Your Guide to Urban Renewal

The city building plan, or CBP (and sometimes referred to as just “the plan”), determines, among other things, the zoning of particular areas (residential construction, commerce, green areas, public buildings, etc), as well as the type of permitted use, the size of the buildings that can be constructed there (building rights), the number of floors, the distance of the building from the edge of the lot, and so on.

Each plan actually consists of two main documents. The blueprint is a sort of map showing the land zoning, building lines, boundaries, and so on, all to scale. The regulations then explain the plan in writing, laying out its specific objectives and instructions.

In the case of large projects, it is often necessary to make alterations to the existing CBP, in order to change the zoning or expand the building rights of the lot. This means that we must prepare a new CBP that includes the changes we want to make, submit it to the relevant committee (local or regional), and publicly announce the submission, so that the public can review the plan and submit their objections if they wish.

• TAMA 38/1 – Renovating and reinforcing the existing building, with the addition of floors/apartments by the contractor. Tidhar does not promote or perform projects of this kind.
• TAMA 38/2 – Demolishing the existing building and constructing a new building on the site, with the addition of floors/apartments by the contractor. This type of project utilizes existing building rights and only requires a building permit, without changes to the city building plan.
• Vacate & Build – Demolishing the existing building and constructing a new building on the site, with the addition of floors by the contractor. This process involves changing the city building plan, increasing the building rights, and securing a building permit.
• Build & Vacate – Constructing a new building and then demolishing the existing building, with changes to the city building plan. In this type of project, the new building is completed before the residents have to leave the old building, so they can move straight into the new building. Build & Vacate projects are only possible where there is a vacant land reserve adjacent to the project, and the relevant authorities are willing to allocate this vacant land to the project in exchange for the land that was home to the old building.

An urban renewal projects benefits all parties.

From the perspective of the apartment owners, this is an opportunity to get a larger apartment with a sun balcony, safe room, parking, and storage area in a new modern building with an elevator, while also enjoying increased property value – all without any expense on their part.

For the developer, it is a business opportunity that enables the company to add several apartments in the new building. These apartments are intended for sale to the general public and will therefore fund the entire project, while ensuring the developer will profit.

From the point of view of the local authority, this is a chance to give the city a facelift and offer residents improved safety and wellbeing.

Finally, for the general public and society in general, this is an invaluable opportunity to benefit from new apartments being made available in high-demand areas that usually do not have new land reserves available for construction. The project will also likely include additional public areas and buildings to provide various services for residents’ welfare.

Vacate & Build is a type of urban renewal project designed to make more efficient use of the available land. It involves demolishing several old residential buildings in order to construct new, safer, healthier, and more modern residential buildings in their place.

A Vacate & Build transaction is defined as a contract between a developer and the owner of an apartment in a condominium. Under this contract, the apartment owner undertakes to sell his rights in the condominium, in whole or in part, for the purpose of demolishing the condominium and building a new condominium in its place, in accordance with the Vacate & Build plan. This is accompanied by a power of attorney from the apartment owner to the developer, or an attorney acting on its behalf, enabling the company to perform the actions required to fulfill the contract. The contract includes, among other articles:

(1) The principles for determining the consideration that each apartment owner will receive in accordance with the contract.

(2) The maximum deadlines for approving a detailed plan, obtaining a building permit, and delivering the new apartment to the apartment owner in accordance with the contract.

(3) Details regarding the company that will perform the construction work in accordance with the contract, or conditions for the selection of such a company, including its experience in the field.

(4) A commitment on the part of the developer to provide guarantees in favor of the apartment owner in order to secure the developer’s obligations under the contract.

Several condominiums are defined as a collective, which must be located in an area that has been declared a “Vacate & Build Zone” by the authorities.

In order to go ahead, a Vacate & Build project must secure the consent of two thirds of the rights holders in the collective, who own (1) at least 3/5 of the apartments in each condominium (if the condominium only includes 4 or 5 apartments, they must own at least 3 of the apartments, subject to there being more than 2 apartment owners in total), and (2) more than half of the common property in each condominium, as associated with their apartments.

For the residents, this is a “net transaction,” so they are exempt from property tax, betterment levy, and transfer tax payments.

Vacate & Build initiatives have been regulated by law since 1965. In 2006, the Knesset enacted the Vacate & Build (Compensation) Law in order to overcome difficulties caused by individual residents within condominiums who oppose a Vacate & Build agreement that is supported by the majority of residents. This law states that a resident who unreasonably opposes the transaction, despite a supermajority of residents having agreed to it, will be responsible for damages suffered by the other residents due to the transaction being delayed, subject to a court ruling stating that the resident bears responsibility for the damage.

