What is Urban Renewal? What is the difference between “vacate-renovate” and TAMA 38(2), and does your building meet the threshold requirements for “vacate-renovate”? How to move the project forward, and how soon can you sit back and enjoy your new apartment? The answers to all your questions in Tidhar’s urban renewal guide!
Urban Renewal is a general name for the process in which a physically outdated building is restored and renewed. This process usually occurs in one of three ways:
1. Urban regeneration that occurs naturally by a gradual turnover of residents in the neighborhood, who force the municipality to upgrade rundown infrastructure.
2. A developer identifies the potential of the neighborhood (low buildings scattered in high demand areas). He then initiates and leads the process, usually through a process of changing the city masterplan, which allows extra building rights which the entrepreneur can use to finance the project and profit from it.
3. A project by the Housing Ministry in cooperation with local authorities, in areas defined and declared by the Ministry, in order to enhance land development, renew the area's appearance and improve urban infrastructure (roads, additional green areas, more parking spaces etc.)
Urban renewal is in fact a partnership between you and the developer. You provide the land, the developer brings the experience, finance, planning and execution capabilities, and together you turn an old building into a new modern asset, which is more safe for living and more valuable for you.
Who benefits from the deal? Everyone!
You enhance the property, the developer gains from the sale of the additional units built, the city enjoys urban renewal and a better looking image, and the public enjoy a new supply of apartments for sale in high demand areas.
"City zoning" or the acronym TPS (sometimes simply called "Masterplan"), effectively determines the designation of the land (residential, commercial, green spaces, public buildings, etc.), the type of permitted use, the size of the building which may be built on that plot (building rights), number of floors, type of roof, distance of the building from the plot's boundaries, etc.
TPS is actually composed of two main documents: the sketch (a map showing land designation, building lines, boundaries of the program and other considerations, to scale) and rules which verbally explain the program, its objectives and its provisions.
The first thing we check in the process of urban renewal is: what are the plans that apply to the building or the land under review. This inspection reveals whether the building rights have been used up and whether they can be extended.
To change the TPS, that is - to change designation/extend building rights - we must prepare a new zoning plan that includes the changes we want to make, deposit it with the committee in charge (local/district), and publicly advertise its deposition, in order to enable objections. TPS change requests are usually divided into three main categories - request for mitigation and additional building permits which are not defined in the Masterplan, request to change the land's designation, and requests to change building lines.
• TAMA 38 (1) - Renovation and strengthening of the building, also by adding floors by the contractor. Tidhar does not accompany or carry out such projects.
• TAMA 38 (2) - Demolishing the building and constructing a new one in its place - without changes to Masterplan.
• "Vacate-renovate" - Demolishing the building and constructing a new one in its place - while changing Masterplan.
• "Renovate-vacate" - While changing Masterplan, construction of the new building is done prior to the demolition of the old one, so that tenants move to the new building upon completion of construction. "Renovate-vacate" is possible when there is vacant land adjacent to the project which the city is prepared to allocate, in return for the plot on which the old building is located.
In urban renewal projects all parties benefit: for the owners - this is an opportunity to obtain a larger apartment with a balcony, security room and parking space, in a new modern building, and increase the value of their property - without any expense on their part. For the entrepreneur, this is a business opportunity that allows him to build a new building with more apartments intended for sale to the general public, thus financing the entire project and also profiting from it. For the local authority, this is an opportunity to give specific areas a well deserved facelift, while also improving the safety and welfare of residents. For the general public and the entire country, this is a rare opportunity to enjoy new housing in areas of high demand, where there's usually no new land for construction.
This is an urban renewal project designed to make more efficient use of land, allow the demolition of old residential buildings and replacing them with new, modern and safer apartment buildings.
Areas designated by the Ministry of Housing and the local planning and building committees as urban renewal projects, receive additional building rights and tax breaks to encourage the residents to cooperate with entrepreneurs to carry out the project.
Urban renewal initiatives have been regulated by law since 1965. In 2006, the Knesset passed the "vacate-renovate" law (damages) in order to overcome the difficulties caused by individual tenants in apartment buildings who might object to the agreement which is supported by the majority of tenants. The law states that a tenant who unreasonably opposes the deal, despite the relative majority of tenants who agree are in favor, shall be responsible for damages to other tenants as a result of a delay in the transaction, subject to the court's ruling stating that the tenant is responsible for the damages.
