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The decision that sent urban renewal into a tailspin

The new legal interpretation of the betterment levy has caused great confusion in urban renewal transactions. Why has it become problematic and how is it affecting the Israeli real estate market? Adv. Ronen Yardeni, a partner at law firm Hamburger Evron & Co., explains. Watch

09.12.18



The betterment levy, the tax which determines that the local authority is entitled to receive part of a plan that has improved the land under its authority, has recently turned into the biggest obstacle to the realization of urban renewal projects. The betterment levy may even be about to be raised. What implications would this have for the real estate market?

“When there is a plan that creates betterment, the value of the land before and after approval of the pertinent betterment plan is examined. The difference between them is divided by two, and this is the amount to be paid to the local committee”, says Ronen Yardeni, a partner at Hamburger Evron & Co., thus explaining the principle of the betterment levy. “The problem arises when there is a continuum of betterment plans – something which happens very often, and then there is also the issue of the realization date, which is delayed many times. In this scenario, the betterment levy needs to be calculated in relation to a number of betterment plans”.

A Supreme Court ruling in 2016 determined that the correct method of calculation in a scenario of a sequence of successive betterment plans is the stair method.  “This method was chosen from among three methods that were in the running”, adds Adv. Yardeni, “In the stair method, the value of the previous situation is examined, as is the value of the new situation per plan and finally those betterment levies are totaled up”.

And yet, the problem remains in that there is no certainty in each project, while the master outline plans created a plan continuum that comprises the master outline plan followed by a detailed plan that may also create betterment. An example of this is Tel Aviv 5000 or master outline plans such as exist in Hadera, Haifa and elsewhere. Master outline plans were supposed to create order in terms of “what we are building and where”, but then amendment 126 arrived and introduced a change in the situation.

“The amendment removed the master outline plan from it, and this is one thing,” says Yardeni as he enumerates the changes generated by the amendment and the new reality created. “And secondly, another section was added in relation to continuity of plans, which determined that where there is an outline plan followed by a detailed plan, then the betterment in the detailed plan vis-à-vis the betterment in the master outline plan shall be added. On that point it was necessary to give an interpretation since the market went into a tailspin, because today, in large deals, the master outline plan in many cases significantly raised the value of the land. This increase is expressed in the price of the deal, and the interpretation of this by Deputy Attorney General Erez Kaminitz, is totally in favor of the authorities. This is to the detriment of the market since the market went into a tailspin because the transaction situation has not been resolved and the seller and the buyer do not know how to price the betterment levy under the master outline plan”.