Civil Case (Center) 63837-03-22 Aharon Itzkowitz v. Tal Mordechai Naveh

Judgment

1. Before me is a claim by apartment owners who entered into an agreement with a developer in a Pinui-Binui transaction under the Pinui-Binui Law (Encouragement of Pinui-Binui Projects), 5766-2006 (hereinafter: the "Pinui-Binui Law" and "the Law") (formerly the Pinui-Binui (Compensation) Law, 5766-2006), against two other apartment owners in the complex.  The lawsuit revolves around the claim that the defendants are unreasonably refusing to execute a Pinui-Binui transaction.  Therefore, it was requested to declare the defendants as recalcitrant landlords, to approve the execution of the Pinui-Binui transaction and to appoint a lawyer or accountant who would be authorized to enter into the transaction on behalf of the defendants, in accordance with  Section 2(a)(2) of the Pinui-Binui Law.  It was also requested to allow the plaintiffs to split the remedies, in such a way that if the claim is rejected, the plaintiffs' right to claim damages from the defendants for the damages caused by their refusal will not be violated, in accordance  with section 2(a)(1) of the Pinui-Binui Law.  It was also requested to charge the defendants with expenses and attorney's fees at a realistic rate plus a tax appeal in accordance with the law.

The Pinui-Binui Project, the subject of the lawsuit

The Pinui-Binui Project

2. The lawsuit was filed by apartment owners in two buildings on Katznelson Street 2 and 4 in Lod, known as Block 5905 Plot 8 (hereinafter: "Katznelson 2") and Block 3960 Plot 5 (hereinafter: "Katznelson 4") (hereinafter: "the Complex" or "the Buildings").
3. These are buildings with 4 floors and 24 housing units. There is no dispute that their physical condition is poor, without safe rooms and not reinforced or resistant to earthquakes.
4. As of 2018, the plaintiffs – most of the owners of the rights in the complex – entered into an agreement with Koach Investments in a tax appeal (hereinafter: the "Developer"), in an agreement for the construction of an evacuation-reconstruction project in the complex (hereinafter: the "Agreement"). The engagement in the agreement, on behalf of the developer, was made through Mr. Adir Keinan (hereinafter: " Keinan").
5. The Entrepreneur is a company that, as of today, consists of three shareholders: Gerstenfeld Investment and Construction Company (1985) in a tax appeal (hereinafter: the "Gerstenfeld Company"), which owns a company with a C5 contractor classification (Gerstenfeld Engineering and Construction Ltd.); Koach Real Estate Urban Renewal in a Tax Appeal owned by Mr. Keinan and Harel Ezer Israel Holdings 2002 in a Tax Appeal that deals with the field of entrepreneurship.
6. As part of the project, the developer planned to demolish the two buildings and build three new buildings in their place, along with Plot 7 in Block 5905, which is registered in the name of the Development Authority as "supplementary land". The project was planned to be carried out in two stages: in the first stage, the evacuation and demolition of the existing building in Katznelson 2, which contains 8 housing units, and the construction of two residential buildings that will include 96 housing units, commercial areas and public areas; In the second stage, after the completion of the first stage, the evacuation and demolition of the existing building at Katznelson 4, which contains 16 housing units, the delivery of 16 apartments in consideration to the apartment owners in the new buildings built in the first stage, and the construction of a residential building that will include 34 housing units and commercial areas (hereinafter: "the project") (Appendix 19 to the affidavit of the main witness Adir Keinan, at p. 245).
7. On April 15, 2018, the Urban Renewal Forum in Lod approved the promotion of the project, at the request of the majority of the apartment owners and the developer (p. 1 of Appendix 6 of the amended statement of defense of defendant 1).
8. Accordingly, the developer promoted an urban renewal zoning plan numbered 406-0699488 (12 5782, 9991, 1394) in the Central District Planning and Building Committee (hereinafter: the "Plan" and the "District Committee", respectively). The plan was formulated and promoted in cooperation with the Lod Municipality and the Lod Economic Company, and accompanied by the Lod Municipality's Municipal Renewal Administration, which also accompanied the apartment owners in all matters related to the selection of a lawyer and tenants' representatives, the examination of the agreement, etc. (hereinafter: "the Entrance") (Appendix 6 to an amended statement of defense by defendant 1).