TAMA 38 is Israel’s national program for reinforcing existing buildings against earthquakes. It was prepared on the initiative of the National Planning and Building Council, and ratified by the Israeli government on April 14, 2005.

The mandatory standard under TAMA 38 is SII 413 for building earthquake resistance, which came into effect in 1975.

TAMA 38 applies to buildings that received a building permit before January 1, 1980, with the exception of buildings that have been exempted under the standard or have had their demolition approved.

As the cost of reinforcing the buildings in line with the standard is relatively high, the program enables a building permit to be obtained for reinforcement purposes without the need to prepare a detailed plan. The main incentive for the developers is the granting of additional building rights for the land, which permits the addition of floors to the building and the sale of the apartments on these new floors. This sale will finance the overall reinforcement project.

Over the years, the TAMA 38 program has gained several amendments. The first of these was amendment 2 (known as TAMA 38/2) in 2010, which is dedicated to demolition and reconstruction, as detailed below.

In November 2019, it was decided to end the TAMA 38 program on December 1, 2022, in light of the assumption that the program had failed to achieve its goal – that is, reinforcing existing buildings against earthquakes.

In June 2022, the Shaked Plan was approved, which introduced the following amendments:

• Adding a reinforcement component to demolition, reconstruction, and transfer of rights.
• Option of up to 200% additional apartments in order to strengthen the addition and reinforcement elements (38/1).
• Option of up to 400% additional building rights (and more in some cases) for demolition and reconstruction projects (38/2).
• The ability to offer mixed-use projects.

In addition to establishing regulations regarding the betterment levy, the plan canceled height restrictions for TAMA 38/1 and 38/2 projects, added around 10-15% of the total built-up area to areas for public use, and more.

In January 2023, as part of the Shaked Plan, regulations were approved that govern the preparation of an urban renewal plan through a rapid licensing plan, as an alternative to TAMA 38. Its main implications are the expansion of the local planning and building committee’s powers to approve plans (under the local authority) and the option to issue a building permit for renewal plans at the same time as the plan is approved by the planning institution.

In April 2023, the TAMA program was extended until October 2023 to create a transition period between the official end of the TAMA program and the start of the Shaked Plan. However, any authority that was still interested in TAMA’s provisions continuing to apply in its area until May 18, 2026, was required to publish a notice about it.

Recently, the TAMA program was extended yet again. It now lasts until February 2026, when projects will begin to be promoted under the Shaked Plan.

In 2010, Amendment 2 was added to the TAMA 38 program, enabling apartment owners to benefit from additional building rights under TAMA 38 also in the context of the building being demolished and reconstructed (similar to a Vacate & Build project). In this case, the original building is completely demolished and replaced by a new building that meets the applicable standards, in accordance with the building rights of the relevant plans, plus the building rights under TAMA.

TAMA 38 also permits the addition of an elevator, parking lot, and protected spaces to the building (either a safe room in each apartment, or a protected space for each floor).

**It should be noted that Tidhar does not handle TAMA 38/1 projects – that is, reinforcing the existing structure in exchange for additional floors.

• A new, better apartment that is larger and more spacious, with excellent technical specifications, in addition to high-quality public areas within the building for residents’ wellbeing and enjoyment.
• A new modern building with advanced architectural design in compliance with contemporary standards, including a stylish lobby and elevator.
• A safer building, with apartment safe rooms or protected spaces on each floor.
• Advanced new systems throughout the new building – water, electricity, plumbing.
• Private parking for each apartment.
• Sun balcony and storage area – depending on the planning feasibility
• Development of the grounds (landscaping, amenities, residents’ club, bicycle and stroller room, etc.).
• Inspection and warranty by the Tidhar Group.
• Potential for upsizing or downsizing your property.
• Building branding and increasing your property’s value by tens of percentage points.
• Everything fully financed by Tidhar, without any investment on your part!

The urban renewal project is fully financed by the developer and the residents are not required to pay any out-of-pocket expenses. As part of the process, Tidhar will make a comprehensive package of services and solutions available to you, at its expense:

• Full rent for the entire construction period, as determined by an agreed appraiser paid by Tidhar.
• Fees for an attorney and an engineering inspector, as selected by the apartment owners, to represent you in all stages of the transaction.
• Assistance in locating an alternative apartment for the duration of the construction period, for the residents who require such help.
• Financing the transportation and other expenses involved in moving to the alternative apartment and back.
• Assistance in organizing the move to the alternative apartment and return to the new apartment for residents who need help (seniors, people with disabilities, etc.).
• Close personal support from the Tidhar service department throughout all stages of the process.

The apartment owner does not pay anything towards the transaction, with the exception of resolving past debts, and subject to compliance with the various provisions of the law granting exemptions from sales tax, transfer tax, VAT, and so forth.

