Court Orders Municipality to Return Over $250,000 Illegally Withheld from Landowner

A recent court ruling in Kiryat Ata has established a clear boundary regarding how municipalities can handle property taxes and compensation for land devaluation. A landowner was entitled to approximately NIS 4 million (around $1 million) in compensation due to a planning scheme that negatively impacted their property. However, the local planning committee deducted over NIS 1 million (more than $250,000) from this compensation, citing a betterment levy owed from an earlier plan.

The court found this deduction to be unlawful and ordered the municipality to return the NIS 1,027,505 (approximately $275,000), plus interest and linkage. The municipality and its planning committee were also ordered to pay over NIS 82,000 (about $22,000) in legal costs.

The case originated in 2002 when a plan approved in the area rezoned the land for commercial use, increasing its value and creating a theoretical betterment levy of NIS 700,000 (around $187,000) if fully realized. However, the landowner did not sell or develop the property, and the betterment levy remained uncollected.

Sixteen years later, in 2018, a new plan rezoned most of the land for a road, significantly decreasing its value. The landowner invoked Section 197 of the Planning and Building Law, which allows for compensation for such devaluation. An arbitrator determined the loss in value to be NIS 4 million.

When it came time to pay the compensation, the local committee offset the betterment levy, including accrued interest, against the compensation amount. The court clarified that betterment levies are only payable upon the "realization of rights," such as selling the property or obtaining a building permit that utilizes the increased value. Since the rights from the 2002 plan were never realized, the levy was not yet due. The court also emphasized that the compensation mechanism under Section 197 and the betterment levy mechanism are separate legal processes, and the municipality cannot arbitrarily offset them.