Israel – Response to Case 2007
Responses for comparative analysis
a. What kind of regulation applies in a case like this?
Several layers of regulations would apply here: The planning law applies equally to both private and public land holdings in this mixed-ownership case. The land uses would have to be designated and approved in one or more level in the hierarchy of statutory plans (see below). . This would apply to industrial use, housing, and wind turbines – all of which entail construction. If the land was formerly designated agriculture (this covers most of the open spaces in the country), there would have to be a formal decision to release it from that designation. Such a release would also be required for those parts of the park area where roads and other forms of construction are necessary.
The industrial uses may require business permits, and there are several types of environmental controls.
b. Do supra local authorities have the regulatory power regarding the location and realization of provisions like highways, industrial areas and wind turbine parks?
In the case described, the decision to change the land use from agriculture to industrial, road, housing, turbines, or park, would all need the approval of at least one supra local level. .The District Planning Commission, composed mostly of central-government representatives, would have to approve the new or amended plans whereby these land use changes are proposed. Some of the land uses in the case described, especially the highway, but possibly also the industrial and commercial use may also require amendments to the district plan or to one or more national plans (there is one comprehensive plan and many sectorial plans, such as for highways and parks). If it is necessary to amend a district or national plan, this would require further approval by the National Planning Board.
The Minister of Interior will receive copies of all these plans, and would decide whether his or her signature would be necessary after the hearings process and approval by the district commission have been completed. Most day-day-day plans are ‘waived’ by the Minister, without requiring its signature. Because the case mentioned probably occurs on declared agricultural or open-space land, the plans would also need the approval of the national Committee for the Preservation of Agricultural Land.
c. Do public authorities have the power to force developers, who own the land, to contribute in the cost of public amenities? What are the limits in this respect?
Local planning commission and municipal authorities in Israel do have powers to require developer participation in financing public amenities – both “in kind” (land) and in money. In cross-national comparative terms, the set of powers available to Israeli local authorities is extensive. However, even this set is often not enough to supply the required level of public amenities. Three types of powers – dedication of land, the betterment levy, and land readjustment, are anchored in the planning statue (as is the right to claim compensation). The fourth – negotiated contributions through contracts – had emerged from practice and is in the legal ‘twilight zone’.
Dedication of land for public facilities
First, they may require (and almost always do so) that up to 40% of the land area be dedicated to the public for a broad range of uses, including not only roads and parks but also educational, health, social, religious, and cultural facilities. This is regular practice and land values almost always reflect a market expectation that such a compulsory set-aside would occur. Such an amount is large where industrial areas are concerned, but is less than the amount usually required for public amenities in residential areas. IN addition, local authorities are also empowered to expropriate entire plots of land, but in that case they must pay full compensation according to the market value of the land according to the former designation. The courts tend to be quite ‘friendly’ to land owners and may give an injunction restricting government from accessing the land until the compensation is settled – meaning that landowners may be able to negotiate more than the original market value.
The Betterment Levy
Second, where land values have been directly increased by the redesignation of use from, say, agriculture to industrial, residential, or wind-turbine, landowners are required to pay to the local government, 50% of the increment which can be shown (through appraisal) to be directly related to the new plan. This is called a ‘betterment levy’. However, because the landowners have the right to provide counter-appraisals of their own, the mediated sum may de facto be somewhat lower than the government’s initial assessment (often about 35 or 40%). Where nationally owned land is first released for development (through market-rate tenders), the Lands Administration pays the local government less than the above. The angry local governments repeatedly try – unsuccessfully – to change the law in this regard. The betterment funds do not have to be expended directly within the area of the plan, but may be used for implementing plans and for paying compensation in other parts of the municipality as well. A recent Supreme Court decision has disallowed the practice whereby local governments sometimes agreed that the developer would build a public facility instead of paying the betterment levy (usually thus saving the developer some money).
