A defective new car and the “Lemon Law”: the buyer’s rights

Service page: Consumer claims and class actions lawyer.

A new car that goes back to the garage again and again raises a legal question. Exactly what can you demand, from whom and in what order? This guide deals with a new car bought from an importer or a dealership; for a used car, see Buying a second-hand car: your rights.

What is a “lemon law”, and is there one in Israel?

“Lemon Law” is a name for laws in the United States. They entitle the buyer of a new car that was not fixed after several attempts to a replacement or a refund. Israel has no such law. The legislation sets no fixed number of repair attempts or days in the garage that creates an automatic right to replace the car.

The rights of a person who bought a defective new car rely on several laws that work together. The Licensing of Services and Professions in the Vehicle Industry Law, 5776-2016 regulates the warranty for the car. The Sale Law, 5728-1968 sets when the seller has not met its obligations. The Contracts (Remedies for Breach of Contract) Law, 5731-1970 sets what you can demand when the contract was breached. And the Consumer Protection Law, 5741-1981 prohibits misleading consumers and requires disclosure.

The warranty for a new car: what the importer must do

A direct importer must give every car it imports the warranty given by the car’s manufacturer. It must also honor it (section 49(a) of the Licensing of Services and Professions in the Vehicle Industry Law). So the scope and length of the warranty are set by the manufacturer’s warranty, as it appears in the warranty certificate.

A car seller must sign a written agreement with the buyer (section 84). Among other things, it sets out the warranty period and its scope, if the manufacturer or an authorized agent gave a warranty. The seller must also give the buyer a warranty certificate for the car and its parts in Hebrew (section 86(a)). It must also report to the buyer damage caused to the car before delivery, including damage that was repaired (section 87).

The importer may not make the warranty conditional on the car being serviced only at its own service garage. It also may not make it conditional on the use of a particular vehicle product. The exception: maintenance services included in the warranty, for which the importer or someone on its behalf pays at least ninety percent (section 49(c)).

A fault that the manufacturer announced as a “serial safety defect” is handled in a separate recall track; see Vehicle recalls and class actions.

When a defective new car is a “non-conformity” under the Sale Law

The seller has not met its obligations in two cases (section 11 of the Sale Law). It delivered an asset that lacks the quality or characteristics needed for its ordinary use. Or it delivered an asset that does not otherwise conform to what was agreed. A new car with a fault that affects its ordinary use may fall within this definition.

The Law also makes demands of the buyer. The buyer must inspect the car immediately after receiving it (sections 13 and 14). They must notify the seller of a non-conformity immediately after the inspection or after discovering it, whichever is earlier. A buyer who did not notify may not rely on it. The notice must describe the fault in reasonable detail and give the seller a fair opportunity to inspect the car (section 17(a)).

Some faults could not have been discovered in a reasonable inspection. You can also raise such a fault later, provided that you gave notice as soon as you discovered it. But there are time limits (section 15). If notice was given more than two years after the delivery of the car, you can no longer cancel the transaction because of it. After four years, you cannot demand the other remedies either. These limits do not apply when the fault arises from facts that the seller knew or should have known about and did not disclose (section 16). The buyer must still give notice as soon as they discover it.

What you can demand: performance of the contract, a deduction, rescission and damages

When a contract is breached, the injured party is entitled to sue for its enforcement or to rescind it. They are also entitled to damages, in addition to either of them or instead of them (section 2 of the Contracts (Remedies for Breach of Contract) Law). For a defective new car, this means:

• Performance of the contract: a demand that the seller meet its obligation and supply a car in working order, for example by repairing it.
• Deduction: the seller may not have fixed the non-conformity within a reasonable time after receiving notice. If the buyer does not want to sue for performance of the contract or to rescind it, they may deduct an amount from the payment (section 28 of the Sale Law). The amount is how much the car’s value dropped because of the non-conformity.
• Rescission: if it is a fundamental breach, you may rescind (sections 6 and 7(a)). A breach is fundamental if it can be assumed that a reasonable person would not have entered into the contract had they foreseen the breach. If the breach is not fundamental, you must first give an extension to perform the contract (section 7(b)). You may rescind only if it was not performed within a reasonable time after the extension. Even then, you may not rescind if rescission would be unjust in the circumstances. The cancellation notice must be given within a reasonable time (section 8). After rescission, each side returns to the other what it received (section 9). The buyer returns the car, and the seller returns what was paid to it.
• Damages: for damage caused by the breach (section 10). This covers damage that the seller foresaw, or should have foreseen, when the contract was made, as a probable result of the breach.

The number of visits to the garage is not a test set by law. Document a fault that comes back after repairs. It serves as evidence that the seller did not perform the contract, and that the extension it was given did not help.

Misleading and non-disclosure: the Consumer Protection Law

A dealer must disclose to a consumer any defect it knows of that significantly reduces the value of the asset (section 4(a)(1) of the Consumer Protection Law). It may not do anything that may mislead a consumer about a material matter in the transaction, including the quality of the asset (section 2(a)). A breach of these provisions is treated as a tort under the Torts Ordinance [New Version] (section 31(a)). That is, it gives a cause of action for damages.

A fault that recurs across a whole model: a class action

When the same fault affects many buyers of the same model, you can consider a motion to certify a class action. A class action may be filed against a dealer, as defined in the Consumer Protection Law, in connection with a matter between it and a customer. This is item 1 of the Second Schedule to the Class Actions Law, 5766-2006 (חוק תובענות ייצוגיות, התשס״ו-2006). Filing it requires the court’s approval (section 3(b)). The stages are set out in the guide Filing a class action.

Frequently asked questions

Is there a “lemon law” for cars in Israel?

No. Israel has no law by this name. The legislation sets no fixed number of repairs or days in the garage that gives an automatic right to a replacement car. The rights come from three sources. The first is the warranty that the importer must give and honor (section 49 of the Licensing of Services and Professions in the Vehicle Industry Law). The others are the Sale Law and the Contracts (Remedies for Breach of Contract) Law.

Can you cancel the purchase of a new car that breaks down again and again?

Yes, under conditions. If it is a fundamental breach, you may rescind. If it is not fundamental, you must first give an extension for the repair. You may rescind only if the car was not fixed within a reasonable time after it (section 7 of the Contracts (Remedies for Breach of Contract) Law). After rescission, the buyer returns the car and the seller returns what it received (section 9).

Can you cancel the purchase of a new car even without a fault?

Yes, within a short time window. A new car bought from an importer is included in item (21) of the Schedule to the Consumer Protection Regulations (Cancellation of Transaction), 5771-2010 (תקנות הגנת הצרכן (ביטול עסקה), התשע״א-2010). Under regulation 2(6), the consumer may cancel the transaction within 14 days from the day it was made. The condition is that the car has not yet been registered in the consumer’s name under the Traffic Ordinance [New Version] (פקודת התעבורה [נוסח חדש]). Has the car already been delivered to you? Then you return it to the dealer undamaged and unused (regulation 2; section 14F(a) of the Consumer Protection Law). The dealer may charge a cancellation fee of 5% of the price or NIS 100, whichever is lower (regulation 5(a)). For a new car, the lower amount is NIS 100. If payment was made by credit card, the dealer may also charge the clearing fee it proves was charged to it (regulation 5(b)). A used car is not included in this item.

Until when can you notify the seller about a fault?

As soon as it is discovered (section 14 of the Sale Law). Take a fault that could not have been discovered in a reasonable inspection. If notice was given more than two years after the delivery of the car, you can no longer cancel the transaction. After four years, you cannot demand the other remedies either (section 15). This does not apply if the seller knew of the facts that caused the fault, or should have known of them, and did not disclose them (section 16).