Tidhar provides you with a comprehensive guarantee package that ensures your 100% confidence and peace of mind, both before you move into your new apartment and for the years to come.

• Sales Law guarantee equal to the value of the new apartment.
• Autonomous (decreasing) guarantee to ensure rental payments during the construction period.
• Autonomous guarantee to ensure tax payments (for the tax payments Tidhar makes on your behalf, as required).
• Autonomous guarantee for the inspection period (to guarantee the repair of construction defects that are the responsibility of the contractor during the inspection year, after you move into the new apartment).
• Autonomous guarantee to ensure the registration of the condominium and ownership with the Land Registry.
• Secure financial backing (from one the largest banks or other financial institutions in Israel).

• Choosing Tidhar ensures that your new home will be built by Israel’s largest, market-leading residential construction company. Tidhar has extensive experience in Vacate & Build projects, with many that have already been built and occupied, and dozens more complexes in the planning stages.
  • Tidhar promotes the full partnership of its customers through close guidance throughout the entire process. Our first-class service department will support you all the way from the first stages of the transaction until many years after you move in.
  • Tidhar makes its customers partner to the additional building rights, in the case that it receives such rights.
  • Tidhar plans and constructs each project using advanced 3D BIM (Building Information Modeling) technologies, which enables significantly shortened schedules and construction of the highest standard.

• Selection the developer you would like to perform the project, after the developer has conducted and presented the:

• Economic and planning feasibility study
• Coordination and inspection with the municipality regarding land rights and planning options
• Planning and proposal options for you

• Selection of a designated representative (2-3 representatives per building) and an overall committee for the entire complex, who will represent you in negotiations with the developer.

• The designated committee will appoint a lawyer and other professionals to protect the interests of the apartment owners.

• Formulation of the agreement between the developer and the apartment owners.
• All apartment owners sign the agreement.
• The representatives choose a “supervisory committee,” which will manage the process in coordination with the developer.
• The developer produces a detailed plan by a leading architect, which constitutes an alternative to the existing plan, in order to start the permit process via a local/regional committee.
• Getting started – the developer arranges financial backing from a lending bank and obtains the building permit.
• The residents vacate their apartments and move to alternative apartments for the duration of the construction period.
• The project is constructed.
• The residents move into their new apartments.

This largely depends on the individual project and its complexity, the type of project (Vacate & Build or TAMA 38/2), the planning/zoning status, the relationship between the partners (apartment owners, the developer, and other involved parties), and the local authority’s willingness to support the project and promote urban renewal in the city.

On average, the length of time required to complete an urban renewal project, from the moment the agreement is signed to the day you move into your new apartments, assuming that all parties cooperate and the agreement is signed in a timely, efficient manner, ranges from 3 to 10 years (depending on the type of project).

Not every project qualifies for the benefits offered by the Vacate & Build program. Here are the various factors that must be taken into account when approving a Vacate & Build plan:

• Location of the building/complex.
• Minimum number of apartments available to be vacated for construction.
• The municipality’s policy regarding changes to the building permit that will enable an increased number of apartments, in coordination with the local authority and the regional planning and building committee.
• Ability to obtain authorizations, such as the legal declaration of the complex as a Vacate & Build complex, commitments, contracts, and opinions from authorized planning authorities.

Once the apartment owners have all signed the agreement, Tidhar’s planning team will begin work on a detailed plan for the project, in collaboration with a leading architect. If the permit application is based on an existing city building plan, this will be a relatively simple and quick process. However, if a change in the city building plan is required, Tidhar will create the new city building plan, bring it to the local/regional committee for approval, or to the National Planning & Building Council as required, and take it through the process until it is approved and the project can start in earnest.

For a TAMA 38/2 (Demolition & Construction) project, it is necessary to examine whether the existing building rights under the city building plans and national TAMA 38/2 plan make it feasible to perform the project from an economic and engineering perspective.

For a Vacate & Build project, however, a dedicated city building plan must be approved for the complex, with the complex being declared a designated Vacate & Build complex.

You must also engage a real estate developer that will plan the project, perform the permit processes, and liaise with the lending bank, which will provide the financial guarantees required to ensure that the agreement is fulfilled.

The feasibility level required for the developer to get started and invest the substantial resources necessary for planning and construction varies between TAMA 38/2 and Vacate & Build projects.

For a TAMA 38/2 project, the feasibility is conditional on the signatures of two thirds of the apartment owners in a condominium that has at least four apartments. For a Vacate & Build project, it is conditional on the signatures of two thirds of the rights holders in the collective, who own (1) at least 3/5 of the apartments in each condominium, and (2) more than half of the common property in each condominium, as associated with their apartments.

In any case, prior to the demolition of the existing building and the construction of the new building, the signature of all owners is required on the sales agreement and on the collateral documents in favor of the lending bank.

