Court Ruling May Reshape Urban Renewal Projects on Levied Fees

A central district appeals committee has significantly reduced a betterment levy for a "pinui-binui" (evacuate-and-build) urban renewal project in Yehud, lowering it from approximately NIS 3.4 million to NIS 1 million. The reduction stems from a dispute over whether the area of safe rooms, known as "mamadim," within newly built apartments sold by the developer should be exempt from the levy. The local committee had sought to include these areas in the calculation, leading to the higher assessment.

The appeals committee's decision recognized an exemption for the mamadim areas, even those belonging to the developer. This ruling is significant because the cumulative area of mamadim in large projects can amount to thousands of square meters, potentially impacting the project's financial viability by millions of shekels, given the high value of construction rights per square meter.

The core of the dispute lies in determining when the taxable event occurs. The local committee argued that the pinui-binui agreement, signed when the relevant zoning plan was already in effect, constituted a sale that triggered the levy. However, the appeals committee weighed the entire transaction, viewing the transfer of rights to the developer as part of the obligation to demolish, construct, and deliver new apartments, including mamadim, making the future construction an integral part of the deal.

This approach aligns with previous rulings by the same committee, including one on a "combination deal" where landowners transfer rights to a developer in exchange for construction services. While one appraiser held a more restrictive view, her concurrence with the final decision in the Yehud case strengthens this trend. This contrasts with a district court ruling in the Be'er case, which considered a pinui-binui agreement signed after zoning rights were established as a sale, thus limiting the mamad exemption.

The issue is now heading to the Supreme Court, whose decision could set a precedent affecting betterment levies in numerous urban renewal projects. These levies are becoming increasingly critical as the profitability of pinui-binui projects faces challenges from rising construction and financing costs, weakening apartment prices in some areas, and tighter bank lending requirements. The state appraiser has projected minimal developer profit margins for 2025, making substantial levies potentially detrimental to project feasibility, leading to reduced apartment sizes for residents, altered designs, or renegotiated deals.