TAMA 38 is the national master plan for strengthening existing buildings against earthquakes, which was initiated by the National Council for Planning and Building and approved by the Israeli government on 14. 4.2005.
According to estimates, most of the buildings built in Israel until 1980 do not meet the Israeli standard for durability against earthquakes (Israel standard 413) which went into effect in 1975.
Due to the high costs of strengthening structures and adapting them to the standard, TAMA 38 enables buildings to obtain a permit to strengthen the structure without the need for a detailed plan. The main incentive for homeowners is additional building rights which give contractors the right to add floors to the building and sell the new apartments, thus financing the strengthening of the structure as stated.
TAMA 38 (2):
In 2010 the government added Amendment #2 to TAMA 38, which allows apartment owners to benefit from additional building rights according to TAMA 38 within the framework of the demolition and reconstruction of the building (similar to "vacate-renovate" projects). In this case, the building is demolished and replaced by a new, modern, standards-compliant building, in accordance with the plan's building rights that apply and combined with the extra building rights according to TAMA.
TAMA 38 also refers to the addition of an elevator, parking spaces and security areas (protected apartment space, or protected floor space).
**It should be noted that Tidhar does not handle such TAMA 38 (1) projects, namely - strengthening existing building in return for additional floors.
• A new and more spacious apartment, with rich technical specifications.
• A new and modern building, advanced architectural design, spacious lobby and elevator, all in compliance with modern standards.
• A safer building, which includes a reinforced security room within the apartment, or protected floor space.
• New and advanced building systems - water, electricity, plumbing.
• Private parking for each apartment.
• Balcony and storage - depending on design.
• Development of surroundings (landscaping, leisure facilities, club room, bike and stroller room, etc.)
• Repairs and warranty by Tidhar.
• Upgrade of the property.
• Branding the building and raising property value by tens of percent.
• Entire project fully funded by Tidhar, without any investment on your part!
Urban renewal projects are fully funded by the developer, and tenants are not required to have any out-of-pocket expense. As part of the process, Tidhar shall make available, at its expense, a perfect package of services and solutions:
• Full rent for the entire construction period, determined by an agreed assessor funded by Tidhar.
• Funding attorney fees and supervising engineer selected by the owners, to represent you rights through all stages of the transaction.
• Help in finding alternative accommodation for the duration of construction.
• Funding moving expenses related to the transition to an alternative apartment and back.
• Help in organizing transition to alternative accommodation and back to your new apartment, for special needs populations (the elderly, disabled, etc.).
• Personal accompaniment by Tidhar's service department throughout the entire process.
It is noted that other payments that are not directly derived from the transaction, such as taxes, fees and surcharges that were created before the contract (debt to the municipality, capitalization fee to the Israel Lands Authority, as well as ongoing payments or debts) in relation to the existing apartments until they are handed over to the developer or vacated, shall be paid by the home owners.
Exemption from capital gains tax and purchase tax applies only in relation to one apartment in the project, even if the tenant owns more than one apartment in the complex, as detailed in the Real Estate Taxation Law 1963 (Betterment and Acquisition), and subject to additional conditions specified in the law.
Tidhar offers you a comprehensive security package that ensures 100% security and peace of mind throughout the process, until you move into your new apartment and many years later:
• Full Sales Law guarantee for the value of the new apartment.
• Automatic guarantee (decreases) to secure payment of rent during construction period.
• Tax guarantee (to ensure tax payments Tidhar is paying for you, if required).
• Repairs guarantee (to ensure the contractor's responsibility during the first year, following your move into the new apartment).
• Closed bank accompaniment (by one of the leading banks).
• Tidhar is among the few companies in Israel that has managed to carry out two projects of "vacate-renovate" to date.
• As the second largest construction company in Israel, Tidhar is committed not only to initiating the project but also to constructing it.
• Full partnership and accompaniment throughout the entire process, by our dedicated customer service which will be with you from the first stage till many years after move into your new apartment.
