Betterment Levy and Counter-Appraisal to Reduce the Payment

In this article, we will discuss one of the payments hidden in a property that could crash sales transactions. Since this is only an article, it cannot review the entire breadth of the topic and dive deep into it, but we will try to clarify the field, the calculation method, the definition of the liable party, the obligation to payment, reducing the liability for payment, and more.

A. Introduction:

Betterment is an increase in the value of the property.

When discussing a betterment levy, we must understand the types of betterments, as there may be betterment resulting from property renovation – improving the specifications, or improving the internal layout of the property that is not related to betterment resulting from planning activities in the vicinity of the property.

What is a betterment levy?

A betterment levy is a mandatory payment imposed by the local planning and building committee when the value of real estate increases as a result of an applicable planning event, as defined by law. Such events include the approval of a plan, the granting of a relief, or the permitting of a non-conforming use. The person liable is generally the property owner or the holder of a qualifying long-term lease, subject to the applicable statutory provisions.

For example – if a special use approval is granted at the owner's request, but the new use does not increase the property's value – there is no betterment levy!

At the basis of the justification for collecting a betterment levy sits the principle of social and economic justice: when the local planning and building committee approves a plan that increases the value of the property, the profit stems from a public action and not from the effort of the property owner. Therefore, it is fitting that part of this profit be returned to the public in order to finance infrastructure development and municipal services. Likewise, these funds continue to finance planning actions that further improve the city and in fact return to the resident.

A betterment levy is a levy that the authority collects upon the realization of the property's betterment (value increase) stemming, as mentioned, from a planning action (TABA, relief*, special use) and it is collected from whoever benefits from it – the owner.

The amount of the levy is 50% of the attributed betterment value.

*Note: The traditional building reliefs mechanism was gradually canceled within the framework of Amendment 134 to the Planning and Building Law.

B. Understanding the Betterment Levy :

To follow the steps that build the calculation of the betterment levy, we must ask several questions and collect information accordingly:

Who is liable for the betterment?

Liable for a betterment levy are the property owner or a long-term lessee.

The determining date for the betterment due to the approval of a plan is determined in section 119 of the Planning and Building Law, which stipulates that the commencement of an approved plan is at the end of 15 days from the date of publishing a notice in the records or in the newspaper concerning its approval, according to the date on which the last notice was published.

Meaning, whoever was the owner of the property on the day the plan was approved (15 days after its publication in the records/newspaper, whichever is later) is liable to pay the levy for that plan. From this day we begin to measure the value increase (hereinafter: "the starting point"), whereas if I purchased a property 16 days after its publication in the records / its publication in the newspaper, whichever is later – I am not liable for this plan!

When does the liability arise?

The liability is born on the day the plan is approved and it remains dormant until the day of realization. What is realization? The realization of betterment is either construction (obtaining a permit), or the sale of the property – in whose price all the benefits stemming from the planning actions in the property itself (building rights that were not realized) or around it (new parks, public transportation, other urban improvements, and so on) are embodied.

Until this day we will subsequently index the value increase (hereinafter: "the end point").

Note: There may be exemptions, reliefs, or transfers that defer the payment. Likewise, the plan may have been approved (for example: by providing more using-rights to the property), and there is liability of levy, but the betterment is valued at 0 – and then the levy is 0.

C. Understanding the Betterment Levy Calculation:

How is betterment measured?

A. Property components

First, we must break down the property into its various components and see who was affected by the planning actions – the balconies? The garden? The attic? The basement areas? The main area?

We must also check whether one area offset another or harmed its value? For example, adding a room on the ground floor may create a balcony for the first floor and also reduce a garden / parking area on the ground floor.

For each such component we must give the following 2 values:

• Square meter amount (quantity).

• Value according to coefficient (price).

B. Division of the ownership period

In most properties we will discover that from the day of their purchase until their sale, several plans were approved. In CA 4217/04 Tzion Pimizi v. The Local Committee for Planning and Building in Jerusalem, given on 22/10/2006, the proper way to calculate a betterment levy was determined - hereinafter: "Pimizi Ruling".

To measure a betterment levy according to the steps method, we must begin by dividing the ownership of the property by the owner into periods:

For each period we give a start and end day. The beginning of the calculation is on the purchase date until the approval of the first plan, the second period is from the approval of this plan until the approval of another plan, and so on until the day of the sale.

For each period we:

• Measure the value increase from the relevant plan (meaning how much a certain square meter is worth before and after its approval).

• Multiply the total meters by the total value increase accordingly.

• Calculate the levy from the total betterment.

• Indexation to the index until the day of realization.

And finally, we sum up all the levies after they were indexed to the index – and we get the real value for payment.

D. What happens after realization? After a payment liability arises?

According to the law, the payment date of the betterment levy according to section 9 of the Third Addendum, the levy must be paid no later than the date of realization of the right in the property. To the amount of the betterment levy regarding the sale of a property, legal interest and linkage differentials will be added until the actual payment date.

Note the difference:

Until the day of realization there is linkage to the index only in order to reach the adjusted, real value of the levy.

Afterward, from the day of realization a payment liability arises. Delay in payment will incur interest and linkage to the index will continue.

E. Is there anything to be done with the betterment levy?

Yes – it is possible to appeal the liability itself (since there are exempting cases, it can be argued that the betterment did not stem from planning actions, it is rare but there might have been a mistake in the identity of the liable party, etc.) or an appeal can be filed against the amount of the levy pursuant to section 14 of the Third Addendum to the Law, meaning – the liable party admits that there is betterment stemming from planning and that they are the party liable to pay the levy but appeals the amount of the betterment. This can be appealed before the Betterment Levy Appeals Committee within 45 days from the date of service of the appraisal.

The appraiser, in building a counter-appraisal, checks the validity of the rights - examines whether all rights charged with the levy can be fully realized, the probability of realizing those planning rights - whether they are conditional on the consent of a third party / whether there are physical limitations to their realization, whether the rights are outdated - what the age of the structure is, and more.

The value components - land value, the value of all the various property components throughout the different periods, renovation value, natural value increase of supply and demand, and so on.

The appraisal calculation – summing up the square meters, the coefficients used, diminishing marginal utility, calculation of indexations, and more.

F. Conclusions

Did you receive a betterment levy demand?

Do not rush to pay the amount stated in the demand before a professional examination. Calculating a betterment levy requires precise planning and legal analysis, and often a professional counter-appraisal can save significant amounts of money. Contact us soon – we have a limited timeframe to act.

Planning a "simple" real estate move?

Ask us for a betterment levy estimate in order to get an idea of your exposure. Professional knowledge before taking such a dramatic action may change the plan. Contact us before transferring rights or other realization.

Note, Even where an inheritance or a transfer of property in the context of divorce does not trigger a realization event, the potential betterment levy does not disappear. The liability may be deferred until a later realization event, and the levy exposure must be taken into account when dividing the assets. Before dividing properties, estimate their full economic value, including any latent betterment levy and other tax liabilities.

The office specializes in such appraisals for private clients and foreign residents seeking protection for their assets.

Important note:

The information contained in this article is general in nature and does not constitute professional advice, as mentioned before. Relying solely on this content may result in errors, and this material should not replace a comprehensive professional assessment.

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