Does Designating a Property Historical Enhance Its Worth?

Every city has (or should have) a town plan for historical buildings.  Tel Aviv, for example, has a list of about 1,600 buildings that have been declared historical buildings.

When a building is declared historical it means that in order to renovate it, strict rules and guidelines must be adhered to.  It may also mean that any extra building rights the building has may be allowed or refused, depending on the specifics of the building and the severity of the preservation rules.

The renovation and maintenance of an historical building is very expensive.  If the municipality decides that the building is not maintained as it should be, they can confiscate it so as to save the historical building from ruin. For owners of such buildings, or of apartments in such buildings, the very placement of their property on a list of historical buildings can be a hard economic blow.

In the past, owners of historical buildings were told that having their building placed on the list of historical buildings enhanced the worth of the property.  Municipalities maintained that the very placement of a property on this list gave it a certain trendy label.  This enhancement of the worth of the property would enable the municipality to collect betterment tax.  In the past some court decisions agreed with this and some did not.  In a recent decision made by the Deciding Appraiser concerning betterment tax for an historic building located on 17 Lilienblum Street the Tel Aviv Municipality was in for a surprise.

Firstly, let me explain about Lilienblum Street.  This street is part of the first neighborhood of Tel Aviv, called Achuzat Bayit, and built in 1909.  Its founding fathers were Akiva Arye Weiss and Meir Dizengoff, the first mayor of Tel Aviv.  This is indeed an important part of historical Tel Aviv and it is important to preserve it.

The building in question is a two storey building which is both residential and commercial.  It was built 90 years ago in the 1920s (well after the establishment of Achuzat Bayit).  The building was declared historical but without the very stringent rules of renovation reserved for certain historical buildings.

The owners asked to use the additional building rights allotted to the property in the form of the construction of some extra floors.  When the municipality came to calculate the betterment tax for the utilization of those building rights, it added on an extra 5% because the building was an historical building.

The municipality claimed that the mere fact that the building is historical gives the property a special “brand” which enhances its worth.  The case came before one of the Deciding Appraisers appointed nationally to decide such disputes.

The owners submitted their own appraiser’s report which established that the enhancement is due to certain attributes of the building that existed even before its inclusion on the list of historical buildings.

The municipality submitted a study that showed that the prices asked for by owners selling residential apartments in historical buildings are higher than those of regular buildings.

The Deciding Appraiser did not accept the municipality’s claim because the study dealt with the prices asked for by owners rather than the prices actually attained in those sales and also because the study only dealt with residential apartments and this particular building is mostly commercial.

In this case the property owner won out, which shows that you can fight city hall and sometimes win.

However, in my opinion the decision does not really change much since we do not know what the decision would have been had the property been only residential.  This whole case highlights a critical question when it comes to the preservation and maintenance of these buildings.

The question is this: Since conserving and maintaining historical buildings is expensive, and since this expense falls on the owners, and since it is in the national interest that these buildings be saved and maintained, should the municipalities be charging betterment tax at all for historical buildings?

The law allows property owners to submit a claim for damages against the municipality due to a change in the zoning laws that adversely affect the property.  This includes the declaration of a property as historical.  Should this be allowed?  If municipalities refrain from declaring properties historical for fear of this law suit will this not cause the destruction of many historical buildings?

It is about time that a compromise be reached between the need to conserve these buildings and the need to assist the property owners in doing this.