On March 29, 2021, a Memorandum of Law was published for public comment on the Evacuation and Construction Law (Encouragement of Evacuation and Construction Projects) (Amendment No. 7), 5781 – 2021, which includes a series of legislative amendments aimed at promoting urban renewal processes and removing barriers in this field.
The Memorandum of Law was drafted following the publication of the Strategic Housing Plans for 2017 – 2040, prepared by the National Economic Council and adopted by the government, which stipulate that without significant urban renewal, Israel will face a real planning difficulty of the depletion of the vacant land designated for construction in the country's central area. The Government has, therefore, recommended taking action to accelerate urban renewal plans through legislative changes and streamlining urban renewal procedures across the country. As an anecdote, we note that as part of the plan, it was recommended to take actions required to increase the rate of urban renewal projects, out of all construction starts, from 12% to 46% by year 2040.
A concise overview of the main points of the Memorandum of Law
- Claims against Insubordinate Tenants – Under the Memorandum of Law, it is proposed to reduce the majority required to file a claim against Insubordinate Tenant from four-fifths (80%) of all apartment owners in a Evacuation and Construction group, to only two-thirds (67%). Along with the reduction of the required majority, it was proposed to stipulate that in order to file such a claim, the plaintiff will be required to attach an opinion of a Evacuation and Construction appraiser who will determine that the proposed Evacuation and Construction transaction is equitable and economically feasible.
- Tenants who have built unlawfully – A major difficulty in obtaining tenants' agreements to promote urban renewal arises in cases where a tenant in the condominium has built contrary to the law or made unlawful use of the property (such as expanding an apartment without a permit, splitting it into several housing units or using it for commercial purposes). In such cases, tenants who make unlawful use of the property do not find a suitable incentive to enter into the project due to the fruits they gain from the unlawfulness of their use of the property, which is not reflected in the consideration offered by the developers. In order to solve this problem, it was proposed in the Memorandum of Law to determine that if the courts find that a refusal is due to offenses committed on the property, whether by construction or by unlawful use, then they may rule that the refusing apartment owner shall not be included among the apartment owners who are counted for the calculation of the special majority required to file a claim.
- Leave to file a claim – An important addition that appears in the Memorandum is the expansion of parties who may file a claim against a Insubordinate tenant (or a claim against an apartment owner whose refusal stems from unlawful use of the property), so that not just the apartment owners but also the developer may bring such a claim, provided that it notifies the apartment owners of its intention to do so and affords them the opportunity to join as plaintiffs.
- Authority of the Housing Ombudsman – It is proposed to expand the authority of the Housing Ombudsman to determine that a Evacuation and Construction transaction is void. The Ombudsman already has such power with regard to certain, limited situations, such as the power to determine that a Evacuation and Construction transaction is void if the Ombudsman finds that an apartment owner signed the transaction in a language with which he is not familiar, and without having received an explanation of the principle points of the transaction from the developer or its representative. It is further proposed to provide that the Ombudsman may determine that a transaction is void also in situations where a transaction was signed following a false representation on the part of the developer, the exertion of unreasonable pressure and the exploitation of a disability. Such situations, as well as signing in an unknown language, will be defined as "prejudicially obtaining a signature".
- Mandatory Form of Evacuation and Construction Transactions – In light of the disparity in information and power between rights owners and developers, it is proposed to define issues that must be included in Evacuation and Construction transactions, with the transaction deemed void in their absence, including: the dates of the signatures, the identification details of the parties, the developer's warranty to provide guarantees, deadline dates for approval of the plan by the committees, and details of the contractor who will perform the work in practice.
From the above, we learn that Amendment No. 7 to the Evacuation and Construction Law, which is still a draft law in the process of deliberation, amendment, and approval by Knesset committees, may benefit all players in the field and streamline urban renewal processes. However, the Memorandum is not comprehensive, and there are many issues that should have been regulated under the current amendment, and which in our opinion might have further streamlined the procedures, such as expedited procedures for conducting proceedings against Insubordinate tenants.
As is well known, one of the significant factors in an urban renewal project, both for the developer and for the apartment owners, is time. The legal system in Israel is burdensome and legal proceedings are dragged on and delayed for years in the courts. The "normal" legal procedures allow much (too much) room for manoeuvre for a Insubordinate tenant to exploit the time factor and drag the legal process over an extended period, sometimes out of an objective and hope that over time the developer and apartment owners will succumb to his demands. In our opinion, the legislature must find a solution also for the time factor, by way of establishing expedited procedures for claims brought against Insubordinate tenants.
As an aside we note that, even though in the Memorandum it is proposed to reduce the minimum number of signatures needed to promote an urban renewal project, we do not see a high probability that a developer will start advancing legal proceedings in cases where about 33% of the project's tenants refuse to proceed with it. In light of this, it is true that reducing the threshold required to initiate legal proceedings may theoretically assist in the promotion of a project, however, it is not certain that that developers will in practice choose to advance projects at the new signature threshold.
The Memorandum of law testifies to a change in the legislature's policy regarding the acceleration of processes in Evacuation and Construction projects, balancing the considerations of the majority of tenants and the developer who are interested in promoting a project, and the minority of tenants who oppose the project. Whether in reference to supporters or opponents of the project, we believe that streamlining the processes will contribute greater certainty to the parties regarding the promotion and execution of the project, and this is a welcome phenomenon, whatever the outcome at the end of the day.
Originally Published June 2021
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