TAMA 38 and urban renewal – the leading development engines in the real estate world in the present and in the foreseeable future.
TAMA 38 and urban renewal are the significant development engines of the real estate world in the coming years.
In March 2005, the Government of Israel decided on a plan to strengthen buildings against earthquakes and to encourage residents living in structures defined as dangerous to agree to undertake earthquake-resistant building renovation projects. The government decided to grant residents economic benefits in order to encourage them to implement the plan. In addition to the rights to build new apartments in the building and to add space to existing apartments, tenants also enjoy additional tax benefits.
TAMA 38 does not apply to buildings built after 1980 in accordance with the relevant standards for the durability of structures in case of earthquakes.
In the past, the Israeli Land Law determined that for the purpose of adding new housing units in a condominium, all the tenants had to agree to carry out the project. But since it was clear to the Knesset that the chances of obtaining a one-hundred percent agreement from the tenants were low, and also fearing difficulties in implementing the plan, an alternative solution was legislated: New apartments can be approved by sixty-six percent of apartment owners for TAMA 38/1 (reinforcement of an existing building and the addition of apartments) and eighty percent of apartment owners for TAMA 38/2 (demolition and reconstruction).
Urban renewal is a plan that was created as a solution to the problem of the shortage of urban areas for construction within the cities and the implementation of urban renewal policies. In areas declared as designated for urban renewal, old buildings are being demolished, and new neighborhoods with improved infrastructure are being rebuilt.
In areas designated as urban renewal, residents receive new apartments with a higher financial value than their old apartments, improved quality of life as a result of the development itself, and new infrastructure in the neighborhood, as well as various tax benefits. At the time of construction the tenants are entitled to alternative housing financed by the developer.
The preliminary conditions of an urban renewal project are the written consent of 80% of the owners of the apartments, receipt of the recognition of the local authority, and conditions allowing the construction of adequate parking for the occupants of the building.
Unlike the TAMA 38 plan, which deals one building exclusively and specifically, or a few adjacent buildings in a small-scale urban renewal project, urban renewal refers to a neighborhood, a street or one side of the street, and even larger areas.
Integration into an urban renewal project and/or a Tama 38 project may be a genuine gift for tenants, because the building infrastructure and resilience to earthquakes are strengthened, as well as upgrading and improving external visibility and renovation and quality improvement of the apartments to improve their market value and the tenants’ quality of life.
The initial and often the key difficulty in a TAMA 38 project is the agreement between all the apartment owners in the building and the intended contractor, most commonly via an arduous negotiation process and the drafting of a complex contract that includes many clauses relating to a range of possible adverse events.
Among other economic and legal considerations, a large number of issues must be carefully examined and dealt with in order to secure the tenants’ rights and the success of a TAMA 38 deal. The following are examples of a number of key issues that must be properly tailored to specific deals:
Securities and Guarantees – The contractor undertakes a great economic commitment to finance construction costs, taxation, fees and levies, engineering and architectural support, guarantees of tenants’ interests at the time of construction according to the agreement, and much more. It is important to ensure and include in the agreement the existence of securitizations and financial guarantees for the full implementation of the work as required.
Quality of life during the renovation – The contractor receives a full mandate to convert the building into a renovation construction site. Disruptions such as disconnection of the gas supply are necessary for safety purposes, and other disruptions such as power cuts, water stoppages, and telecommunication disconnections may very well occur. It is important to define the alternative options that the contractor must provide to the tenants during such periods, from implementing an electric stove system or alternative water heating system to alternative housing solutions, taking into account quality of life issues and duration of such disruptions.
Compensation – The consideration received for apartment owners from such projects is a material improvement of the property, but this may differ significantly from structure to structure, according to the pre- and post-project condition of the building and infrastructure as well as the terms of the agreement signed between the parties. The addition of a security room, balconies, and parking are some of the possible additions, given the importance of maintaining the uniformity of the benefits provided to the tenants for approval of the project, as well as fully setting forth in the contract the details of the consideration and the plans for its implementation.
Timetable – For all the advantages of the project, living in the heart of a construction site or the need for relocation to temporary alternative housing are a price that brings with it a level of inconvenience, in exchange for gaining an apartment and a building structure that is enhanced in quality and value. At the same time, it is important to set timetables not only for the ultimate completion of the entire project but also for the various stages of the work.
Tenants need professional to supervise the work on their behalf, such as a construction supervisor, land assessor, certified surveyor, insurance consultant, etc., who will verify the full fulfillment of the developer’s obligations.
Real Estate Taxation – Receipt of the required exemptions and/or imposition of optimal taxation structures on the parties and their projects.
Real Estate Deals – What is the Attorney’s Role?
Tama 38 and urban renewal projects are multifaceted and complex real estate transactions, in which tenants sell the building rights to a developer working with the various professionals. These transactions consist of several contracts with various entities, real estate deals with high potential for profits, along with many risks and potential for devastating losses.
The contracts in these transactions consist of a large number of items. It is necessary to formulate professionally the details of the contact between the tenants and the contractor or the developer, to specify exactly the improvements received by the tenants as well as their monetary value, to set conditions for the validity of the agreement and a mechanism to monitor any deviation from the plans, to ensure appropriate financial guarantees of the contractor, in order to guard against any adverse events that can occur during construction, endangering the assets and impairing the success of the deals.
A professional lawyer from our firm will counsel the apartment owners in the aforementioned deals, from the submission of a building permit on through to the completion of the deal, define the timetables for execution of the deal all of its phases, determine a compensation mechanism in case of exceeding the timetable, and much more.
Our firm has gained extensive experience in the field of real estate law, and we shall endeavor to implement any real estate deal to the full satisfaction of the parties.