9. On December 9, 2019, the plan was discussed before the Urban Renewal Committee, which decided to deposit it under conditions (Appendix 5 to the amended statement of defense, defendant 1).
10. On January 8, 2021, the plan was deposited. Objections were submitted to the plan, including by defendant 2 and by the developer.  On April 18, 2021, the plan was discussed before the Objections Committee.  On May 11, 2021, a meeting of the Urban Renewal Subcommittee was held in the District Committee, in which the objections to the plan were discussed (Appendix 5 to an amended statement of defense by defendant 1).  On May 24, 2021, its decisions were given.
11. The developer's objection revolved, inter alia, on a claim of a clerical error in the table of rights in the plan, in which residential areas in an area of 794 square meters of main areas and 1,748 square meters of above-ground service areas were omitted, for all the housing units in the project. The developer claimed that according to an appraiser's opinion, the project does not meet the requirement of entrepreneurial profit under Standard 21.1 (the provisions of the Directive of the Council of Real Estate Appraisers, Standard 21 (hereinafter: "Standard 21.1")).  If the writer's mistake is not corrected and the area of the project does not increase, the project's already low profitability will be harmed.  The District Committee accepted the objection in part, so that the requested 1,748 square meters of above-service areas were added to the project, without the main areas (Appendix 5 to the amended statement of defense Defendant 1).
12. Defendant 2's objection revolved, inter alia, on arguments against the proposed scope of rights and the density obtained from the plan. According to her, the building will be unusual in an environment characterized by construction of about 8 floors.  The plan will harm the quality of life of the neighborhood's residents and lead to a decrease in value.  The District Committee rejected the objection, on the grounds that the proposed density and height did not exceed the existing in the city, since it was west of the neighborhood and adjacent to it, which included 25-story buildings.  The plan makes efficient use of the region's land resource.  The District Committee determined that claims regarding depreciation should be examined within the framework of the laws set forth in the Law (Appendix 5 to the Amended Statement of Defense, Defendant 1).
13. In light of the aforesaid and the rejection of the other objections, the District Committee decided to give effect to the plan, subject to technical and legal comments from the Planning Department, which are not relevant to the present proceeding (Appendix 5 to the amended statement of defense of defendant 1).
14. On November 14, 2021, the plan for validation was published in the Official Gazette.
15. On September 3, 2023, a year and a half after the lawsuit was filed, a building permit was received under conditions for the project, for the demolition of the buildings and the construction of three new buildings as part of the urban renewal. According to the permit in the first stage: the building at Katznelson 2 will be demolished and a 9-story building will be built above the ground floor for commerce and residence, which includes 32 housing units.  On the supplementary land, a 17-story building will be built above the ground floor for public and residential, 64 housing units and 3 basement floors shared by the two buildings.  In the second stage, the building will be demolished at 4 Katznelson, and a 10-story building will be built above the ground floor for commerce and residence, containing 34 housing units and 2 basement floors.  In the framework of the local committee's decision on the application for the granting of the building permit, it was decided to adopt the engineer's recommendation to approve the permit, subject to the fulfillment of certain conditions, the relevant of which for our purposes is that the agreement be approved and signed by all parties (Appendix 3 to the affidavit of Mr. Adir Keinan).

