Landowners Often Misled by Percentage Offers in Development Deals

Landowners entering into "combination deals" (עסקאות קומבינציה), where they exchange land for future apartments in a developed project, are often misled by the percentage of apartments offered, according to legal and financial expert Doron Levita. A common scenario involves two developers offering 41% and 45% of the project's apartments, respectively. While the higher percentage seems more attractive, Levita argues that landowners frequently overlook crucial factors that determine the actual value and feasibility of such deals.

Levita emphasizes that in combination deals, landowners are not receiving immediate payment but a contractual promise for future compensation, contingent on the developer successfully navigating planning, financing, construction, and sales. In essence, landowners often become the largest investors in the project, yet they may not adequately vet the developer's capabilities. The current economic climate, marked by increased bank lending for residential projects and a slowdown in new apartment sales, makes this due diligence even more critical.

Data from the Bank of Israel's May 2026 annual review indicates a significant rise in bank credit for residential projects, coupled with a decrease in new apartment purchases and rising construction costs. This has led to a reduced "absorption capacity" for projects, meaning banks are becoming more selective. Developers who have promised higher percentages, like 45%, may find that banks are unwilling to finance these promises, potentially halting the project or forcing the developer to renegotiate the terms, often resulting in the landowner receiving less than initially agreed.

Levita advises landowners to avoid comparing offers based solely on percentages. Key considerations include the basis for calculating the percentage (approved rights, planning potential, or final permit area), what is included (balconies, storage, parking), and who bears costs like betterment levies and VAT. Furthermore, the quality and specifications of the apartments offered, not just their quantity, must be evaluated. A thorough assessment of the developer's financial standing, credit lines, and track record is essential, moving beyond impressive presentations to a rigorous underwriting process.

To ensure a fair deal, Levita recommends that landowners establish a uniform terms document before receiving offers. This document should clearly define the scope of rights for calculating compensation, planning and tax discounts, owner apartment allocation, and required guarantees. Additionally, contracts should include binding deadlines for key project milestones, with clear consequences for delays, such as the right to exit the deal or reclaim power of attorney. Robust guarantees, like bank guarantees equivalent to the value of owner apartments and mechanisms for adjusting terms based on changes in building rights, are also crucial for mitigating risks.