The residential sections of agricultural settlements are to be considered urban land, according to a precedent-setting ruling by Judge Ruth Ronnen of the Tel Aviv District Court.

The new principle came in a case presented by local authorities to force the Israel Lands Administration (ILA) to pay them at a rate equal to that paid to cities when land is rezoned. The money involved is similar to the Betterment Taxes paid in urban areas.

For years the ILA has been paying local authorities a fee of 10 percent of the Betterment Tax it collects when it rezones property, for example from agricultural land to residential or industrial land. However, other property owners, such as developers who own land that has been rezoned, have been paying 50 percent of the tax value, unlike the ILA.

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Judge Ronnen determined in her opinion that land intended for residential use - even if it is part of an agricultural settlement such as a kibbutz or moshav - is still urban property because the test for land use is the actual use of the land.

She also decided that if there are two parts to the property, one used for housing and the other for farming or other productive use, they should be viewed separately and differently for Betterment Tax purposes.

The 100-page decision orders the ILA to pay the full tax rate to the local authority - since the ILA is no different than other developers or owners for the purpose of rezoning and development.

One of the major effects of the ruling will be on the Kibbutz Movements' planned petition to the High Court of Justice over the equalization of long-term leasing fees by the ILA between the kibbutzim and the urban municipalities.

The kibbutzim have been required to pay nine times the price that urban-dwellers have been required - 33 percent of the land's value compared to 3.75 percent for city residents for registering property in the Land Registry.