The Marker, Adi Cohen, 03.06.2020

A precautionary ruling, issued last week by the Haifa District Compensation Appeals Committee and Enhancement, is expected to shake up one of the most sensitive issues for real estate developers. The decision states that the requirement of a local authority to allocate and establish public land under construction plans - also requires the authority to carry half Therefore, it has been determined that the improvement consideration must be offset by both the cost of construction of the public areas and the building rights taken from the developer for this purpose.

The rationale behind the committee's decision, headed by Attorney Maya Ashkenazi, was to examine who is the main beneficiary of these public spaces. The committee stated that the answer to this is that the entrepreneur does not enjoy the rights taken away or the public structures set up for the local authority's use. It also requires listing these territories.

The decision, which is considered to be dramatic, is expected to affect many construction projects, and could result in considerable savings in developers' expenses, which could amount to millions of shekels per project. Faced with increasing demands from local authorities to allocate public space under private building plans, the question of public assignments carried out by entrepreneurs has risen in recent years. These areas are registered in the name of the local authority - sometimes even as a condition for obtaining a permit and exercising the rights in the land. It is estimated that this trend will be strengthened in the future, with the establishment of the alternative route to TAMA 38 , which according to the clear outline will allow local authorities to dictate public areas or impose public assignments on property owners.

Two essential questions

The current decision was given regarding a dispute between the local Pardes Hanna Planning and Building Committee and the Pardes Hanna Tabori Center Company, which sought to erect 65 residential units in two local council buildings, over a commercial floor and an existing office. As part of a building permit issued by the local authority, the developer was required to allocate 500 square meters of the project as a designated area for public use.

However, after the building permit was issued, the local committee demanded an improvement of NIS 3.6 million from the developer , and the levy would also include the building rights of the public areas in the complex. If this is not enough, the Authority's payment requirement does not include reference to the construction costs of the public areas that were entrusted to the developer.

In response, the developer accepted the decision and argued that the construction rights expropriated therefrom should be reduced to consideration and that the authority should fully absorb the construction costs of the public areas. The developer appealed the appraisal, and the crucial appraiser determined that the levy would be reduced by about 50% to about NIS 1.8 million, but the local committee appealed to the District Appeals Committee for Compensation and Improvement Fees.

The appeal filed requires the members of the committee to address two essential questions that are currently unanswered: Who should shoulder the construction costs of the public space allocated for the benefit of the local authority; And whether it is appropriate to consider in the improvement consideration the construction rights of the public area in the project.

The commission stated that construction costs should be shared between the two parties: "Construction costs are part of the expenses incurred by the developer to realize the improvement inherent in the plan. Therefore, these costs should be offset from the tax base - that is, from the improvement itself - and not from the amount of tax the developer has to pay for the improvement." 

As far as the weighting of rights allocated to the establishment of public areas is concerned, the members of the committee have made it clear that consideration should be given. "The improvement levy is intended to tax the beneficiary and economic pleasure of approving the plan. Anyone who benefits from the increase in land value due to planning actions is required to share his wealth with the public. This purpose does not apply in relation to a land improvement plan that required the transfer of land to another person. In this case, the registered owner At the time of approval of the plan, it is not the one who will benefit from the planning action or benefit economically from the new plan, "the committee's decision states.

"As far as public land is concerned, anyone who enjoys the increase in property value is not required to share his wealth with the public, because he is not someone who will benefit financially from the plan."

In the end, the Appeals Committee rejected the petition and ordered the local authority to collect from the developer the reduced gratuity payment that was stopped by the crucial appraiser. Furthermore, the Commission has determined that the cost of building public space should also be offset by the structure being considered.

Commenting on the decision, Adv. Eyal Oliker of the Zvi Ministry again stated: "This is an important decision and has significant economic implications. When the local authority asks the developer or private landowner to allocate public land within a building - it is an expropriation for everything, and right now there is no law that makes it order. The absurdity of the existing situation is that the local authorities see this as a public task, so not only do they not pay compensation for this appropriation - many of them are not prepared to deduct construction costs from the improvement levy. "

TLV Mall. As part of the project, public areas were allocated to schools and sports facilities

Photo: Ofer and Kenin

"More heavy on entrepreneurs"

Despite the apparent relief on the expenses of the developers, among the players in the industry, the committee's ruling is widely criticized. "This is a further burden of the tax burden on the construction industry, which raises project construction costs and eventually rises to the public in raising house prices," says Haim Feiglin , CEO of the Hamerman plant and company owners and vice president of the Land Builders Association.

According to him, "if a public task is imposed on an entrepreneur, it should be reduced by the levy and not by the levy, which means that the local authority will cover all costs. If for that matter, the authority would have wanted to build a school or kindergarten in a public property it owns - there was no question that it was The one who pays the costs. In this case, the developer also pushes a function that he doesn't want for the project and also tells him to pay for it. "

Feiglin gives an example of illustrating the relative weight placed on the shoulders of the developers: "In a project I am promoting in Gush Dan, for example, the municipality asked me to build a public area of ​​2,000 square meters. This means an additional NIS 12 million on construction alone. Instead of it being deducted from the improvement levy and the municipality absorbing it, I have to pay 50%, and there are many millions who are burdened with the project. "

Regulation of public areas in the law is delayed

The importance of the appeals ruling also lies in the absence of legislation that regulates the integration of public areas into private construction projects. In March 2018, a Knesset floor bill was tabled before the Knesset Interior Committee, which sought to regulate cases where a public designation was set as part of a structure similar to the law applicable to consolidation and distribution plans.

According to the proposal, which has not yet been promoted, the local authority will have the authority to require that part of the building be designated for public purposes and named after it, and in return it will pay the private owner or entrepreneur the costs of constructing the public land and be exempt from paying the value of the land in part of the building allocated to it.