
The gap: about ₪161,000 per sibling, and that is before accounting for a year and a half of arnona, maintenance and family relationships.
Scenario C: one sibling buys out the others. At a value of ₪4,800,000, each third is worth ₪1,600,000. If the siblings agree to offset their share of the brokerage fee saved, about ₪37,800 each, the price per share falls to about ₪1,562,000. The buying sibling pays about ₪3,124,000 for the two thirds, and must check financing and purchase tax in advance. The sellers receive, within a few months, an amount identical to Scenario A.
Decision table: which route suits which situation
| Situation | Route to examine first | What to watch for |
|---|---|---|
| All co owners want to sell but disagree on the price | Sale by agreement with an agreed decision mechanism | A valuation in advance, a written minimum price, who approves an offer |
| One co owner wants to stay in the property and has financing | Buying out the other co owners’ shares | An agreed appraiser, mortgage approval in principle, tax planning |
| One co owner lives in the apartment and refuses every offer | Mediation, and if it fails, a claim | Reasonable usage fees, documentation of offers sent |
| Separating spouses with minor children | A request to settle the dispute and a comprehensive agreement | Section 40A, the right of first refusal under Section 101, Section 4A for tax |
| A house on its own land on a large plot | Examining division in kind or condominium registration | Planning, building rights, balancing payments |
| One co owner threatens to sell their share to an outside party | A structured conversation about a fair price for the share | The expected discount on an undivided share, the registration status at the Tabu |
Before going to court: mediation, and real estate guidance in the sale
Mediation and dispute settlement
In family disputes, including dissolution of co ownership between spouses, anyone who wishes to file a claim must begin with a request to settle the dispute. The parties are invited to up to four information, coordination and orientation meetings (MAHUT) at the assistance unit attached to the court, which are meant to take place within 45 days, with the possibility of a single extension of 15 days. This is a real opportunity to reach an agreement before the major expenses begin.
Between siblings or investment partners too, private mediation by agreement is usually far faster and cheaper than proceedings. Good mediation on a real estate matter relies on data: what the apartment is worth, how long it is expected to take to sell it, and what the numerical difference is between a sale by agreement and a sale by a receiver. When all parties see the numerical example applied to their own case, decisions that seemed impossible sometimes become simple.
Where a marketing and brokerage company comes into the picture
We are not lawyers and we do not represent a party in the dispute, but there are three points at which professional real estate guidance changes the outcome:
- Before the decision: a valuation based on actual transactions gives all co owners a single starting point for the conversation, for mediation or for the lawyers.
- In a sale by agreement: we run marketing that is committed to all co owners equally, with a mechanism agreed in advance: asking price, minimum price, who is authorized to approve an offer, and how decisions are made. Such transparency reduces suspicion between co owners. More information on the process is available on our page for property owners who want to sell.
- In a sale by a receiver: the receiver manages the proceedings and decides on the marketing method, subject to the court. When the receiver wishes to work with a marketing party, or when we have buyers suited to the property, bringing quality buyers into the process can increase competition and narrow the discount, which is in the interest of all co owners.
Frequently asked questions
Can a co owner be forced to sell the jointly owned apartment?
Yes, in the sense that every co owner may sue for dissolution of co ownership, and if the apartment cannot be divided, the court will usually order a sale. The main exceptions are a co ownership agreement restricting dissolution and the residence protection under Section 40A for spouses with minor children.
How long does dissolution of co ownership take in court?
Often more than a year, and longer when there are disputes over rights, usage fees or eviction. A sale by agreement on the open market usually concludes within a few months.
Is a sale by a receiver always cheaper?
Not always, but it tends to end at a price below market value, because of a buyer audience looking for a discount, a sale as is, uncertainty about court approval and costs deducted from the proceeds.
What are reasonable usage fees in a dissolution of co ownership?
When one co owner holds the jointly owned property alone, the other co owners may claim payment from them for the use of their share, usually according to customary rent. Entitlement and the amount depend on the circumstances, and a lawyer should review them.
Does a co owner have a right of first refusal to buy my share?
Only if a right of first refusal was registered by agreement, in an inherited agricultural holding, or between spouses in a jointly held residential apartment. In other situations there is no statutory right of first refusal.
Who pays capital gains tax when one co owner buys out the other?
Usually the selling co owner is liable for capital gains tax on the share sold, if they are not entitled to an exemption, and the buying co owner pays purchase tax on the share bought. Between spouses in divorce proceedings there is a special arrangement. The exact calculation should be reviewed by a tax advisor.
Dissolution of co ownership in Israel: in summary
Dissolution of co ownership is the right of every co owner, but the way it is exercised determines the outcome. In most cases, agreement on a data based price and a transparent sale mechanism leaves all co owners with more money, in less time, than proceedings that end in a receivership sale. If you are a co owner of an apartment and considering your next step, we will be happy to help with a valuation and with building a sale plan, alongside your lawyer. You can contact us or call 077-500-4600 (+972 77 500 4600 from abroad).
