The Ball Is in the Consumer's Court

Legal precedents are changing the rules in the real estate market, often in favor of homeowners and buyers.

The real estate market is defined not only by bricks and mortar, but also by the law. Planning, possession and the relations between the state and developers, or between landlords and tenants, are all a matter of legal definitions; not only supply, but court rulings, too, shape the housing market.

One striking instance was the landmark High Court of Justice ruling in 2001 in favor of the Keshet Hamizrahi Sephardi Democratic Rainbow movement. The court voided Israel Lands Administration decisions to allow kibbutzim and moshavim (two types of collective farming communities ) rezone and privatize land allocated to them by the state for agriculture. Keshet Hamizrahi claimed the ILA decisions were illegally biased in favor of predominantly Ashkenazi landowners, and discriminated against poor townspeople who owned no land and could not benefit from the decisions. The upshot was that kibbutzim and moshavim in central Israel couldn't expand. Some even claim this ruling has contributed to the sharp increase in housing prices in central Israel.

Ofer Vaknin

A narrower case that also reshaped the housing market involved the definition of holiday apartments versus ordinary residential ones, which changed the real estate market in the Herzliya marina and other projects. One with broader implications severely restricts the ability of homeowners whose properties border a project to receive compensation for value impairment.

Handed down during the last year were several rulings with the potential to change the face of the real estate market. TheMarker asked lawyers specializing in property cases to highlight the cases they feel matter the most. Two, like the Keshet Hamizrahi case, touch on land owned by kibbutzim and moshavim.

The first regulates the rights of kibbutz and moshav members to the homes in which they live, and also regulates commercial areas built on agricultural lands. The second enhances moshav rights over state-owned land, even if the moshav leases the land through a contract that needs periodic renewal, rather than through a long-term lease that "lasts generations" (specifically, 49 years with an option to extend a further 49 ).

The third key ruling our lawyers chose stopped the practice of contractors carrying out infrastructure works rather than pay the municipality to have the works done by another party (that ruling also bans contractors from making illegal payments to the local authority, even if the local authority and contractor agreed on the dodgy deal ).

The last ruling they chose is a hot-button consumer issue, protecting homebuyers from unfair clauses in standard contracts.

Moshavim get rights but can't use them, says expert

The ruling our lawyers chose is an expansion of the Keshet Hamizrahi ruling from 2001. This one discusses two decisions by the ILA: One regulated rights regarding homes built on land zoned for agriculture; the other regulated businesses built on agricultural land.

Members of kibbutzim and moshavim may register ownership of their homes if they pay 3.75% of the value of the land on which their homes sit, the court ruled. If they want to sell their homes, they have to pay 33% of the value of that land. The High Court of Justice confirmed these rulings.

The courts also approved of commercial ventures on agricultural land in moshavim - if the moshav residents own the business. They banned moshavim from leasing out agricultural land for commercial use.

The ruling makes moshav-dwelling homeowners more like regular homeowners, says Hagay Shabtay of Hagay Shabtay Shapiro Law Offices, which represented the Moshav Movement at the High Court.

Also, the ruling should help families riven by fighting over which sons should live on the property, by abolishing the old rule called "generational continuity." Under the old rule, only one child of each generation could have a home on the family allocation of land, which is typically between 20 to 50 dunams in size (the home usually occupies 2.5 dunams of that ).

For instance, the grandfather, son and one grandchild could each build a home on that land; but all other children, once ready to leave the parental nest, had to set down roots elsewhere, not in the moshav. Before the High Court of Justice abolished the law, and that source of family discord, only two homes and one appendix to one home could be built on that land.

However, some foresee yet more trouble. "It's a candy filled with poison, because in any case the residents built the houses, but now they have to pay to legalize the situation," says David Basson of Hartavy-Bornstein-Basson & Co. Law Offices. Following that ruling, the ILA has been sending out appraisers and has been issuing millions of shekels worth of payment claims, he adds.

Basson thinks moshav residents will avoid regulating their status for another reason too - one being that the ruling doesn't apply to all moshavim, just the ones where the residential plots are registered with the Land Registry. Basson suspects that about half the moshavim don't qualify.

Furthermore, for the ruling to apply, the moshav has to be free of debt to the ILA, and must have building permits for the housing. Moreover, illegally erected homes must be razed. In other words, legitimizing their status will cost your average moshav a mint.

