The Underground Railway (Metro) Law, 5782 – 2021 (hereinafter, the “Metro Law”) was legislated in 2021 in preparation for the construction of the metro rail network in the Dan Region (greater Tel Aviv), and it launches and integrates within it many mechanisms stipulated in the Planning and Construction Law, 5725 – 1965 (hereinafter, the “Planning and Construction Law”), as well as in National Outline Plan 70, which is the national outline plan for the area of the metro system in the Tel Aviv metropolis (hereinafter: “NOP 70”).
One of the aforementioned mechanisms on which our article will focus concerns the betterment levy that owners of real estate located in the metro area will be charged; the rate at which the levy that will be charged; the conditions for charging it; to whom the levy will be paid; the rate of the levy in ‘vacate and build’ complexes; etc.
In general, the Third Addendum to the Planning and Construction Law anchors the issue of the betterment levy that owners of real estate rights are required to pay for the exercising of their rights, i.e., when selling their rights in the land or when building on it through the issuance of a building permit by the local authority.
Section 3 of the Third Addendum to the Planning and Construction Law provides that the rate of the betterment levy is half of the total betterment, and section 3A provides that specifically in ‘vacate and build’ complexes, the rate of the betterment levy is a quarter of the total betterment, with this being as of the effective date, which is May 1, 2022.
As an aside, we note that under the amendment to the Arrangements Law that was passed in November 2021, it was provided that although the default rate for the charging of the betterment levy in a ‘vacate and build’ project is 25%, the local authority has the right to determine separately for each complex within its borders the rate of the betterment levy to that will be charged in accordance with its specific needs; 0%, 25% or 50%. If a local authority has not done so by the effective date stated above, then the default of 25% will apply, but if it has set a specific betterment levy rate for each of its areas, then this rate will remain in effect for 5 years.
The betterment levy under the Metro Law:
In contrast to the general mechanism for charging a betterment levy as provided in the Planning and Construction Law and in the Arrangements Law, the Metro Law established specific provisions regarding the charging of a betterment levy by virtue of the metro plan.
The Metro Law used the definition of “affected areas” included in NOP 70 (these are the areas affected by the metro) and provides that only real estate that is within the said affected areas, and to which a betterment plan applies (a plan that increases the total area for construction on the land by a rate that exceeds 10% of the total area permitted for construction, provided that at least 1,500 square metres have been added to this area), will be considered “improved real estate” to which the new arrangement for charging the betterment levy in accordance with the Metro Law will apply.
This new arrangement stipulates that with respect to the aforementioned improved real estate, the owners of the land will pay 40% of the betterment levy directly to the local authority (instead of the default of 50% stipulated in the Planning and Construction Law), but also an additional 35% to be paid directly to the State treasury, which will be used to finance, build and develop the metro project In accordance with the provisions of the Metro Law.
The betterment levy under the Metro Law in ‘vacate and build’ complexes and the contradiction with the Planning and Construction Law:
Just as the Planning and Construction Law specifically sets the rate of the betterment levy in ‘vacate and build’ complexes (25% by default), the Metro Law also refers to the rate of the betterment levy on improved real estate (as such is defined in the law) in ‘vacate and build’ complexes and sets the default rate at 50% (see section 19D1 of the Metro Law). To complete the picture, we note that even this reduced betterment levy is divided between the local authority and the State treasury.
In light of the above, it can be seen that there are conflicting arrangements with regard to the rate of the betterment levy that will be charged for ‘vacate and build’ complexes. On the one hand, section 3A of the Third Addendum to the Planning and Construction Law establishes a default of 25%, while on the other, section 19D1 of the Metro Law establishes a rate of 50% for improved real estate in ‘vacate and build’ complexes (i.e., land located in the area of the metro railway and subject to a betterment plan).
Even though section 19D1 of the Metro Law emphasizes that its provisions are “notwithstanding what is stated in section 3 of the Third Addendum”, the section does not refer specifically to section 3A of the Third Addendum which sets the rate of the betterment levy in ‘vacate and build’ complexes, regardless of the metro plan.
This contradiction actually raises the question of what is the betterment levy that will be charged in respect of a ‘vacate and build’ complex that is within the scope of the metro plan? Is it 25% as stipulated by the Planning and Construction Law as a default, or 50% as stipulated by the Metro Law? Unfortunately, no answer has yet been given to this fundamental question, despite the fact that the Arrangements Law and the State budget for the years 2023 – 2024 were recently approved, although without the issue receiving any reference or regulatory solution. It should, however, be noted that the Ministry of Justice stated that the arrangement set forth in the Metro Law regarding ‘vacate and build’ plans only applies to plans that will be approved after NOP 70 has been approved (which has not yet occurred), so apparently there is still time for this contradiction to be rectified.
We also point out that the logic behind the aforementioned increased betterment is based on the fact that additional building rights will indeed be granted near the metro stations, and the plans will be promoted quickly and efficiently. However, there seems to be no sense in demanding an increased betterment levy due to the proximity to the metro stations without granting additional rights (but rather for other reasons), and for the planning institutions to drag their feet in the approval of plans.
As stated above, the contradiction created by the conflicting legislation (of the Metro Law and the Planning and Construction Law) in connection with the rate of the betterment levy that will be charged for ‘vacate and build’ complexes that are within the scope of the Metro plan needs to be urgently settled by the legislator. Regardless of the fact that the above issue directly affects the pockets of Israeli citizens (as owners of real estate who are required to pay the betterment levy), the need for coherent and non-contradictory legislation is fundamental and clear to all, and this should always be strived for.
Furthermore, in relation to the definition of a “betterment plan” that was described above (that is, one that is in an “affected area” and as part of which an addition of at least 10% of the buildable area and at least 1,500 square metres has been approved), it is important to note that only if the above conditions are met will it be possible to charge a betterment levy at the rate of 75%, as stipulated by the Metro Law. Otherwise the general provisions laid down in the Planning and Construction Law are to be adhered to, and these set the rate of the betterment levy at only 50% (not in ‘vacate and build’ complexes).
There clearly is no justification in requiring holders of rights to pay a higher betterment levy and to also transfer funds directly to the State treasury, just because of their physical proximity to the metro complexes, without them receiving the increase in construction areas stipulated by law.
The above becomes all the more pertinent due to the fact that when charging the betterment levy at a rate of 75%, only 40% of it goes to the local authority (instead of 50% in the original arrangement under the Planning and Construction Law), and therefore the authority apparently has no interest in promoting or fast-tracking plans in the metro areas, due to the reduction in the amount of the betterment levy that it will be entitled to receive for them. This causes the owners of the rights in the land to lose out twice.
For more information please contact:
Hanan Efraim, Adv.
Hadar Yair, Adv.