Compensation rights
The ‘bad news’, however, is that local authorities may be required to pay compensation for the full amount of depreciation in property values due to the approval of the new plans. If the land designated as park was formerly agricultural land, this would mean that the potential for conversion to a lucrative use has now been lost, and the value of that property would have likely declined. In that case, the municipality might be faced with extensive compensation claims.
Furthermore: As in Dutch law, if the land adjacent to the newly designated uses declines in value, the landowners have the right to claim compensation from the local government. Unlike Dutch law, however, there is a clear geographic limitation to the distance from the new plan: it must be strictly adjacent land (a recent Court decision has clarified that). Local governments do their very best to avoid or minimize such claims through alternative means, discussed below. Also like in The Netherlands, a practice has developed in recent years, whereby local government demand that developers (including public infrastructure agencies) make a commitment to indemnify the municipality and repay any compensation claims it incurs. Unlike The Netherlands, however, this practice has neither been disallowed by the courts, nor officially recognized in the statute…
Because local governments usually have a deficit in their infrastructure financing, the betterment levy funds would rarely be enough to cover the costs of infrastructure, and are not usually seen as the ‘answer’ for the payment of compensation. Despite the ostensible ‘elegance’ of the betterment and compensation ‘formula’, in reality the two do not work in parallel – neither in their time frame, nor in their location or amounts.
Land readjustment and TDR
An important tool which may be used to try to lower the extent of compensation claims is land readjustment – called ‘reparcellation’. This tool is almost a ‘planners’ dream’ and can perform several planning-implementation functions at once. Land readjustment is available only in a few countries around the world. In Israel, it is well articulated in the law, and has many decades of practice behind it. In fact, recent comparative research that I conducted indicates, that Israel may be the country where this tool is used with the greatest versatility. In this way, a balance could be created between the landowners whose land is redesignated for industrial or housing use, and those whose land is designated as a park. Where reparcellation is used, adequate land is usually obtained for all the public amenities. However, paying for the construction of the public facilities is not part of the ‘deal’. Financial payments to the government are not allowed beyond the betterment levy.
The small-scale relative of land readjustment – transfer of development rights – is not anchored in the legislation. However, it is practiced to some extent. The Supreme Court has in the past expressed dismay about the practice, but a recent Court decision ruled that TDR within some limits may be legal.
Negotiated contributions
In comparative terms, the above powers are extensive, but because local governments are usually financially weak, even these powers are often insufficient to finance all the public amenities. This is especially true for residential areas which, like in The Netherlands, are usually of medium or high density. Therefore, more than 40% of the raw land is necessary to provide the roads, educational facilities and public open space. Because land prices are high, most local authorities do their very best to obtain the additional land without having to buy or expropriate it. Here enters the “gray area” of land use law in Israel (and in many other countries). Israeli law does not officially anchor developer agreements. However, court decisions have not closed the door to such agreement, drawn under the contractual powers of local government. In practice, they are very common.
d. In which way municipalities have the power to regulate the management of built residential areas?
There is no earmarked legal instrument for this purpose. In Israel, most housing is in condominium ownership – meaning, that each apartment is self-owned and the entire building or set of buildings is expected to be self-managed. As buildings become larger (many – too many – high rise towers are being built), such self-maintenance doens’t really work. Some local govnements have tried to condition the building permti on proof that the developer has signed a contract wiht a housing-maintenance corporation (on the private market). My recent research on this topic, however, has shown that these regulatory attempts are not really effective becuase there is nothing that prevents the corporaton from ‘gonig broke’. There is as yet no regulation over the maintentance corporation to ensure that they perform well and charge reasonable prices. My research has brought this matter to the public and profesional agenda, and several Knesset (parliament ) are considering a bill to regulate these corporations. In addition, I have made a set of recommendatios to enact a new condominium law especially applicable to high rise aparmente buildings, so that apartment condominium owners would have more stringent maintenance obligations.
Rachelle Alterman
Jan 23 2007