Abstract
A recent ruling by the Tel Aviv District Court[1] has established that in NOP [TAMA] 38 demolition and reconstruction projects, property owners cannot be compelled to accept monetary compensation in lieu of a new property. This decision strengthens property rights and changes the rules of engagement for developers and apartment owners in urban renewal projects.
Background
NOP 38 projects are designed to reinforce older buildings against earthquakes while creating economic incentives for both developers and property owners. The legal basis for these projects is anchored in the Land Law (Reinforcement of Condominiums Against Earthquakes), 5768-2008, which permits reinforcement, demolition, and reconstruction work with the consent of a special majority of apartment owners.
The Evacuation and Construction Law (Encouragement of Evacuation and Construction Law (Encouragement of Evacuation and Construction Projects), 5766-2006, even allows a majority of residents to file a claim against a “refusing resident”[2] in cases where the opposition is deemed unreasonable. However, what happens when licensing or planning constraints substantially alter the compensation a particular resident is supposed to receive? Can a property rights holder be forced to accept monetary compensation alone instead of an equivalent property?
A recent ruling in the matter of Magen v. Rubinstein provides an answer to this question, which is not without criticism.
Property Rights versus Monetary Compensation
The case involved a three-story building in Tel Aviv containing 12 apartments. One of the property owners held a unit in a semi-basement level, registered as a storage room but actually used as a law office under a non-conforming use permit. In the original NOP 38 agreement, he was promised a new 35-square-meter storage room in exchange for his existing 20-square-meter unit.
During the planning process with the municipality, the development company discovered that its initial commitment to this property owner was not feasible. The municipality prohibited the construction of separate, stand-alone storage rooms, permitting only storage rooms in the basement level that would be attached and belong to apartment owners in the building. In other words, basement storage rooms could only be built for those who also owned apartments in the building. Due to this limitation, it was impossible to provide the unit owner with the storage room originally promised.
Given this planning constraint, the development company offered the unit owner monetary compensation only as a substitute for the new storage room that had been offered, effectively seeking to nullify his registered property right. The unit owner refused this offer, as it meant the complete loss of his property right in the asset.
In response to his refusal, the other apartment owners filed a “refusing resident” claim with the Land Registration Supervisor, seeking to force him to exchange the storage room compensation for monetary compensation. The Supervisor granted their request and ruled that an appraiser would be appointed to determine the value of the monetary compensation for that resident.
The unit owner appealed this decision to the Tel Aviv District Court. In his appeal, he argued that the expropriation of his property right for monetary compensation alone constituted a substantial infringement of his rights that is not permitted by law.
Judge Limor Bibi accepted the unit owner’s appeal and ruled that providing monetary compensation alone against property rights constitutes a substantial infringement on the property owner’s rights, which is not permissible under the Land Law. In her reasoning, the judge noted: “The starting point of the Reinforcement Law is that, first and foremost, an apartment owner is entitled to an appropriate property right, and only disparities in the value of rights can be balanced with monetary compensation. However, I do not believe that a property right can be nullified with monetary compensation alone.”
This ruling continues a line of precedent that began with the Shomroni judgment[3] and continued with additional rulings, according to which a reinforcement project will not be approved if it substantially infringes on an apartment owner’s rights.
Implications for Developers and Property Rights Holders
The ruling requires developers to adapt their proposed plans to ensure that every rights holder in a building slated for demolition retains a property right in the new structure. In cases of planning constraints, the developer or other apartment owners must find creative solutions that allow each property rights holder to receive appropriate property compensation.
The ruling provides significant protection for owners of “non-standard” properties in buildings designated for urban renewal. These rights holders can now rely on the legal determination that they cannot be forced to convert their properties to monetary compensation alone, even if this might delay the entire project.
It should be noted that the ruling disregards provisions stipulating that a storage room classified as a service area cannot be given as an independent property that is not attached to a residential apartment in the new building. Additionally, the ruling substantially changes the economic test of projects for developers, who will be required to reduce the compensation given to other residents in the building in order to provide another property asset (an apartment) to the owner of that storage room.
Summary
The ruling in the Magen case represents an important milestone in protecting property rights in urban renewal projects. As attorneys guiding such projects, we recommend planning flexible solutions in advance that ensure property rights for all property owners, rather than relying on the possibility of monetary compensation as a substitute. Adherence to this principle will prevent unnecessary legal proceedings and allow for efficient advancement of projects to benefit all parties involved.
For further information please contact:
Hanan Efraim, Adv. Ofer Inbar, Adv.
Office: 03-691-6600 Office: 03-691-6600
Email: hanan@ekw.co.il E-mail: ofer@ekw.co.il
[1] Civ. App. (Tel Aviv-Jaffa) 38211-11-24 Shimon Magen v. Jacob Rubinstein Noah [Nevo 27.04.25]
[2] For further reading about “Refusing Resident”: https://ekw.co.il/en/dealing-refusing-tenants-urban-renewal-projects/
[3] Civ. Req. Perm. 1002-14 Dov Shomroni v. Ohad Kaufman and 14 Others [Nevo 09.07.14]