• Partnership in additional building rights - if obtained.
• Project planning and implementation using 3D modeling and information technology (BIM) which provides the highest quality standards and significantly shortens deadlines.
• You choose the developer with whom you want to move forward, after he has presented to you:
o Economic and planning feasibility.
o Coordination with the municipality regarding land rights and planning options.
o Design options.
• You appoint an authorized representative (2-3 homeowners from each building), who will represent you in negotiations with the developer.
• The authorized representative shall appoint an attorney to represent homeowners and maintain their interests.
• Finalize the agreement between developer and apartment owners.
• All owners sign agreement.
• Representatives choose "action committee" which will lead the process with the developer.
• Detailed design by leading architect: determining alternative planning process and licensing process with local/district committee.
• Project gets under way: bank accompaniment begins and building permit is obtained.
• Vacation of apartments and move to alternative accommodation for the duration of construction period.
• Construction phase.
• Move to new apartment.
This depends on the project and its complexity, type of project ("vacate-renovate" / TAMA 38 (2)), planning/TPS status, the relationship between the partners - apartment owners, the developer and others involved in the process, and the motivation of local authorities to support and promote the project. The time required to complete an urban renewal project, from the moment both parties enter negotiations till population of the new apartments, where all parties are cooperating and the process is moving along swiftly and efficiently, is between 6 to 8 years.
Not every project can receive the benefits offered by an urban renewal program. The threshold conditions for its approval are:
• Location of the building/complex.
• Minimum number of units vacated for the purpose - the number of new apartments, should be enough to fund the project and enable the contractor to profit from it.
• TPS which allows increasing the number of apartments, in coordination with the local authorities and the Regional Planning and Building committee.
• Obtaining approvals, commitments, contracts and review by authorized planning officials.
Upon obtaining all of the tenants signatures on the agreement, Tidhar will begin detailed design of the project, in collaboration with a leading architect. In case all we need is a building permit under existing TPS, this is a "green track", easy and relatively quick. If the Masterplan needs to be amended, Tidhar will plan the new TPS, bring it to the approval of the local/district committee, and accompany the process till it is approved to move forward.
• In a TAMA project which involves demolition and rebuilding, we need to make sure whether existing building rights under existing zoning (TPS) and national TAMA 38 (2) plans allow the engineering and economic feasibility of the project.
• In a "vacate-renovate" project, however, we require a designated municipal building plan approval and a formal declaration of the area as an urban renewal project.
• Contract with real estate developer who will design the project, perform the licensing process and sign a deal the lending bank which will provide the financial guarantees required to ensure compliance with the agreement. The assurance required by a developer to get started invest resources, depends on signing up 80% of the owners.
• In any case, for the purpose of demolishing the existing building and construction of the new one, all owners are required to sign the sale agreement and the real estate lien documents, in favor of the lending bank.
• Vacating all apartments for construction (rent and all expenses incurred in moving are Tidhar's responsibility).
• Full agreement between the developer, contractor and tenants, for the complete satisfaction of all parties.
A Tidhar team, including an architect, consultants, planning director and project manager, in conjunction with an "action committee" appointed by representatives of homeowners, will lead the project under the supervision of an inspector and lawyer, who will accompany the owners in the process and make sure that all agreements are in fact implemented.
For an area to be designated as suitable for a "vacate-renovate" project, it must include at least 24 existing residential units. TAMA 38 (2) on the other hand can be applied to any structure whose construction permit was issued before 1980 and requires reinforcement against earthquakes, and according to existing city plan (TPS) its size is at least 400sqm (main and service).
To get a "vacate-renovate" project underway, you need to obtain a new city plan (TPS) which relates to the specific complex - a procedure which can take 5 to 10 years, before construction even begins. TAMA 38 (2) on the other hand is an existing plan, therefore in most cases all you need is to obtain a building permit under its law, which van take 12-24 months. Sometimes, even in the case of a TAMA 38 (2) project, we will reserve the right to initiate a new zoning plan to increase building rights on the plot and make the project more worthwhile.
Estimated time to carry out the project
The estimated time to carry out a "vacate-renovate" project is significantly longer than a TAMA 38 (2), and can be as long as 8-10 years, while the duration of a standard TAMA 38 (2) project is estimated at 3-4 years from start to finish.
