Arrears and Penalties: Charging Interest for Breach of Contract

Ironically (and luckily for property owners in Israel), the Fair Rental Law changed almost everything, but left an opening on the issue of "Arrears Fines" for personal drafting based on the broad Contracts Law. Unlike France where a 5% fine is criminal on a residential apartment, in Israel the apartment owner is permitted to create an economic "deterrent whip" for the chronic delayer (the "I'll transfer you Paybox on the 10th instead of the 1st"). All this under the supervision of "reasonableness."

Legal Disclaimer: The compensation clause must be explicitly bound in the written lease agreement. An apartment owner is not entitled to invent an arrears fine the moment it happens if it was not agreed upon. Updated in March 2026.

1. The First Mechanism: Agreed Compensation ("Daily Late Fine")

The most effective way to defend against delays in rent payments is establishing an "Agreed Compensation (Daily Fine)" clause in the basic agreement.

• What is the familiar phrasing? "For every day of delay in paying the rent (or any other payment to the landlord or authorities), the tenant will pay a pre-estimated and agreed compensation sum of X shekels". (Usually negligible sums for delay related to rent range between 100 to 150 ILS per day).
• (A fine for "Delay in final eviction" is usually huge - for example, 400 ILS for every day of delay after the contract has ended, on the way to the expedited eviction hearing).
• The Reasonableness Limit (Courts): If the monthly rent is 3,000 ILS, and you set a fine of 1,500 ILS for a day's delay in payment, the judge will reject it outright! The Contracts Law allows agreed compensation without proving damage, but the legal examiner has the right to heavily reduce a "completely unreasonable" compensation that smells like extortion. The acceptable range for a residential money delay fine must be proportional.

2. The Second Mechanism: "Arrears Interest" (Maximum Legal Interest / Adjudication of Interest Law)

If you did not write an "Agreed daily fine" but chose the economic route, you can use the interest route (like the banks). This means that if the tenant is late in paying (and the landlord suffers damage - because they also have a commission on an overdraft in their bank/mortgage), the systemic law supports them.

• The common phrasing: "Any delay constituting a breach will entail payment of differentials bearing arrears interest at the maximum rate customary in the bank (or at a fixed rate: 'according to the Adjudication of Interest and Linkage Law')."
• From the moment the payment day established in the contract ends (and after a business day - or according to the "Grace period" customary in good taste in Israel to grant [from 3 to 7 days without being considered a strict delay due to Sabbath and holiday dates]), the money accumulates a "ripple effect" exerting immense pressure for the rapid covering of the financial hole.

3. Offsetting from Securities / Cash Deposit

A landlord does not need to wait for the courtroom with these interests and the fine. The moment the debt accumulates and the delayer has not covered it, the landlord is allowed to extract the rent + the agreed fine + the lawyer's letter (execution office warning), directly from the sum of the Guarantee (the legal cash deposit or forfeiture from the banks) (as long as advance notice time is given in accordance with the Rental Law).

Put an End to Late Payments with Automatic Billing (Landager)

The most exhausting thing for an investor in 10 properties or for building managers – is to look for an invoice and compare current account balances every 2nd of the month to check "who put it and who is still making excuses." Landager's FinTech system comes to the world to create aggressive liquidity magic: The moment the collection system (Stripe / direct debit / updated European-Israeli account connection) sees that the client is characterized as a "Late-Payer" on the 3rd of the month: The system contains an 'Algorithmic' Rules Engine – in a White-label manner, an official SMS warning is sent to your tenant: "Attention: The payment has not been settled. In C days, the system will add to your balance a legal arrears surcharge debt in the amount of X according to agreement 5.3 of the contract." Digital collection rises wonderfully, and interpersonal tensions with the delayers melt away completely behind the authority of complete software protecting you.

Back to Overview: Residential Tenancy in Israel.