0TAMA 38 and Sub-Regulatory
- Before I turn to an in-depth examination of the law applicable to our case, I would like to shed light on the issue at hand from an economic-social perspective.
- The enrichmentof a citizen following a change in the price of a real estate property that he owns can stem from two main sources: (1) price fluctuations in the free real estate market, which reflect the equilibrium between demand and supply; and (2) enrichment that stems from an initiative by the government that raises the value of the real estate by changing the designation or increasing the permitted scope of construction.
Scholars Gideon Prachomovsky and Avraham Bell described the governmental benefits in the field of planning and construction as a "regulatory giving", in other words:
"Every time the government 'upzones' or changes a zoning ordinance to the benefit of certain property owners, it has executed a giving".
See:
Gideon Parchomovsky& Abraham Bell, Givings,
111 Yale L.J. 547, 550 (2001).
- Enrichment derived from a regulatory grant may give rise to a charge of betterment levy ("fair charge"), while enrichment originating in the free market does not establish a payment obligation of this kind (although it may entail the payment of betterment tax in the realization of the property, in accordance with the provisions of the Real Estate Taxation Law (Appreciation and Purchase), 5723-1963 (hereinafter: the Real Estate Taxation Law)). When the Authority's planning actions increase the value of private property, as a rule, it is understood that the taxpayer must be obligated to share his wealth with the public through the tax mechanism, since these actions of the Authority were done for the benefit of the public as a whole and not for the benefit of a certain or unknown person whose assets are located in the plan area. As has already been stated: "It is appropriate that the swallow of the wealthy person should come out of his mouth and be given – lest it be said: it will be returned – to the public" (see: Additional Civil Hearing 3768/98 Kiryat Beit HaKerem in Tax Appeal Jerusalem Local Planning and Building Committee, IsrSC 56(5) 63 (2000) (hereinafter: Additional Hearing Beit HaKerem Citizens)).
- This is not the case when the equilibrium between demand and supply in the free market is what increases the value of real estate. In such a case, subject to betterment tax charges, the public is not permitted to come to the landowner and demand that he share his wealth with him. This is for two reasons. First, the public – through its actions through the state authorities – has done nothing to improve the land, and therefore has no part in getting rich. Second, when the real estate market lowers the value of private real estate, the landowner is not entitled to come to the public and demand that he share his loss with him.
- As stated, our matter revolves around enrichment that originates from the very approval of TAMA 38, without a building permit being issued by virtue of it. In other words, the government approved TAMA 38 and thus added planning potential to the land to which the plan applies: the possibility – uncertain – of receiving additional building rights. Only when the planning potential is realized through the receipt of a building permit is it a regulatory grant, which justifies, in principle, the imposition of an obligation on the landowner to share with the public the enrichment that has arisen for him by virtue of the grant. As stated, only then does a betterment tax event take shape (see: the Ron case, at paragraphs 56-57) – this, as stated, is only at the level of principle and subject to an exemption from the levy that the legislature granted to the landowner in section 19 of the addendum in order to encourage, inter alia, the reinforcement of buildings against earthquakes.
The increase in the value of the assets that occurs as a result of the approval of TAMA 38, without the issuance of a building permit by virtue of it, therefore does not amount to a regulatory grant. This increase in value is the result of market forces that increase the demand for these types of properties due to their inherent planning potential; And as mentioned, when it comes to getting rich from the free market - It is not necessary to share it with the public.
- And now - to the details of the customary law.
The Impact of TAMA 38 on the "Prior Situation" of Real Estate
- As stated, the legal question before us is as follows: Should the assessment of the value of the land "inthe previous situation" include the contribution of TAMA 38 to the value of TAMA 38, or should its effect be neutralized and the value of the land should be calculated according to the planning situation that preceded the approval of TAMA 38?
Let us remember: we are dealing with a contribution to the value of the real estate that has grown Only by virtue of the approval of TAMA 38 Because of the planning potential that is embodied in it, without a building permit being issued by virtue of it.
- Let us return to the example I presented at the beginning of my remarks, and attach numerical values to its facts:
The taxpayer is the owner of an old building worth NIS 1 million (hereinafter: Original Status). In 2005, TAMA 38 was approved by the Israeli government and applied to the building. As may be recalled, the realization of the rights to a building addition by virtue of TAMA 38 is contingent upon the granting of a building permit by the local committee. Despite his entitlement to do so, the taxpayer does not apply for a building permit and obviously does not act to strengthen the building against earthquakes. At this stage, following the application of TAMA 38 to the land and despite the fact that no building permit was issued by virtue of it, the value of the building is increased to NIS 2 million (hereinafter: Intermediate Mode). Suppose that this increase in value of NIS 1 million derives exclusively from the very approval of TAMA 38. Afterwards, the local committee plans and approves a detailed plan that grants additional building rights in relation to the building (hereinafter: The detailed plan; And later on I will call such a program Other Program). Following the detailed plan, the value of the building climbs to NIS 3 million (hereinafter: The New Situation). When the value of the land increased as a result of the detailed plan, a tax event occurred that resulted in a betterment levy at the rate of half of the betterment.
- In order to assess the betterment from which the levy will be derived, the value of the building "in its previous state" – on the eve of the application of the detailed plan – must be assessed and compared to the value of the building "in the new state" – after the approval of the detailed plan. The value of the building in its new condition is NIS 3 million. What, then, is the "previous state" of the building? Is it the "original condition" worth NIS 1 million, or is it the "intermediate state" worth NIS 2 million? Given the answer to this question, we will know the amount of the betterment: an improvement of NIS 2 million or of NIS 1 million only.
- It was at this point that the dispute between the parties arose.
According to a single approach - When calculating the betterment levy, the increase in value caused by the application of TAMA 38 to the real estate should be ignored. Therefore, in the "previous situation" assessment, this increase in value should be neutralized and the value of the real estate should be assessed in accordance with the original situation (in our example: NIS million). This approach will be called The Neutralization Approach.