Provisions of the Agreement

16. The consideration apartments - according to the agreement, the owners of the existing apartments will receive a new apartment, at least on the same floor as their existing apartment, while trying to maintain the same air directions. The size of the consideration apartments will be in addition to 10% of the existing apartment area (main area including a safe room, without a balcony and service areas), in addition to a "sukkah" balcony with an area of at least 8 square meters, a storage room of 4 square meters, parking in an underground parking lot, and certain parts of the common property (clause 2.12 of the agreement).
17. Bearing the expenses of the apartment owners – the developer undertook to bear the expenses of the apartment owners, including payment of their attorneys' fees, maintenance fees as detailed in the zoning plan bylaws of the Lod Municipality, the cost of an inspector, payment of transportation fees, connection of the new condominium and apartments to the electricity, water, and gas network, development expenses, and more (clauses 2.16 and 9 of the agreement). In addition, he undertook to pay rent for the entire period of eviction of the apartment owners who would be evicted from their existing apartment (addendum to the agreement of March 23, 2022, p. 122 of Mr. Keinan's affidavit).
18. Financing costs for the execution of the project - The developer undertook to finance all the costs required for the execution of the project, including the promotion and approval of the zoning plan, the preparation of plans and construction work, the receipt of building permits, the employment of consultants, the registration of a condominium order, the registration of agreed bylaws, the registration of the owners' rights in the new apartments and tax payments, except for the payment of capitalization fees to the ILA for the existing apartments (sections 4.8, 4.9, 4.12, 14, 19 of the Agreement).
19. Bank support – The developer undertook to finance the project through closed, independent and separate bank financial support from the developer's other projects (clause 10.1 of the agreement).
20. Guarantees – The developer undertook that the apartment owners would receive a bank guarantee in accordance with the Sale Law (Apartments), 5733-1973 or an insurance policy for the value of the new apartment in an amount determined by an appraiser on behalf of the bank that is accompanied by a zero report (clause 10.14 of the agreement); a tax guarantee (clause 10.15 of the agreement); a check guarantee (clause 10.17 of the agreement) and a guarantee for the registration of a condominium (clause 10.16 of the agreement).
21. The mechanism for selecting the apartments – The agreement stipulates a mechanism for selecting the new apartments. According to it, in accordance with an appraisal report that will be prepared by an appraiser selected by the developer in cooperation with the apartment owners' attorney, the agreed appraiser will prepare a scoring table that ranks the value of the existing apartments according to their legal and physical condition, including their location, directions, and more.  The apartment that will receive a higher value will receive priority when choosing the new apartment.  Between apartments that are equal in score, the apartment whose owner signed the agreement earlier will receive priority (clause 11 of the agreement).
22. Conditional conditions for the agreement – The agreement stipulates that the agreement will come into effect subject to the fulfillment of the following cumulative conditions: (a) The agreement was signed by a "privileged majority of the owners" as defined in accordance with the Pinui-Binui Law within 12 months from the date of the first landlord's signature, the developer may announce an extension of this period by an additional 12 months; (b) The developer will sign the agreement 7 days after the determining date (defined as "60 days from the date on which the agreement will be signed by a privileged majority of the apartment owners" in clause 2.38 of the agreement); (c) As of the determining date, the developer and the apartment owners who signed the agreement will take action against the apartment owners who did not sign. The apartment owners who signed the agreement will file lawsuits against the recalcitrant apartment owners in the framework of which, inter alia, they will petition to enforce the implementation of the agreement; Second suspension condition: The project will be declared a "compound" in accordance with one of the alternatives under Chapter 5 of the Real Estate Taxation Law (Appreciation and Purchase), 5723-1963, as well as additional conditions regarding real estate taxation that are not relevant to the present proceeding; Third suspension condition: A new zoning plan will be published and will be validated in accordance with milestones that are not relevant to the present proceeding; Fourth suspension condition: Receipt of a building permit in accordance with the law until and no later than 16 months from the date of approval of the zoning plan.  In the event that the agreement is canceled in its entirety due to non-compliance with the suspended conditions, the developer will be obligated to give written notice to the apartment owners and their representatives within 15 days from the day on which he was notified of the non-compliance with the suspended conditions.  If the aforementioned dates pass, the apartment owners will be entitled to cancel the agreement and sign cancellation affidavits on their behalf (clause 3 of the agreement).

Entrepreneurial profit for the project developer

23. In 2019, the foyer, which, as stated, accompanied the project and the apartment owners, from the beginning, carried out an initial economic examination of the project through an economist on its behalf (Appendix 6 to an amended statement of defense by defendant 1 – an opinion on the urban renewal zoning plan in the Katznelson complex 2+4 Lod). The examination showed that the entrepreneurial profit rate as of that date was about 17.5%.  In accordance with Mevoa's "Policy Document for the Renewal of the Old Urban Fabric in Lod", which, as stated therein, was prepared by Paz Economics, under the guidance of the Lod Economic Company, the Planning Department of the Lod Municipality and the Mevoa, with the desired entrepreneurial profit urbanization in the city of Lod at 17%, provided proof of the possibility of receiving financing from a lending bank (clause 6.3 of the policy document).  In light of the above, the profit rate detailed in the preliminary examination of the project enabled the implementation of the plan in accordance with Lod's municipal policy.  Given the aforesaid, the Introduction recommended that the plan be promoted in a proposed outline of at least 128 housing units, which made it economically possible to carry out the plan (Appendix 6 to the amended statement of defense of defendant 1).
24. In 2020, an economic opinion was prepared by Paz Economics, according to which the entrepreneurial profit is 17.2% (Appendix 18 to Mr. Keinan's affidavit; hereinafter: the "2020 Opinion"). On August 31, 2022, an updated economic opinion was prepared by Paz Economics, according to which the entrepreneurial profit decreased to 16% (Appendix 19 to A. Keinan's affidavit) (hereinafter: the "2022 Opinion").  The opinion from 2022 was prepared at the request of the developer in order to update the data such as the table of project areas, the mix of apartments, the survey of prices for apartments and land, the project budget, and the estimate of the value of the apartments and land as of the date of drafting the opinion.  The 2022 opinion stated, among other things, that the public building would be built at a full completion level as part of the project's construction budget, and that 8 tenants would be paid alternative rent for 36 months.

Special Apartments