Hamburger Evron & Co.

The District Court: City Hall is to offset from the Betterment Levies the compensation the landowners are meant to pay their neighbors for impairment resulting from a plan in the Bavli neighborhood

A blow to the Tel Aviv-Jaffa Municipality: the Tel Aviv District Court ruled that the Municipality will have to offset compensation payments for claims of impairment, which it imposes on landowners as a condition for the approval of plans, against the betterment levy payments it demands of them.

The significance of the ruling is a reduction of tens of millions of shekels that the Municipality is expected to rake into its coffers in respect of betterment levies. In contrast, among the real estate developers, the ruling is interpreted as an administration of justice.

The judgment was given by a panel of three judges – Yitzhak Inbar, Yehudit Shevach and Shaul Shohat – with respect to a dispute between the owners of a plot of land in the Bavli neighborhood, the Abramowitz family and the Zeituni family, and between the Municipality on the value of the betterment levy they are required to pay.

In 2006, a plan was approved for the intended construction of approximately 1,000 apartments in the Bavli neighborhood. Abramowitz and Zeituni are the owners of a plot of land amounting to 4,000 sqm of the area on which, according to the plan that was approved, two buildings can be constructed comprising 127 apartments and another 18 optional apartments to be allocated against development work.

On the same plot, by the way, the purchasing group organizer Inbal Or, has for the past two years been trying to organize a purchasing group to purchase the plot of land.

Following approval of the plan, the Municipality sent a betterment assessment to the owners.

Abramowitz and Zeituni contested the assessment, and in 2009 the dispute reached the deciding appraiser, Moshe Nadam, who determined that the owners were to pay a betterment levy of more than 15 million shekels.

The landowners appealed to the Magistrate’s Court, and claimed that the amount of compensation they would have to pay to Bavli residents bordering the building plan property, who had filed claims for compensation for impairment of the value of their properties as a result of approval of the plan, should be deducted from the betterment levy.

Under Article 197 of the Planning and Building Law, the owner of a property who finds he suffers an injury as the result of approval of a plan bordering his property, is entitled to sue the local authority for compensation for impairment.

The local authorities, including the Tel Aviv Municipality, typically have landowners and developers sign indemnity letters that guarantee that if there are claims for compensation, they will be paid by the developers and not by the municipality, as a condition for approving the plan.

The landowners claimed that the payment of compensation is a heavy financial expense, which should be deducted from the betterment amount.

The Magistrate’s Court dismissed the landowners’ arguments, and held that the betterment levies and compensation demands are not related to each other, and that they should not be connected to one another. It further determined that in order to be able to offset the amount of the compensation from the betterment levy, there would have to be an explicit provision in the law, and no such provision existed. 

“The Damage Factors”

Through Attorneys Ronen Yardeni and Ram Moseri of law firm Hamburger Evron & Co., Abramowitz and Zeituni appealed the ruling to the Tel Aviv District Court.

Justice Yitzhak Inbar discussed the main question as to whether the calculation of betterment levies should take into account the compensation that would have to be paid under the letters of indemnity in respect of impairment due to approval of the plan. Contrary to the landowners’ arguments, the Municipality argued that it was not at all clear whether compensation claims would be made and to what scale, and that therefore the owners should have to pay a betterment levy for a plan that improves the value of their land.

Justice Inbar accepted the arguments of the landowners, and held that as requiring the owners to sign an indemnity letter was a prerequisite for approval of the betterment plan, the commitment to make the compensation payment constituted part of the plan.

According to the Judge, the obligation to sign the indemnity letter serves as a preliminary requirement for approval of the betterment plan, establishes the legal basis for carrying out the offset, “as after all, in the factors influencing the value of the land, one should include not only those factors that raise the value of the land, but also those that impair it.”

According to him, in principle, in the way that for purpose of calculating betterment levies, the offsetting of expenses that the plan makes mandatory, such as demolition of buildings, or conservation of the site – so too, the payment of compensation serves as one of those “negative factors” that reduce the betterment.

“The risk in payment of the compensation according to Section 197 of the Law, which was transferred to the shoulders of the appellants, will affect the price of the plot on the free market,” determined Inbar. “In this matter, I see absolutely no difference between the costs of compensation according to Section 197, and between the costs of other duties that the developer must bear in accordance with the betterment plan. These, like those, have a negative impact on the market value of the land and will be brought into account by whoever purchases the land, and therefore they should be weighted into the calculation of the betterment.”

Inbar noted too that the income from the betterment levies is intended to cover the expenses of the local [planning] committee, including payment of compensation according to Section 197 of the Law. According to him, the non-inclusion in the calculation of the betterment levies of the compensation amounts, would lead to the landowners paying double the cost.”

“This outcome is not just” stated Inbar. “The appellants do enjoy the betterment of the land, and it is appropriate to require them to share their enrichment with the general public, but this benefit does not justify a disproportionate charge for double payments.”

The Only Ones Who Take Risks

In addition, the judge ruled that contrary to the Municipality’s position, offsetting the amounts of the compensation against the value of the betterment does not erase the meaning of the indemnity letter, which the landowners signed, as the Municipality argued. According to his method, the indemnity letter guarantees to the Municipality that the compensation amounts, the value of which is not firm at this time, will be fully paid by the landowners. This commitment creates legal certainty that enables the Municipality to rely on the full amount of the betterment levy that it will receive from the landowners, and the only ones carrying the risk of uncertainty with regard to the payment of compensation, are the landowners themselves.

“In addition, one should also remember that the betterment levy rate is 50% of the increase in the value of the land, whereas the rate of compensation according to Section 197 is the full value of the impairment,” noted Inbar.

The Judge overturned the ruling of the Magistrate’s Court, and ruled that the betterment levy calculation should be returned to the deciding appraiser for the purpose of preparing a new assessment.