Commercial contracts in Israel: drafting, review and breach
Drafting, reviewing and enforcing commercial agreements under Israeli law: what every contract should cover, when an oral agreement binds, and what the law allows when the other side does not perform.
In short
Before you sign a commercial contract, check that it has a clear termination clause, a dispute-resolution mechanism and a precise definition of each party's obligations. An oral contract is generally valid unless a statute or the parties' agreement makes a particular form a condition of its validity (section 23 of the Contracts (General Part) Law, 5733-1973), but it is much harder to prove. On a breach, the injured party may claim enforcement or rescind the contract, and may claim damages in addition or instead (section 2 of the Remedies Law).
Office in Kiryat Ono, in the Tel Aviv metropolitan area; Hebrew and English.
What separates a good contract from one that causes trouble?
Most business disputes do not start with a party that set out to cheat. They start with a contract that never defined clearly who owes what. Both sides signed in good faith, each understood something different, and now there is a claim. It happens in small deals and in very large ones.
A good commercial contract is not complicated drafting — it is precise drafting. It answers one question: what happens if X is not done? If the answer is not written in the contract, the problem will surface at the least convenient moment.
What kinds of commercial contracts are there?
Sale contracts. The most common. They define the product, the price, the delivery date and what happens if the product is defective. A classic mistake: leaving out the warranty, and what happens after it ends.
Service contracts. Consulting, marketing, software development, accounting. The most important point is exactly what the service includes and what is an extra at additional cost. Without that, every conversation with a client becomes an argument about money.
Commercial leases. Materially different from a residential lease. The Rental and Loan Law, 5731-1971 (חוק השכירות והשאילה, התשל״א-1971) fills in what the contract leaves out, but only where no different intention can be inferred from the parties' agreement (section 2(c)) — so the contract decides. Check the eviction clauses and responsibility for repairs in particular.
Partnership agreements. A bad partnership agreement is a built-in mechanism for a dispute. It has to say what happens when someone wants to leave — not only when they come in.
Confidentiality agreements (NDAs) and trade secrets. Before any significant advisory conversation with an outside party, sign a confidentiality agreement. Afterwards is too late.
What must every commercial contract include?
These are the clauses whose absence causes most disputes:
The parties. Full name, company or business registration number, and address — not "the Company" and "the Client", but full names. The common mistake: signing with a representative who has no authority to bind the company.
A precise description of the subject matter. "Marketing services" is not a description — it is a future dispute. "Management of an online advertising campaign with a budget of X, two meetings a month and a monthly report" is a description.
Price and payment terms. Not only the amount, but also when payment is due, what happens if it is late, and whether VAT is included.
A termination clause. How many days' notice? What happens to payments already made? What happens to work already done? Without clear answers to these questions, every termination turns into a dispute.
A dispute-resolution mechanism. Arbitration, mediation or the courts? Which court has jurisdiction? A mistake here can be costly.
What happens when the other side does not perform?
Under section 2 of the Contracts (Remedies for Breach of Contract) Law, 5731-1970 (חוק החוזים (תרופות בשל הפרת חוזה), התשל״א-1970), a breach entitles the injured party to claim enforcement of the contract or to rescind it, and to damages in addition to either of those remedies or instead of them. Exactly what you are entitled to depends on the kind of breach and on what the contract says.
The first step is written notice of the breach, with a deadline to put it right. Not a telephone call — an email with a read receipt, or a registered letter. If the other side does not put it right, there is a cause of action.
A fundamental breach allows rescission (section 7(a)). After a breach that is not fundamental, the injured party must first give the party in breach an extension to perform, and may rescind only if the contract was not performed within a reasonable time after that extension (section 7(b)). Notice of rescission must be given within a reasonable time (section 8). A wrongful rescission can turn the party who rescinded into the party in breach.
| Remedy | When it is available | Section |
|---|---|---|
| Enforcement | The injured party is entitled to it, unless the contract cannot be performed, enforcement would compel the doing or acceptance of personal work or a personal service, carrying out the order would need an unreasonable degree of supervision by a court or the Execution Office, or enforcement would be unjust in the circumstances. | 3 |
| Rescission after a fundamental breach | The injured party may rescind, by notice given within a reasonable time after learning of the breach. | 7(a), 8 |
| Rescission after any other breach | Only after an extension to perform was given and the contract was not performed within a reasonable time after it, unless rescission would be unjust in the circumstances; notice is given within a reasonable time after the extension has passed. | 7(b), 8 |
| Restitution after rescission | Each party returns what it received under the contract, or pays its value if return is impossible or unreasonable, or if the injured party so chooses. | 9(a) |
| Damages | In addition to enforcement or rescission, or instead of them. | 2 |
| Agreed damages | Payable as agreed, without proof of loss; the court may reduce them if they were set with no reasonable relation to the loss that could have been foreseen when the contract was made. | 15(a) |
A contract rarely stands alone. Employment, confidentiality and non-compete agreements are also tested under employment law — see employment law in Israel; SaaS agreements, terms of use and software licences raise questions of digital commerce and privacy law; and a standard-form contract offered to the public may give rise to a consumer claim or a class action.
