Israeli Court Rejects Seller’s Valuation in Tel Aviv Roof Apartment Combination Deal

In a 2022 combination deal involving an old building in Tel Aviv, a dispute arose over the valuation of rights to a roof apartment and unused building rights. The seller, Baruch Saar, claimed a value of 1.82 million shekels based on the construction services he was to receive, while the Tel Aviv Real Estate Tax Authority argued the value was 3.71 million shekels based on the market value of the sold rights.

The building at 8 Merkaz Baalei Hamelacha Street originally had ten apartments, including a roof apartment owned by Saar and two partners. The 2022 combination agreement with two development companies stipulated demolishing the existing roof apartment and adding two full floors plus a partial floor, increasing the total apartments to 16. Saar and his partners were to receive four new apartments and four parking spaces in a robotic parking facility.

Saar reported a capital gain based on the estimated value of construction services at about 10,111 shekels per square meter. However, the tax authority rejected this "construction service value" approach, instead applying the market value of the land rights. After an appeal, the Real Estate Tax Appeals Committee, chaired by Judge Harry Kirsh, ruled that Saar failed to prove his claimed valuation, lacking independent appraisals or witnesses beyond himself.

The committee noted that recent sales of developer apartments in the building suggested a land value supporting the tax authority’s higher valuation. It estimated Saar’s share of construction services value between 3.27 million and 3.49 million shekels, close to the tax authority’s figure. Ultimately, the committee set the sale value at 3.38 million shekels and ordered Saar to pay 20,000 shekels in legal costs.

This ruling underscores the burden on sellers to substantiate valuations deviating from market values in combination deals and affirms the tax authority’s approach in such cases.