The Metro Project in Gush Dan is expected to revolutionize public transportation. Along with the significant advantages inherent in the project, it poses complex legal and economic challenges, in particular in the area of land expropriation. The article will examine the unprecedented scope of the expropriations, the compensation mechanisms set forth in the legislation, and the legal and the economic consequences for the property owners.
Background
The expropriation operation in favor of the Metro Project is the most extensive move ever carried out in Israel in this field. The scope of the planned expropriations is about 11,000 dunams, with an estimated current value of over ten billion shekels (there are estimates that the compensation will increase significantly in the future). The project, which includes three subway lines, will be spread over 24 local authorities and will include 109 stations along approx.150 kilometers.
These days we are just at the beginning of the road. In the first phase, which began on February ’24, about 11,000 expropriation notices were sent, referring to about 900 properties, constituting only about 2,300 dunams. The expropriations are spread across the main cities in Gush Dan, with the most significant challenge expected on the M2 line which was only approved last May and where most of the residential houses designated for expropriation are concentrated. In total, about 200,000 expropriation letters are expected to be sent, whereby according to the Metro Law, the state is allowed to expropriate areas not only for public needs but also for commercial uses of the project.
The compensation mechanism
The legal framework established for compensating property owners consists of two stages. The first, anchored in Section 197 of the Planning and Construction Law, 5725-1965 (hereinafter: “the Planning Law“), allows a claim for decrease in value to be filed within three years from the day the plan came into effect. It is important to emphasize that this schedule is particularly tight, and that the public is not always aware that it has to file a claim already at this stage – even before the expropriation has actually taken place. The second stage refers to the expropriation compensations themselves. At this stage, the compensation paid to the property owners is calculated based on the value of the land in accordance with its new designation.
It is therefore important to note that missing the deadline for filing a claim for decrease in value may lead to significant damage to the total amount of compensation, since the expropriation compensation alone is often a small part of the real economic damage caused to the owner of the property.
In order to streamline the process and prevent protracted litigation, the state offers a cumulative incentive in the form of a maximum addition of 25% to the amount of compensation, up to a ceiling of one million shekels, to those who reach agreements without resorting to legal courts for the expropriation. In light of the differences that existed in the past between the value offered by the state to the owner and the value that was finally decided, it seems that the incentive not to resort to legal proceedings is very low and irrelevant.
Another complexity involved in the Metro Law can be found, for example, in the Depot complexes (stations where the train garages will also be), large complexes in which, in addition to the areas intended for the use of the metro directly, residential buildings and commercial areas are also planned to be erected. In this case, the legislator created an even more complex route by offering the property owners the ability to choose between receiving additional compensation at the rate of 70% of the proceeds received from the sale of the tradable rights, and self-realization of the rights, subject to specified conditions (ibid). The aforementioned route creates additional problems as it de facto turns the property owners into a kind of “reluctant” entrepreneurs who will be required to bear a heavy burden of improvement levies and planning costs.
A proposal for an alternative compensation model
A thorough examination of the existing mechanism raises a number of fundamental difficulties. First, the two-stage compensation method creates unnecessary complexity and increases the risk of loss of rights, especially when property owners are not aware of the critical deadlines for filing a claim for decrease in value. Second, the financial incentive to avoid legal proceedings, although its intention is appropriate, may create unfair pressure on property owners to compromise on compensation that is lower than the true value of their rights.
It is appropriate to consider adopting an alternative compensation model, based on an overall valuation of the property. Such a model will simplify the procedure and reduce the risk of harming the property owners’ rights and the value of the compensation received. Moreover, it is proposed to give clear priority to providing compensation in the form of construction rights over financial compensation. This model may create a win-win situation, in which the rights holders will receive an asset with potential for improvement, and the local authorities will benefit, for example, from increasing the future municipal property tax [Arnona] base.
Summary
The Metro project poses an unprecedented challenge to the Israeli legal system in the field of expropriation law. The existing legal framework, despite its aspiration to balance between the public interest and private property rights, raises significant practical difficulties. A rethinking of the compensation model is required, with an emphasis on simplifying the procedures and giving priority to solutions that produce shared value for both the property owners and the authorities.
In light of the tight schedules and the large gaps in the compensation value, we recommend contacting and consulting professional advisors as soon as possible.
For further information please contact:
Hanan Efrayim, Adv. Ofer Inbar, Adv.
Office: 03-691-6000 Office: 03-691-6000
Email: hanan@ekw.co.il Email: ofer@ekw.co.il