Another difference deals with returns (maximum) obtained from any of the plans
The "vacate-renovate" law relates to three possible alternatives which can be given to the owners in exchange for existing residential unit, exempt from land taxes:
1. An alternate residential unit of 120sqm, which includes a balcony, parking and storage.
2. An alternate residential unit that includes a balcony, parking and storage, and additional financial compensation whose aggregate value reaches 150% of the value of current asset.
3. A residential unit with an area of 150% of the residential unit to be sold, and no larger than 200sqm.
* The above information is general, and it is recommended to check with an attorney specializing in real estate tax/exceptions, and other implications that may affect the stated exemptions.
As part of TAMA 38 (2), owners will be entitled to an apartment that is larger than their current apartment by no more than 25sqm, plus a balcony, parking and storage.
In principle, a complex must include at least 24 existing residential units. TAMA 38/2 however, applies to all building permits issued before 1980, requires reinforcement against earthquakes and which according to existing city plan (TPS) is at least 400 square meters area (main and service).
For a specific building to be suitable for a "vacate-renovate" project, it must contain at least 24 apartments. TAMA 38 (2) on the other hand can be applied to any structure whose construction permit was issued before 1980 and requires reinforcement against earthquakes, and according to existing city plan (TPS) its size is at least 400sqm (main and service).
The minimum number of units in a Tidhar project is 48 existing apartments.
In a "vacate-renovate" project, consent is necessary of all holders of rights in the complex. If you need to deal with landlords who refuse to join the project, Court intervention is required.
In a TAMA 38 (2) project, it is sufficient the receive consent of 80% of holders of rights, who "own" 75% of the common property, in order to make a claim to the Commissioner of Condominiums, who - contrary to the Court - is authorized to force the opposing landlords to participate in the project.
The key to success of an urban renewal project lies in choosing the right partner. The right partner is a large and established company, who on the one hand provides you with maximum dependability and sense of security, one address for planning and construction, is committed to the highest standards of workmanship, complies with deadlines, and has a strong financial backbone, and on the other hand is virtuous, believes in transparency, partnership and people. This sort of company should have a lot of experience working with apartment owners, and has accompanied urban renewal projects in particular. It is a company that will provide you with personal service and accompaniment throughout the entire project - until you move into your new apartment and for many years thereafter.
No matter who you choose, we recommend that you do careful due diligence: Does the company have experience in urban renewal? Are they the developers and contractors as well? What is the company's financial record? Is the company being sued by customers or suppliers? How do its projects look after several years? And most importantly, what do its customers say?
Urban renewal projects are complex and lengthy, which raises the level of risk and requires of you caution, constant supervision and attention to the identity of the developer and the other partners whom he contracts to carry out the project - and to do so in the early stages.
Main risks you should be aware of and manage within the framework of the contract:
• Failure to meet deadlines - the project is not launched on time and/or will take longer than expected/promised.
• The developer fails to advance the project with the authorities.
• The developer will "roll" his obligations in the project to some other developer.
• When the developer is not the constructor in practice, there may be a conflict of interests between the developer and the contractor and/or a case in which no one takes responsibility, and each one "passes the ball" to the other.
• Construction standards lower than agreed upon.
• Developer/contractor cannot provide adequate service to tenants, if construction defects are discovered.
• A situation in which the developer/contractor collapses financially during the project and is unable to meet obligations or to carry out the project.
• Each project has its complexities - the average amount of time to carry out a "vacate-renovate" project is between 8-10 years, and a TAMA 38 (2) project is between 3-5 years. In order to get a more precise estimate, we recommend that you check with our consultant team.
• Tidhar pledges to promote the project and its approval with the relevant parties, from the moment 80% of the owners signed the agreement.
• The time required for signing up 80% of the owners depends on the owners themselves, the relationships within the building, the presence of those who object to the process, various interests involved, etc. The faster we obtain the signatures and consent, the sooner we can get started.
• Tidhar has proven that it is able to carry out complex urban renewal projects in record time, and will do anything to get the project rolling within the shortest time possible.