Arrears and Penalties: Charging Interest for Breach of Contract

This guide provides general legal information for educational purposes only and does not constitute legal advice. Always consult a licensed attorney in Israel for advice specific to your situation. Information last verified: April 2026.

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."

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 hearingPregled nije dostupan).
• 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)Pregled nije dostupan (as long as advance notice time is given in accordance with the Rental Law).

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