All rents and expenses involved in vacating the existing apartments so that construction can take place are covered and borne by Tidhar.

Tidhar’s team, consisting of an architect, consultants, a planning manager, and a project manager will lead the project in collaboration with a supervisory committee appointed by the representatives of the apartment owners. The entire process will be supervised by an inspector and an attorney, who advise the apartment owners at every stage and ensure that everything stipulated in the agreement is put into practice.

The estimated duration of a Vacate & Build project is significantly longer than that for a TAMA 38/2 project, as it takes around 10 years on average from the date the owner signs the Vacate & Build agreement until residents can move into the new apartments. In comparison, TAMA 38/2 projects tend to take around 5 years.

There is also a difference in terms of the (maximum) compensation received under each of the programs. Section 49.22(a)(i) of the Real Estate Taxation Law specifies three options that can be given to the owners as consideration for the existing residential unit, all of which are exempt from real estate taxes (under the tax exemption ceiling):

1. a) The value of an alternative residential apartment in the same complex, with an area of 120 sqm.

1. b) 150% of the value of the residential unit being sold, minus the valuation of additional building rights in the residential unit being sold.

1. c) The value of an alternative residential apartment in the same complex, with an area that is 150% of the area of the residential unit being sold, and no greater than 200 sqm.

*The above information is general only. It is recommended to consult an attorney who specializes in real estate taxation regarding exemptions and other consequences that may affect the aforementioned exemptions.

Under the TAMA 38/2 program, the apartment owners are entitled to receive an apartment that is no more than 25 sqm larger than their current apartment, plus a sun balcony as well as parking and storage, as part of the tax exemption.

In principle, in order for a certain complex to be declared eligible for a Vacate & Build project, it must have at least 24 apartments. On the other hand, TAMA 38/2 applies to any building whose building permit was issued before 1980 and which requires reinforcement against earthquakes, has been designated as such under the current city building plan, and has an area of at least 400 sqm (main and service).

A Vacate & Build project must secure the consent of two thirds of the rights holders in the collective, who own (1) at least 3/5 of the apartments in each condominium (if the condominium only includes 4 or 5 apartments, they must own at least 3 of the apartments, subject to there being more than 2 apartment owners in total), and (2) more than half of the common property in each condominium, as associated with their apartments. Then the project planning can get underway. Following approval of the city building plan, it is necessary to obtain the consent of all rights holders in the complex. In the event that any owners refuse to give their consent, it may be necessary to file a lawsuit against them in the magistrate’s court.

In the case of TAMA 38/2 projects, it is necessary to obtain the consent of two thirds of the apartment owners who hold two thirds of the common property, as associated with their apartments, in a condominium that has at least four apartments. An application for a building permit can then be submitted in accordance with the existing city building plan. It is there required to obtain the consent of all rights holders in the building. In the event that any of them refuse, a procedure will be conducted with the inspector of condominiums.

Urban renewal processes are complex long-term projects that can last for many years. This elevates the level of uncertainty involved with such projects and obliges you, the apartment owners, to exercise caution, and fully evaluate and take great care over the selection of the developer and the other partners involved in conducting the transaction, from the very first stages onward.

The main risks you should be aware of and manage as part of the contract are:

• The developer is not able to secure bank support for the project at the end of the day, due to overly optimistic business calculations.
• Failure to comply with schedules – the project does not start on time and/or will take longer than expected/promised.
• The developer is not able to advance the project with the authorities and bring it to fruition.
• If the developer is not also the contractor, a conflict of interest may arise between the developer and contractor, and/or a case may develop where neither party takes responsibility and each continually passes the buck to the other.
• The construction is of a low standard and/or not as was promised to you.
• A developer who is not also a contractor is not able to provide adequate service to the apartment owners if construction defects are discovered.
• The developer/contractor suffers a financial collapse over the years and is no longer able to meet their obligations and complete the project.

• In urban renewal projects, the key to success lies in selecting the right partner for the process.

   

  Our “Ten Commandments” for choosing the right partner:

   

  1. A large company with a serious reputation in the market.
  2. A company that provides maximum security and warranty.
  3. A developer that will also serve as the project contractor, so you have a single address for initiation, planning, and construction.
  4. A company with a track record of performing at the highest standard.
  5. A company with a proven reputation for meeting deadlines.
  6. A company with sufficient financial strength to continue performing and supporting the project for many years.
  7. A reliable, value-driven company that believes in transparency and partnership with the residents.
  8. A company that has extensive experience working with residents in general, and supporting apartment owners through urban renewal projects in particular.
  9. A company that will give the apartment owners personal service and hands-on support every step of the way, until they move into the new apartment and for many years after.
  10. A company that has received positive reviews from the residents of past projects performed by the company.