Urban Renewal in Commercial Properties

March, 2013 / EKW

Most of us usually meet the phrase “urban renewal” in the context of old residential buildings that stand undisturbed and unwanted in old cities, and which in recent years are a target for diverse projects in which these buildings are demolished and in their place modern projects are built. These projects contribute to both the specific neighborhood and the city as a whole, and above all to those original tenants who were the apartment owners in these old buildings. Along with the spreading trend of urban renewal, we are witnessing an examination of these transactions in mixed properties – that is, a building containing residential apartments and commercial properties, and even in buildings that contain commercial properties only.

Will urban renewal projects of commercial properties be of a different nature? Does this affect the willingness of the parties to carry out the project? And should a commercial property owner who refuses to execute the project be viewed differently, compared to the refusal of a residential apartment owner?

Possible Distinction between an Apartment Owner and a Commercial Property Owner

Supposedly, one might have some understanding regarding the owner of a residential apartment who refuses to execute a project of urban renewal, given that the project could cause a significant change in his residence, as well as in his life, and in light of the nature and character of the relationship between a person and his residential apartment. Opposed to him, we can argue that the quality and nature of the relationship between a person and the commercial property which he owns are different, and perhaps even be argued that they are not as close. Thus, one could argue that the considerations in relation to commercial property are more economic – commercial rather than personal, and therefore the refusal of a commercial property owner might be perceived as highly unreasonable, since economically the property owners receive an obvious economic benefit, and on the other hand there is no significant material impact on his residence and the residence of his family. Then again, there are cases in which the location of the commercial property is one of the key components for the success of the business carried on within it, which might directly affect the source of revenue of the same property owner. Therefore, in these cases an argument may be raised that the damage that might be caused to the property owner by relocating his property elsewhere, is greater than the damage that might be caused to the owner of a residential apartment, who relocates his residence, an argument which, in our view, should not prevent the construction of the project but rather be an internal claim regarding the total portion of the specific tenant in connection with the balance table between the various tenants.

Despite the possible distinction above, recent trends in legislation and case law indicate support for promoting urban renewal projects, while standing firm against recalcitrant tenants, and without distinction whether dealing with a recalcitrant that it is his residential apartment, or whether the objector holds a commercial property in the project. We shall note already at the beginning of what we have to say, that we believe, in examining the refusal of the property owner the above considerations should also be taken into account.

Dealing with Recalcitrant Tenants

In the context of a recalcitrant tenant, several years ago the legislature accepted the challenge, and enacted the Evacuation – Construction Law (Compensation),תשס”ו -2006 (“the Evacuation-Construction Law”). This law gives the tenants in an evacuation-construction project, in some cases, the right to a torts claim against the recalcitrant tenant, in cases where the refusal of the tenant is considered “unreasonable.” This law aims, inter alia, to prevent situations where a tenant adamantly objects though his objection is not reasonable and is not based on grounds to the merits, but rather in the hope that the refusal will yield him compensation in excess, beyond consideration awarded to all other tenants. It is noted that the law does not distinguish in this context between the owners of residential apartments, and commercial property owners, and it appears that there is no prevention from it to apply equally for both types of assets.

According to recent court rulings, it appears that the tenants who wish to promote the project do not hesitate to file a claim for damages under the mentioned law against the recalcitrant tenants. Moreover, in parallel there is a recognized trend of the courts to promote the law, and to make courageous decisions in these cases and all in order to allow the promotion of evacuation-construction projects and to prevent a minority of recalcitrant tenants from holding the entire project hostage to their whims. For example, the judgment received in Nevet vs. Enoch[1] determines that the recalcitrant tenant himself must prove that his refusal is “reasonable”, and also states that since at the end of the project tenants are provided with a new, large and high-quality apartment, leading to a considerable financial benefit (a condition that occurs in most such projects), and that since the agreement includes mechanisms to guard the interests of tenants such as: providing collateral, defining timetables, etc. – then this already indicates that the refusal is unreasonable.

In another case that aroused great interest (the Itzhaki vs. Yahly Built-For Me Ltd.[2] case), a tenant who purchased a store in a building which was designated for an evacuation-construction project and most of the original property were residential apartments, refused to the execution of the project unless he himself carried out the project, as the contractor. The honorable Judge Delogin discussed the property rights of the recalcitrant tenant, and mentioned the known case-law, according to which the property right is not something absolute, particularly in a condominium building where property rights are weakened. Moreover, in this case, the certain recalcitrant tenant purchased the store especially since he knew that there was an intention to carry-out an evacuation-construction project in the building, and therefore it was determined that there were no real grounds for his claim that his property right had been harmed.

In the above mentioned case, there was no reference to the fact that the recalcitrant tenant owned a commercial store, not an apartment. According to our view, attention should be given to this fact, which may in certain circumstances even further weaken the property rights of recalcitrant tenant, whereas this is a property that is usually easier to transfer to a different location compared to a residential apartment, and emotions are different between the two types of rights holders.

In this context it is important to note that in this judgment a significant decision was reached, according to which even if the building does not enter the scope of the Law, since it was not announced as an “evacuation- construction cluster” by the government, this does not mean that there is a negative regulation, and the recalcitrant tenant can be sued for damages, but under other laws (the laws of good faith, real property laws and laws of torts).


The growing trend of “urban renewal” does not pass over the commercial properties. Even in these properties, you can find incidents of recalcitrant tenants, in respect of which the question arises whether they should be viewed differently compared to residential apartment owners who refuse to relocate due to the project. We also learn that the courts encourage these projects, and allow finding of solutions, inter alia, by filing suits against recalcitrant tenants for the damage they cause to the remaining tenants, even if the specific building does not enter the scope of the Evacuation–Construction Law.

[1] Civil Appeal 51373-01-11 Nevet v. Enoch and others (given on 3.7.11)

[2] Civil Case 173473-09 Itzhaki and others vs. Yahly Built-For Me Ltd. and others (dated 16.5.12)