Which mistakes most often end up in court?
1. An oral contract. It exists in law, but when there is a dispute it is "you said" against "I said". The decision then rests on testimony and circumstances, and is harder to predict.
2. A contract copied from the internet. A contract downloaded from a foreign template bank may conflict with specific Israeli statutes, and may contain clauses that do not apply in Israel at all.
3. No termination clause. Without one, every wish to end the relationship becomes a legal proceeding. Sometimes people stay in a bad contract simply to avoid the dispute.
4. Signing without reading. "We are a business — we don't read every clause." Until you reach the clause that makes you liable for any damage, without limit.
5. An old contract that was never updated. A contract that has served you for five years is not necessarily right for today. The economy changes and the law changes; agreements need to be updated.
Which drafting points are most often overlooked?
- Changes to the scope of work. In a service contract, set a mechanism for changing the terms (a change order). When a client adds requirements without additional payment, record the change in writing at the time; establishing it afterwards is much harder.
- Terms incorporated by reference. A contract that makes the terms of use on a website "an integral part" of it, without attaching them as a signed schedule, invites a dispute over whether those terms were brought to the other party's attention and became part of the contract — especially in consumer contracts.
- Agreed damages. A liquidated-damages clause set too high may be reduced: the court may do so if the amount was set with no reasonable relation to the loss that could have been foreseen when the contract was made (section 15(a) of the Remedies Law). Keep a reasonable relation to the expected loss.
How does this practice handle commercial contracts?
Yaron Meiri, Adv. & CPA advises on commercial contracts:
- Drafting: agreements written from scratch for your specific needs, not a generic template.
- Review before signing: a focused review of the risks and of what to ask the other side to change.
- Negotiation: conducting the negotiation over the terms with the other side.
- Breaches: letters of demand, negotiation, and representation in legal proceedings where needed.
Agreements are read with a legal eye and a financial one at the same time. A payment mechanism, an earn-out or a termination formula is a commercial model expressed in words, and the two readings tend to catch different problems.
Frequently asked questions
What must a commercial contract include?
The full identity of the parties, a detailed description of the service or product, the price and payment terms, the length of the contract, each party's obligations, a termination clause and a dispute-resolution mechanism. Each of these that is missing is a future dispute.
What do I do when the other side does not perform the contract?
Send written notice (an email with a read receipt) setting out the breach and a deadline to put it right, and keep a copy. If it is not put right, there is a cause of action. Take advice before acting on your own: a wrongful rescission can turn you into the party in breach.
Is an oral contract valid in Israel?
Yes. A contract may be made orally, in writing or in another form, unless a particular form is a condition of its validity under a statute or the parties' agreement (section 23 of the Contracts (General Part) Law). The problem is proof: in a dispute each side remembers the conversation differently, and without a document the decision rests on testimony and circumstances. One exception: an undertaking to make a transaction in land requires a written document (section 8 of the Land Law, 5729-1969).
Can a signed contract be cancelled?
It depends on the terms of the contract and on the circumstances. Grounds for rescission include mistake (section 14 of the Contracts (General Part) Law), misrepresentation (section 15), duress (section 17) and exploitation (section 18). Rescinding without a ground is usually itself a breach. Take advice before you rescind.
What should I have ready before a first call about a commercial contract?
The draft or the signed agreement with its schedules, the correspondence with the other side, and a short description of the deal: what each side was to give and receive, and what went wrong, if anything. Please don't send documents through the form; we will first arrange a call.
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I will get back to you during office hours. Until then there is no need to send documents — keep the documents related to the matter with you. If there is a close deadline, write to me on WhatsApp or call +972-50-431-3155.
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Legal framework and sources
- Contracts (General Part) Law, 5733-1973 (חוק החוזים (חלק כללי), התשל״ג-1973) — full text, Hebrew Wikisource
- Kol Zchut: Contracts (General Part) Law, 5733-1973
- Contracts (Remedies for Breach of Contract) Law, 5731-1970 (חוק החוזים (תרופות בשל הפרת חוזה), התשל״א-1970) — full text, Hebrew Wikisource
- Kol Zchut: Contracts (Remedies for Breach of Contract) Law, 5731-1970
- Standard Contracts Law, 5743-1982 (חוק החוזים האחידים, התשמ״ג-1982) — full text, Hebrew Wikisource
- Sale Law, 5728-1968 (חוק המכר, התשכ״ח-1968) — full text, Hebrew Wikisource
- Rental and Loan Law, 5731-1971 (חוק השכירות והשאילה, התשל״א-1971) — full text, Hebrew Wikisource
- Land Law, 5729-1969 (חוק המקרקעין, התשכ״ט-1969) — full text, Hebrew Wikisource
Checked against the current statutory text in October 2026. Every source above is in Hebrew; the Hebrew text is the governing text of the law. This information is general and is not legal advice.
This page is general information about Israeli contract law, written for English-speaking readers. It is not legal advice, does not create an attorney-client relationship, and is no substitute for advice on your own facts. The governing text of every statute cited is the Hebrew original. Past results do not guarantee similar results in the future.
Before you sign — or after the agreement was breached?
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