Protections for Homeowners in Urban Renewal Projects under the Organizers Law

Introduction:

Urban Renewal projects, be it under TAMA 38 (reinforcement of an existing building or demolishing and rebuilding it) or under evacuation-reconstruction projects (evacuation, demolition, and reconstruction of large housing areas), by their nature, involve the most significant and usually the biggest asset people own – their home.

The interest in these projects is clear; the rising need for more and more housing units, with limited land reserves, the desire to reinforce old buildings considered dangerous in the event of an earthquake, and of course the desire to renovate buildings, their infrastructure, and their appearance for the benefit of homeowners and of the community at large. With this in mind, the legislature has put in place several laws which help to promote and execute such projects, even in cases where the consent of 100% of homeowners in the building/complex cannot be obtained.

On the other hand, the law also provides protections for homeowners who are required to hand possession of their apartment – as mentioned above, their most significant asset – to developers in order to carry out the projects. One of these protections is provided by the Urban Renewal Law (Agreements for Organizing Transactions), 5777-2017 (hereinafter: “the Law”), as described below in this article.

The Purpose of the Law:

Urban Renewal projects, be it under TAMA 38 or evacuation-construction projects, by their own virtue, include many homeowners, especially in evacuation-construction projects where a prior condition for their formation is that at least 24 housing units exist in the specific designated area before the project starts.

In order to bring together so many homeowners and make them sign off on an agreement, much work and vast resources are required. To this end, many organizing companies have emerged, whose purpose, as their name suggests, is to organize the project for developers so that it is easier to interact with the great number of homeowners.

However, as is often the case, there are those who take advantage of the need described above and operate as “dealers” who first obtain homeowners’ signatures on organization agreements, and then sell them off to the highest bidder. Needless to say, this very act is greatly detrimental to homeowners who do not know in advance the identity of the developer with whom they would enter into contract, what their return would be, they are unaware of any personal interest that might exist between the organizers and the developer, and other conflicts of interest that may arise.

Because of this, the Law that is the subject of our article was enacted, which on one hand allows the aforementioned organizing companies to exist (since a large portion thereof do operate by law and in good faith), yet on the other hand, it delineates the operations they can carry out and establishes sanctions and basic conditions that must be met, all with the purpose of protecting homeowners.

The Main Principals of the Law:

The Law includes multiple mechanisms, however in this article we will focus only on the main ones:

1. Homeowner Conference – an Urban Renewal project organizer must hold a conference with all homeowners in the building/s, where they provide details to homeowners on the agreement, including its purpose and main aspects, whether the organizer operates on behalf of a specific developer, their fee for the organization, whether they have a personal interest in the project, information on the existence and role of the Urban Renewal Authority, and more. The Conference Article of the Law (Article 2) also outlines the procedure for setting up the conference attendance majority, etc.

2. Agreement Form and Content – the Law lists the details which must be included in an Urban Renewal Transaction Organization Agreement. Among other things, these details include the details of the organizer, the agreement signing date and effective date, clarification that the consideration of the homeowners would be indicated in the agreement with the developer and not in the organization agreement, the organizer’s obligations toward homeowners such as their actions to select a developer, whether the organizer has a personal interest, and more. It should be noted that the Law provides (Article 3(b)) that an organization agreement which does not include all the details listed in the Law, is null and void.

3. Validity Period of an Urban Renewal Transaction Organization Agreement – Article 5 of the Law sets the validity period of an evacuation-reconstruction transaction organization agreement, while Article 6 of the Law sets the validity period of a TAMA 38 reinforcement transaction organization agreement. In brief, the Law stipulates that the initial validity period of an organization agreement (be it for evacuation-reconstruction or reinforcement) is six months from the date the first homeowner signed the agreement. This period can be extended based on the proportion of homeowners who have signed the agreement and the project’s planning stage. In general, the time frames for an evacuation-reconstruction transaction organization agreement are longer than those of a reinforcement transaction organization agreement, as mentioned, due to the obvious reason that an evacuation-reconstruction project is in most cases much bigger and more complex, and therefore requires more time to organize and carry out.

4. The Organizer’s Additional Obligations by the Law – the organizer has additional obligations toward homeowners whose purpose is obvious, such as the obligation to advise of meeting milestones, the obligation to act fairly and carefully, no personal interest, etc.

It is very important to understand that the provisions of the Law and the obligations they impose on the developer do not come sanction-free. In some cases, the Law allows homeowners to terminate the organization agreement, if the organizer violates one or more of its provisions, by appealing to the Homeowners Complaints Commissioner at the Urban Renewal Authority.

Conclusion:

There is great public interest in promoting Urban Renewal projects in light of the need for many apartments, yet every homeowner who takes part in such a project also has a distinct private interest – the appreciation of their private home once the project is complete (be it only reinforcement, and much more so if the project involves demolition and reconstruction).

Therefore, as Urban Renewal projects remain extremely common, the legislature has found it necessary (and rightly so) to establish in law the way and conditions under which several homeowners may be organized in order to carry out such projects.

In our opinion, the best way to promote and launch more Urban Renewal projects is to make information available to homeowners and to expand their knowledge of the matter, so as to make them aware of their rights and the obligations of the opposing party. This may diminish, if only by a small amount, the concern of many homeowners about entering such highly complex projects.

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