Background: How to Examine Economic Feasibility and Entrepreneurial Profit in Accordance with Standard 21.1
- As stated above, Section 2(b)(1) of the Pinui-Binui Law states that the refusal of an apartment owner to a Pinui-Binui project will not be considered unreasonable, if the project lacks economic feasibility. In this regard, the Honorable Justice Y. Danziger ruled inthe Schwarzberger case (at para. 30):
"It appears that the main condition in the framework of examining the reasonableness of the refusal is the condition relating to the unprofitability of the evacuation and construction transaction on the agenda (section 2(b)(1))...".
- With regard to the burden of proving the feasibility of the transaction for evacuation and construction, the Honorable Justice Y. Danziger ruled in paragraph 32 of the Schwarzberger case:
"As to the burden of proving the feasibility of the evacuation and construction transaction; This burden is placed on the shoulders of the plaintiffs under the Evacuation and Construction Law. Support for this is found in the fact that the law recognizes the presumption regarding the feasibility of the transaction where the evacuation and construction appraiser has determined, as defined in section 1 of the law, that the transaction is economically worthwhile, or will be worthwhile if the conditions he has set are met, when the mechanism set out in section 2A of the law allows the privileged majority of the apartment owners in this regard (as defined in section 1 of the law) to act to appoint the appraiser. This position is also consistent with the rule that the one who takes out his friend has the proof..."
- With regard to the manner in which the economic feasibility of the evacuation and construction transaction should be examined, it was held in the Schwartzberger case that the examination is from an objective perspective that examines the project as a whole:
"As to the manner of examining the economic feasibility of an evacuation and construction transaction; This will naturally be examined from an objective perspective that examines the project as a whole, and not from the subjective perspective of each of the apartment owners. This arises both from the language of section 2(b)(1) of the Evacuation & Binui Law, which relates to the feasibility of an "evacuation & construction transaction" and from its content, taking into account that the determination of an evacuation & construction appraiser establishes a presumption in this regard, as aforesaid" (para. 33).
- The examination of the economic feasibility of the project is carried out under the guidance of Standard 21.1 (Chapter A), which does not constitute a binding legal provision, but rather guides the principles of calculating the economic feasibility of an evacuation-reconstruction project (paragraph 49 of the judgment of the Honorable Justice R. Barkai in an administrative petition (Tel Aviv Administrative) 28180-02-20 Alon Investment and Building Company in a Tax Appeal v. The District Planning and Building Committee - Tel Aviv District (Nevo, June 24, 2021); para. 29 regarding the Reform Institute).
- In general, Standard 21.1 (Chapter A) was born in 2012 due to the difficulty encountered by the planning institutions in examining all the economic aspects of Pinui-Binui plans, so that some of them remained "on paper" and were not promoted due to a lack of economic viability. Standard 21.1 was updated in 2022 (the Reform Institute, at paragraph 5) and is relevant to our case.
- This is how Standard 21.1 in the matter of the Reform Institute was explained, in paragraphs 34-35 of the judgment of the Honorable Justice Y. Kasher:
"Standard 21.1 (and more specifically – Chapter A of Standard 21.1) leads to the fact that an appraiser's opinion will be placed before the Planning Authority in which the expected entrepreneurial profit will be calculated in the context of a particular plan for an evacuation-construction project, inter alia, depending on the considerations that the developer will give to the apartment owners, according to a number of alternatives (or "steps"). It should be emphasized: the entrepreneurial profit in relation to the various compensation alternatives is examined in relation to a particular plan. The calculation placed before the planning authority allows it to verify the economic feasibility of the project, if the proposed plan is approved...