Supreme Court Rules Against Developers Seeking Building Fee Refunds

A landmark ruling by Israel's Supreme Court on Thursday, September 10, may prevent dozens of local authorities from having to refund hundreds of millions of shekels to real estate developers. The court unanimously decided in the case of Ofek Sheli company that the developer is not entitled to a refund of half the building fees paid for a housing project under the "Price for the Resident" (Mechir Lemishtaken) program in Beit Shemesh.

The ruling overturned a previous decision by the Jerusalem District Court. It is now expected that numerous similar claims by developers against local authorities nationwide will be dismissed. The issue is considered fundamental, affecting dozens of pending lawsuits, some of which were frozen awaiting the Supreme Court's decision. The total sums involved are estimated in the hundreds of millions of shekels.

Ofek Sheli won a tender in 2015 to build 36 housing units in Beit Shemesh under the "Price for the Resident" program. In 2017, after obtaining building permits, the company paid approximately 178,600 shekels in building fees. Four years later, it demanded half of this sum back, arguing that as the project was intended for young couples, it qualified for a partial exemption from building fees as stipulated in planning and building regulations.

The relevant regulation states that the state is exempt from half the fee for construction undertaken by it, on its behalf, or at its initiative, for housing new immigrants, for their needs, for evacuees, or for young couples. The latter category requires explicit approval from the relevant local authority or the Ministry of Construction and Housing.

After its initial request was denied, Ofek Sheli sued. A Magistrate's Court dismissed the claim, ruling that "Price for the Resident" projects are not built "on behalf of or at the initiative" of the state and that the required specific approval was not obtained. However, the District Court reversed this in May 2024, finding that the program's aim to assist young, homeless couples meant it fell under the exemption.

The local authority appealed to the Supreme Court due to the broad implications for municipalities across the country. The government's legal advisor argued that winning a "Price for the Resident" tender does not indicate state involvement, as these tenders operate like "free market" tenders. The Supreme Court judges explained that the exemption requires two conditions: that the construction is by or initiated by the state, and that specific approval is granted for it to house young couples. Ofek Sheli failed to present such approval, thus invalidating their refund claim, without ruling on whether "Price for the Resident" projects are generally state-initiated. The court also noted that a blanket ruling on all such projects is inappropriate, as state oversight and risk-sharing vary.

The local authority was represented by attorneys Amir Birnbaum and Yonatan Motai.