Israel: Methods Of Handling Insubordinate Landlords In The Framework Of An Urban Renewal Project

What is an Urban Renewal Transaction?

An urban renewal transaction is a complex plan which includes a large number of entities: the entrepreneur, the landlords, the executing contractor, the accompanying bank and more. Each of these entities is interested in maximizing its benefit alongside keeping its interests regarding planning, managing and executing the project.

In essence, this is a combination transaction, in which the entrepreneur evacuates the holders of apartments in a site declared as designated for urban renewal, destroys the declares land entirely and instead constructs a modern building, while utilizing a significant additional of building rights granted to him in the framework of the project. Naturally, the entrepreneur does this for consideration. Commonly, as in most urban renewal transactions, the entrepreneur's salary in the consideration is expressed by a number of residential units which will be built as part of the added building rights in the new buildings.

In many cases, the triviality described above regarding the project's execution, is no more than an illusion.

The Insubordinate Landlord Phenomenon – Reasons and Classification of Insubordination

The insubordinate landlord phenomenon is a common phenomenon in the legal area. It involves a landlord or a group of landlords whose signature is required in order to execute the project. In their unique situation, the refusal of apartment owners as stated to sign the contract significantly delays, and sometimes thwarts, the execution of the project and places all the entities involved in a state of tension, which oftentimes fails the planning procedure in its initial stages.

It is important to note, that not all "insubordinates" are greedy persons who are aware of their unique situation in order to achieve additional financial consideration beyond what was promised them in the framework of the project. Thus, there are many situations of insubordinate landlords whose refusal is not derived from a financial extortionate motive:

• Insubordinates with a deep emotional attachment to the residential apartment, since most urban renewal agreements refer to residential areas with weak populations, such as a landowner who immigrated to Israel during its establishment and has lived in the same area for decades.
• Apartment owners in buildings who lease their apartment, however the compensation offered by the entrepreneur as an alternative for the duration of the destruction of the building and its reconstruction does not amount to the rent which the apartment owners receive currently.
• Elderly and helpless – solitary tenants who require assistance and are not in a physical and/or mental state to be able to understand the meaning of the transaction. We are dealing with people whose apartment is important to them at that moment and for the rest of their lives.

The Most Common Method of Handling – Claim for Damages Pursuant to the Urban Renewal Law (Compensation)

The Urban Renewal Law (Compensation), 5766-2006 (hereinafter: "the Insubordinate Tenant Law") was legislated in order to assist and facilitate in disputes with a landlord who refuses to sign the agreement, to the dissatisfaction of the entrepreneur and the other area landlords. The Law was intended to "deal with a phenomenon according to which urban renewal projects are not executed, despite the desire of most owners, due to unreasonable objection of one or more apartment owners. Usually the objection grants the insubordinate landlord a special bargaining position, which he uses, sometimes at the price of thwarting the transaction", as the bill states. In fact, the Insubordinate Tenant Law constitutes a normative source pursuant to which an insubordinate landlord can by sued for damages on grounds of delaying or thwarting the transaction.

In this context, it is worth noting, that an urban renewal transaction is made in the framework of municipal renewal, and it is intended to renew the defined site and its surroundings, and has vast effect beyond the new building which will be constructed, and is intended for the landlords' welfare. Therefore, the amount of damages increases to an amount which can reach tens and sometimes hundreds of thousands of Shekels.

Since the publication of the Insubordinate Tenant Law, many cases have reached the court, in which many defendants had to present their arguments before the court regarding the reason of their refusal. The court examines the circumstances of the refusal in accordance with the provisions of the law and according to the personal circumstances of the insubordinate landlord. In this regard, Civil Appeal 3511/13 Regina Swartzberger vs. Shalom Marin (published on 24/07/2014) (hereinafter: "the Swartzberger Case") provided that the burden of proof of the worthwhileness of the urban renewal transaction lies with the plaintiffs in accordance with the Insubordinate Tenant Law. While the examination of worthwhileness will be made from an objective perspective while taking into account the personal circumstances of the insubordinate owner, in a few rare cases, the weight of the personal circumstances of the insubordinate landlord will surpass the benefit of the majority. In the Swartzberger Case, the court granted the landlord the option to sign the transaction, and in exchange, delete the massive financial debt he was charged with due to his refusal.

However, this legal action is effective against insubordinates with a pure economic extortionate motive.

Additional Attempts and Possibilities of Handling Insubordination

The subject of the insubordinate lanlord for non-economic reasons has been raised many times in various Knesset committees. A subject recently raised relates to dealing with the refusal of landlords of the third type mentioned above, namely the elderly and the helpless. The outline formed over the past year regards an additional tax benefit to those landlords. Currently, an elderly who will move to a home for the elderly in the framework of the transaction will receive an exemption from betterment tax upon selling his apartment. This does not reflect landlords who wish to move to an alternative apartment. Therefore, it was suggested to provide an exemption from betterment tax to an elderly owner who will not move to a home as well. However, many arrangements on the matter have not yet been agreed, including a valid arrangement and clarifying position of the tax authority on this matter.

Another effective option can be found in the preliminary proceeding, aspiring to create transparency between the entrepreneur and the landlords, namely, imposing preliminary debts on entrepreneurs in order to promote the project and signing the landlords on the agreements. The purpose of this transparency is incorporating the landlords and making them partners in the process and prevent vagueness which could prevent any situation of objection to signing the contract. Creating such transparency may prevent turning a owner which is not knowledgeable in planning and construction laws into an insubordinate landlord. The entrepreneur's duty of transparency may impose a duty of holding several tenant meetings prior to signing the transaction, meetings in order to explain about the evacuation agreement and such.

Summary

Despite the foregoing, it seems that prior to anchoring the alternatives suggested above in the framework of the Law, the phenomenon of the insubordinate landlord will not disappear from the legal-planning area. Multiple attempts at eradicating the phenomenon regarding insubordinate landlords with specific characterizations expand the matter regarding various types of insubordinate landlords which were not referenced.

In light of the foregoing, it seems that the earlier entrepreneurs create transparency and the desire to incorporate owners, who deposit their most prized possession in their hands, uncertainty will decrease and any aspect of insubordination will be prevented. In cases where the phenomenon of insubordination is the result of extortionate motives, the Insubordinate landlords Law was and still is the preferred option for handling this undesirable phenomenon.

Originally published June, 2018

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.