The Marker, Gili Melnicki, 21.04.2020
The Tel Aviv District Appeals Committee for Compensation and Improvement Fees on Monday released an extraordinary decision in the urban renewal sector: The improvement levies on eviction-building projects should be imposed on apartment owners rather than entrepreneurial companies, as is customary today. The improvement levy is a charge levied by the local authority and amounts to about half of the land improvement value, following programs that increase the building rights or permissible uses.
According to the commentary of the Appeals Committee, headed by Attorney Benjamin Zalmanovitz, she sees the entrepreneur as a service provider and contractor only, who enjoys entrepreneurial profit for the implementation of the project. The developer aims to serve the main beneficiary: the owners of the apartments and therefore they have to pay the levy. Calculated according to the value of the dwellings and not according to the extent of the profit of the developer, which is tested according to Standard 21.
"The surplus dwellings in the project are the proceeds received by the developer and are equivalent to the construction services he provides to the landowners and his entrepreneurial profit is due to the investments he has made in order to execute the plan," Zalmanowitz states.
According to the decision, the improvement formula will be the gap between the value of the new apartments received by the tenants and the value of the old apartments they owned before the project was approved. In other words, the Commission has determined that, for the purpose of imposing a better levy, the new housing units added under the project should not be taken into consideration by the free market developer - because they are the proceeds he receives for his work and part of his entrepreneurial profit.
Those who have so far paid the improvement levy are the entrepreneurs. Many times, subject to the local authority's decision and relevant legislation (Planning and Building Law and Standard 21), they received almost full exemption from the levy.
The concern is that tenants will now refuse to pay the levy and return these costs to the developer in contractual agreements between the parties. Hence, uncertainty about the project's costs and economic viability may increase, as the project levies will cost the projects.
Evacuation-construction Photo: Moti Millrod
"Increasing the improvement levy without legal basis"
One of the significant barriers to implementing evacuation-construction projects in recent years is the economic uncertainty regarding the improvement levies for these projects. The committee is currently working on this issue for two appeals for a crucial assessment given in 2015 for the improvement levy on an evacuation-construction project on Recanati Street in Ramat Aviv, northern Tel Aviv, which promoted Ashdar as of October 2012. According to the plan, three four-story buildings will be demolished 96 apartments and three 17-storey towers will be erected in their place, with 198 apartments. Ashdar will be represented in the case through attorney Ohad Yarak, Shiri Wilkin and Reut Asraf of the firm of M. Firon & Co.; the local planning and construction committee will be presented by attorney Nir Braunstein; And apartment owners who participated in one of the appeals will be represented by Attorney Mira Bornstein and Attorney Yarak.
On appeal, I will submit that the improvement estimate should be expressed in the project's entrepreneurial profitability and if the profitability is found to be lower than stated in Standard 21 - the plan will be exempt from the levy. According to the company, according to this method, the project was found to be insufficiently profitable to be charged with a betterment levy, and so, like many evacuation-construction projects , exemption from the levy levy is required.
The committee discussed the levy calculation for urban renewal projects in reference to Standard 21, an appraiser standard that determines the feasibility of urban renewal projects. In its decision, the committee refers to the position of the government appraiser, which in 2018, at a hearing on barriers to eviction and construction projects, decided that the improvement levy should be determined by combining the entrepreneurial perspective with that of the landowner.
According to the appeal committee, "The government appraiser's approach partially applies each approach and the result is an increase in the improvement levy without a legal basis. The explicit. " The implication is that the Commission provides room for many interpretations for authorities in determining improvement levies.
In the meantime, the municipal renewal authority and the Ministry of Justice are drafting a bill that would improve the levy on evacuation-construction projects to 25% of the improvement value, and would not need the approval of the interior and housing ministers. As part of the move, a total levy is expected to be set at this rate for all local authorities. However, it will be determined that local authorities will have the option of fixing for some areas in the area a sweeping exemption from the levy levy on the one hand, or a full levy levy (50% of the levy value) on the other.
In other words, a local authority may state that for projects in the north of the city it wants to charge a higher rate of improvement, but in order to do so it will have to present a reasoned policy document to the city council, which also takes into account the economic benefit of the entrepreneurs operating in its territory.
"The main casualties - local authorities"
Attorney Mira Bornstein - Partner in the Hartby Attorney's Office, Bornstein, Basson, who represented the apartment owners in the Recanati complex in the process - wishes to emphasize that the Appeals Committee accepted the position of the owners and the developer and determined the formula for calculating the improvement levy (according to the difference in value between the old apartment and the new apartment ) Nothing more. "The decision does not impose payment on the developers in practice, but states the manner in which the new construction rights added to the complex and intended for sale by the developer will not be taken into account. The levy is imposed on the developer, even though the law considers the property owner as a levy, and the decision She has not stated otherwise and cannot in any way change contractual provisions. "
According to Bornstein, the decision illustrates the urgent need to amend legislation that will determine the levy calculation formula for evacuation-construction projects that will prevent the absurd situation in which the developer had to pay tens of millions of shekels to start construction without knowing the final amount of the levy. "This is a situation that radically impacts on the project's economy, as not every entrepreneur has the financial strength to allow him to pay the levy and proceed with appeal proceedings. Therefore, many projects are delayed for a long time until a final decision is made on the improvement levy, thus causing damage to apartment owners and the entire economy."
According to Adv. Zvi Sheva, an expert in planning and construction, "The decision points to the eyes of the legal system for the complex situation that exists in the area of urban renewal, and care should be taken with the projection of the case in question for improvement levies in urban renewal more broadly. In the case in question, it was already known what the rent was being received by the tenants and therefore the Appeals Committee could examine the levy. Existing law, however, did not give rise to complex cases and consequences, so this decision would lead to many disputes. The matter of the exemption from the levy levy should be amended by legislation and made to be fixed by law and not as it is today, by default by the authorities.
"In addition, to prevent a situation where the rights holder will pay interest even before the project begins, the levy payment must be transferred to the stage at which the project is realized and executed - and not as is customary today, to pay the levy in the signature status with the developer. In cases where a plan has been approved, but no Agreeing with an entrepreneur, or when the developer canceled the agreements because he found the deal uneconomical and the like - this decision would not be fair to the landlords and rights. The decision is based on the assumption that the plan for urban renewal will indeed improve the property, but it is not easily examined. "
Danielle Paz Erez, owner and CEO of real estate consulting firm Paz Economics and Engineering, believes the current decision is likely to significantly reduce the possibility for local authorities to charge improvement levies on eviction-construction projects. She said "the main victims of the decision are the local authorities, whose revenues will be significantly reduced and their motivation to advance large urban regeneration programs without government assistance will be reduced in light of the high costs associated with adjusting infrastructure and public buildings in renewal projects."
According to Gad Gershon, VP of Initiative at Shapir Residential Company, "This is a strange decision that will put the industry into further confusion over the existing one as well. If this decision is implemented, it will put the entire industry to a complete standstill - and the implications are reducing the new quota in Israel."