Latest Legislative Amendments to Promote Pinui-Binui Projects

As a result of skyrocketing housing prices in Israel, a number of major legislative amendments are being enacted to regulate pinui-binui (vacate-and-build) projects. The legislature announced that the purpose of these amendments is to increase the supply of apartments in response to the housing storage, and to strengthen developers and encourage them to sponsor new pinui-binui projects in order to spur renewed growth in residential construction. Urban renewal projects are particularly important, since they are mostly in high-demand areas in central Israel, where nearly no vacant land remains available for construction. The aim of the new laws is to resolve several key problems hindering the execution of projects of this type.

Recalcitrant Tenants

One of the factors causing delays in pinui-binui projects is recalcitrant tenants. These are tenants who refuse to sign the contract and thus hold up the entire project. The Knesset enacted the Vacate and Build (Compensation) Law in 2006 to contend with this phenomenon. However, it failed to regulate instances when the majority of tenants agree to sign an agreement, but one tenant refuses for unreasonable reasons.

According to the law, a “recalcitrant tenant” is a tenant who unreasonably refuses to sign the pinui-binui transaction, or demands compensation and has unreasonable demands that differ from his neighbors in the building.

The law does not define what an “unreasonable refusal” is. Instead, it lists instances when the court will not consider a refusal unreasonable:

• The pinui-binui transaction is not financially profitable.
• The apartment owner did not receive alternative housing during the construction period.
• The entrepreneur did not offer the apartment owner adequate collateral for the transaction.
• The apartment owner’s refusal is due to specific personal circumstances.
• The apartment owner/a family member residing with him is disabled and the alternative housing offered is unsuitable for a disabled person.

In the legislative amendment, the court added a series of possible measures against such a tenant. These range from imposing a tort liability toward the rest of the apartment owners who agree to the transaction, to approving the transaction on behalf of the recalcitrant apartment owner.

Privileged Majority

In late 2021, the Knesset enacted another major amendment to the law, in order to facilitate pinui-binui projects even when some of the tenants object. This time, the amendment focused on defining the privileged majority among the apartment owners. According to the amendment, a “majority” is about two-thirds (rather than about four-fifths). The amendment also eliminated linkage of that majority to “at least three-quarters of the common property.”

The new amendment includes a clause whereby any apartment owners who committed building violations will not be counted among the requisite number of tenants constituting a majority. Furthermore, a person owning several apartments will have more power for the purpose of reaching the requisite majority.

The significance of all this is lowering the requisite majority in order to significantly advance pinui-binui projects, in a way that makes it easier to file lawsuits against recalcitrant tenants.

Forward-Looking Legislation – Promoting Pinui-Binui Projects in Neighborhoods of Detached Houses

One interesting proposal in the draft amendment to the Economic Arrangements Law hints at another future optional expansion of said trend. This proposal promotes pinui-binui projects in neighborhoods comprised of detached houses and in moshavim (cooperative agricultural communities) in central Israel. This would mean, inter alia, that pursuant to the Vacate and Build Law, it will also be possible to file lawsuits against recalcitrant owners of detached houses. in projects of this type, and not only against tenants in condominium buildings. The ultimate goal of such proposals is to promote high-density construction with an emphasis on optimal utilization of all available area.

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The Real Estate department at Barnea Jaffa Lande Law Offices is at your service for any questions on urban renewal and other real estate topics.

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