Developers Seek to Reduce Apartment Sizes in Redevelopment Projects

Developers in Israel are increasingly approaching residents with revised agreements for "Pinui Binui" (evacuation and construction) projects, seeking to reduce the size of newly built apartments. This trend stems from rising interest rates, increased financing costs, and soaring construction expenses, which have made some projects financially unviable. In a typical scenario, a homeowner who signed an agreement expecting an 82 square meter apartment with amenities might be offered only 6 square meters of additional space instead of the initially promised 12 square meters. This reduction allows developers to sell the freed-up space on the open market, potentially netting millions of shekels. Legally, a signed agreement is binding, and developers cannot unilaterally alter the terms. Any changes require the consent of the apartment owners. However, agreements often include conditions and deadlines, such as obtaining a building permit or bank financing, which, if unmet, may allow either party to exit the deal. Residents are advised to consult their legal representative to review these clauses. Developers' leverage often comes from laws designed to prevent "stubborn" residents from blocking projects. Under the Pinui Binui law, a two-thirds majority of residents can legally compel a dissenting owner to agree to a project, potentially through court-ordered compensation or the appointment of a representative to sign on their behalf. A similar mechanism exists for Tama 38 projects, where a district supervisor can approve works based on a two-thirds majority. However, the law also protects residents whose refusal is economically justified or if the proposed terms are discriminatory. A key tool for residents is Standard 21, updated in 2022 to version 21.1, which provides a framework for assessing project feasibility. It requires developers to achieve a minimum profit margin, typically around 16-17%, as determined by the Chief. If a developer's projected profit falls below this threshold, the project is considered high-risk. Residents can hire their own appraiser and legal counsel, whose fees are considered project costs, to scrutinize the developer's financial reports and ensure the project remains profitable above the threshold before agreeing to any reductions. The National Council for Urban Renewal emphasizes that residents' lawyers must represent only the residents' interests, even if their fees are paid by the developer. They recommend careful selection of legal counsel, avoiding recommendations from developers, and refraining from signing irrevocable representation agreements. Courts have also ruled that any changes in compensation must be distributed proportionally among residents, preventing unequal treatment.