Israeli Court Rules Developers Must Pay Property Betterment Levy on Safe Rooms

A precedent-setting ruling by the Central District Court in the center of Israel has determined that property owners who enter into combination deals with developers for urban renewal projects, such as Tama 38/2, must pay a betterment levy on the area designated for protected spaces (mamad). This decision overturns a previous ruling by the District Appeals Committee for Compensation and Betterment Levies and sides with an appeal filed by the Local Planning and Building Committee of Rishon LeCitron.

A combination deal involves landowners transferring a portion of their property rights to a developer in exchange for apartments or spaces in the future project. The dispute originated in Rishon LeCitron, where apartment owners signed such an agreement with a development company. The developer received a building permit to add 70 new housing units, reinforce the existing building, expand apartments, and add protected spaces.

The municipal appraiser initially calculated the betterment levy at approximately NIS 2.2 million, having already excluded the protected space areas under the assumption they were exempt, similar to standard protected space construction. However, the apartment owners appealed this amount. The District Appeals Committee fully supported their position, ruling that the exemption also applied to the portion of the levy related to rights sold to the developer in the combination deal, effectively granting a full exemption for the protected space component.

The Local Committee appealed this decision to the court. Judge Moti Feller rejected the appeals committee's reasoning, stating that protected space construction rights are indeed a form of real estate asset whose value can increase due to planning approvals, just like any other building right. He further clarified that the law's wording indicates the exemption applies to the actual construction of a protected space under a building permit, not to the sale of these rights, even if the sale is part of a process that ultimately leads to physical construction.

This ruling significantly expands the taxable base for local committees across Israel, potentially increasing the revenue from property owners selling their rights to developers. It also counters previous efforts by various appeal committees to broaden the scope of the exemption. Apartment owners may still appeal this decision to the Supreme Court.