The ruling also touches on commercial use of land zoned for farming; for instance, for stores and cafes. Moshav landowners may provide commercial services, the court said, but only if they run the businesses themselves. They can't lease out land for use by a commercial entity. In addition, the commercial building may not occupy more than 500 square meters of land, and the owner must pay the ILA 91% of the value of the land to regulate the activity.

"The moshavim and kibbutzim felt that the Keshet Hamizrahi ruling threw them to the dogs after all their hard work and contribution to the state," sums up Shabtay. "This High Court ruling eases the pain a little."

Who builds the pipelines?

The third major ruling the lawyers chose is the court's prohibition on municipalities allowing contractors to build infrastructure, rather than pay the city to have the infrastructure built. (This is pertinent for example when building new neighborhoods. ) Infrastructure in this context means roads, pipelines for water and sewage, street lighting, sidewalks, drainage and so on.

On the upside, the ruling does away with arbitrariness in the process, says Adi Moskovitz of Peleg, Cohen, Deutch and Moskovitz, experts on municipal taxes. On the downside, infrastructure should be built together with the new neighborhood; and since the ruling forbids contractors to take over the job to get it done, instead of paying the city, a vacuum can form as schedules for construction of the homes and construction of the infrastructure fail to coalesce in tandem.

Under the ruling, the cities have to issue tenders for the infrastructure works and the contractor can only pray he wins the tender, Moskovitz says.

Rights lasting generations

The High Court of Justice ruling in question addressed the case of Moshav Matzliah in central Israel, just south of Ramle. The National Roads Company (Maatz ) had expropriated 47 dunams of land to build Route 431 and offered a pittance in compensation, claiming the residents barely had any rights to the land they'd farmed roughly since the establishment of the state.

"The court accepted Moshav Matzliah's position that even though it had a rolling contract with the ILA [periodically renewed, not a lease lasting generations], it was entitled to compensation for the loss of land, like a long-term lessee would have received," explains Amir Chen, partner at the law offices of Fischer, Behar, Chen, Well and Orion.

Even though the residents' rights were inferior to those of long-term lessees, the court said, when it came to having the land seized, similar compensation was due.

Chen sees the significance of the ruling in granting a tenant with a renewable lease similar rights to those of a long-term lessee, which profoundly changes relations between the public and the ILA.

In practice, the ruling entitles hundreds of moshavim, where occupation is based on renewable leases, to compensation if their land is taken away, he drives home the point.

The Keshet Hamizrahi ruling found that moshav leases were short in term and deemed therefore that the farmers' rights to the land were very limited, Shabtay says. Now, the court has ruled that the rights do go beyond mere rent, which makes the land worth more.

Protecting the buyers from the contract

Moving onto the case of consumer protection: What happens when the seller or buyer of a domicile wants to back out of the deal? Or if delivery tarries? What is the developer's responsibility for construction done by subcontractors? And more.

The job of the tribunal for standard contracts is to judge the fairness of standard contracts and to make sure the buyer has negotiating power, spells out Daniel Haring of Steinmetz, Haring, Gurman & Co. advocates.

The tribunal for standard contracts is a district court. Appeals against its rulings are made to the Supreme Court.

In a case that went against Housing & Development, recalcitrant buyers got back money they'd been forced to deposit as a "seriousness deposit."

"The process of buying a dwelling is in two parts. In the first stage, a memorandum of understanding is signed," says Haring.

"The MoU is a contract for all intents and purposes, whether or not the buyer understands that. From the second it's signed, the clock is ticking on informing the Tax Authority about the deal," he continues. "But the construction companies invented another preliminary phase - the 'unilateral offer,' which the buyers have to sign. It is their offer to buy the dwelling for a certain price, and they're required to make a deposit to demonstrate their seriousness about the deal and to undertake to sign a binding contract."

However, since this document falls short of a MoU, no tax payments get involved. Be that as it may, if the buyers back out of the deal, the contractor keeps the deposit, which may be tens of thousands of shekels. Now, the court says that's wrong.

The court also ruled that the developer is responsible for the quality of work done by subcontractors. That spares the unhappy homebuyer from scurrying from court to court suing Yossi the exploding-tile man and Gil the substandard-sink installer.