The Marker, Hadar Horesh, 05.03.2020
In recent years it has become a practice: Buyers of condominiums are obliged to sign an agreement with a management company without knowing the price they will be required to pay, and what is behind the high pricing.
Buyers of apartments in the Uptown project in Bat Yam who discovered that the developer, the Aharoni group controlled by Moshe Aharoni, shares with the project management company the management fees they pay - recently decided to take an unusual step to sue the group. It is estimated that the agreement with the Uptown management company will bring about $ 2 million a year to Aharoni.
The Uptown project includes a three-story commercial center, a 25-story office building and a 46-story residential tower that includes 182 apartments. In a residential tower , located on Nissenbaum Street, home buyers pay a relatively high monthly fee of about NIS 13 per square meter - so that an average apartment of 100 square meters pays a management fee of about NIS 1,300 every month.
Construction of the Uptown project in Bat Yam began in 2014, the first tower was occupied in 2019 and the second tower is under construction. The agreement shows that Aharoni has pledged to the management company that he will not hand over the apartments to the tenants without his signature. The agreement was disclosed in the building permit documents requested by Aharoni for the construction of the project.
One of the conditions for the permit was a contractor 's commitment to contract with a management company, which would ensure proper maintenance of the building. Now, the tenants are suing the developer and demanding to cancel the management contracts they signed, because they claim the signing was made illegally - while concealing the contract between the contractor and the management company, Ariel Projects Key Hope, managed by Yossi Cordova.
The suit also states that to ensure the maintenance of the building after the sale of the apartments there, the developer must sign the tenants to sign an agreement with the responsible management company. However, the tenants claim that when the apartments were purchased, the Aharoni Group signed them into open management contracts - without specifying the name of the management company. Because signing the contracts was a prerequisite for delivering the apartments, the only choice faced by the tenants was to sign the contract - or give up the deal.
The tenants of the project filed a petition against the condition, and in an injunction issued by the Rishon Lezion Magistrate's Court, Rebecca Arad, ruled that the company was not allowed to condone the delivery of the apartments in signing the agreement with the management company. However, the judge refused a motion for a temporary injunction that would invalidate the management agreements signed.
Long-term business model
Later, the tenants also found that management fees of NIS 13 per square meter were significantly higher than the usual in the industry. While the buyers investigated the reason for the high tariff they had to pay, the unique management contract between Aharoni and the management company was revealed.
"In return for performing the services ... Ariel's assets will be entitled to a consideration equal to half of the management salary for Migdal, plus VAT.The second half of the management fees collected from tenants belongs to the entrepreneur and will be paid to him by the companies once a month for the month preceding him, ”the agreement states.
The contract between the developer and the company reveals that this is not a temporary agreement for a transitional period, but a long-term business model in which the developer continues to receive millions of shekels per year, without any real consideration: The agreement between the developer and the management company is 15 years, but the tenants have the right to replace the management company At the end of the three-year contract to which they are signed. The exchange, if implemented, will also end the relationship between management company and entrepreneur Aharoni.
Such clauses are common in permits to build residential towers granted in recent years. Maintenance of residential towers is more expensive than usual, and in the absence of proper maintenance, safety hazards in the building and deterioration in its general condition may result.However, imposing an obligation on the contractor on the contractor causes conflicts of interest between him and the tenants, as the contractor's preferred management company is not necessarily the one who will benefit the tenants.
"This is an extremely unusual conduct ... that prevents weighty financial interests," says tenant's attorney, Eirad Baumel. "He added that the developer and the management company conspired to occupy the home buyers, to enrich the developer's pocket at the expense of the apartment owners."
Aharoni and Ariel Properties declined to comment.
The kickback method works
In the home management industry, they say that the "kickback" method - transferring payment from the management company to the contractor who granted it the contract - is common, but most of the payments are much lower than those stipulated in the agreement between Aharoni and Ariel Properties. According to industry estimates, the management agreement pricing is based on the management cost estimate and an additional 15% profit - and often the management company is willing to give up part of the contract profit and pass it on to the entrepreneur.
Conversations with professionals indicate that they do not recognize a 50-50 split between the developer and the management company - with the full monthly payment of the tenants. The exceptional agreement is probably also the reason for the high management fees in Uptown. The industry says that a rate of NIS 13 per square meter is sometimes charged at ultra-luxury residential towers, and that the usual price for residential towers is NIS six to eight per square meter.
"Although the agreement is exceptional, there is no law prohibiting such an agreement," says a senior in the residential sector. "The field is completely groundbreaking and does not have precise definitions regarding the debts of the management company and the developer. The new design trend dictates a rapid increase in the number of residential towers, and therefore the authorities need to rush and examine the regulation of the home management sector, where some entrepreneurs are now ineligible for the required service."