There has been a heated debate in the past few years in Tel Aviv between the municipality and owners of buildings that were declared historical. On the surface the debate is about whether or not the value of buildings that were declared historical has been increased by the mere fact of that declaration.
The real, underlying battle is all about money.
On one hand, the municipality can charge betterment tax if the property’s worth has increased and on the other hand the property owners may be entitled to compensation under the law if the declaration of their property as historical has adversely affected its worth.
According to the law, if a change in the zoning law enhances the worth of a property then the owner of the property will incur “betterment tax.” This tax is paid when the owner asks for a building permit allowing him to utilize the extra building rights afforded to him under the new zoning regulations, or when he sells the property in the event he didn’t use the extra rights. The betterment tax is roughly 50% of the worth of the enhancement. So yes we are talking about a lot of money.
The Tel Aviv Municipality claims that by declaring a building historical its value is enhanced because historical buildings enjoy a particular positioning which enhances their value.
The owners claim that any renovations are very expensive and they cannot use the building rights that are attached to the building to enlarge the building. According to the municipality, those unused building rights can be sold to the owner of another building in the city. The owners claim that although they can indeed sell the building rights, the money received only covers the cost of the expensive renovation demanded by the zoning laws for historical buildings. The debate goes on and on.
If the municipality loses this battle, not only would they not collect any money in betterment tax, but owners of historical buildings everywhere, not only in Tel Aviv, would be able to sue their municipalities for damages incurred as a result of their properties having been declared historical.
The date by which owners of properties that were declared historical in Tel Aviv needed to have submitted claims for such damages has passed. So far about 350 such claims have been submitted against the Tel Aviv local planning council and 300 of those have been rejected. This has sparked a series of opposing decisions by various appraisers whose task it was to decide this question, and consequently, a series of opposing court decisions.
In an effort to prove its case, the Tel Aviv municipality has recently purchased the building rights of nine historical buildings in order to promote the preservation plan of those buildings.
There have been some cases where the sale of building rights provided a large influx of cash, aiding in the funding of the preservation of those buildings and proving profitable for the construction company which was then able to build additional floors on their buildings.
It would seem to me that both sides have some justification to their claims. It would be wise to form a committee that would research this matter and propose a solution that would both encourage preservation plans nationwide and be fair to property owners at the same time.