For Renters, the Israeli Housing Market Is a Legal Jungle

Israel’s rental law is more than 40 years old and does little to regulate the landlord-tenant relationship. Legislation aims to change that, but don’t expect any change soon.

Assaf Evron

Last November, Natalie signed a contract to rent an apartment in Tiberias. But after she moved in, she discovered major problems including water damage on the ceiling, a leaking sink and no hot water. The problems were so unbearable that when it rained, she was forced to live with a friend.

Natalie contacted the landlord many times. At first he promised to send repairmen, but they never arrived, and he started hanging up every time Natalie called. She had no choice but to file suit in small claims court.

In court, the landlord argued that Natalie knew she was getting “a simple apartment that hadn’t been invested in” in exchange for modest rent. But this didn’t convince Judge Mohannad Halaily, who’s familiar with such cases.

Halaily seized the moment to emphasize landlords’ obligations, “particularly given the cyclical problem regarding rental apartments: The landlord doesn’t want to fix problems that don’t affect him, but the renter doesn’t want to make repairs that will benefit others as well. So over the years, an apartment deteriorates.”

Halaily said that in such cases, the landlord should make the repairs, but it’s hard to enforce — so in this case he ordered the landlord to pay the tenant 5,000 shekels ($1,275) in compensation.

Natalie’s experience isn’t unique. The Central Bureau of Statistics says some 27% of Israeli households live in rentals. But renters face an unregulated market characterized by uncertainty, sharp and unpredictable price increases, short-term contracts that can expire with little notice, conflicts with landlords and old and neglected apartments that no one has an incentive to renovate.

Moti Milrod

Tenants on top (sometimes)

It’s customary to assume that the weaker party in the landlord-tenant relationship is the tenant, but landlords also find themselves in unpleasant situations that can end in court.

Take the case of Michael and Galit, who rented out their Jerusalem apartment in 2008. It all went smoothly for six years until the tenants informed them they planned to move out.

The contract stated that the tenants were to return the apartment empty, clean and freshly painted, but after the tenants left, Michael and Galit found serious damage. Some of the window blinds were broken, several outlets had been pulled out of the wall, the yard had been neglected and the apartment hadn’t been painted.

The tenants ignored Michael and Galit’s request for compensation, so the couple filed a claim in the Jerusalem Magistrate’s Court. There the tenants argued they had returned the apartment in the condition they received it.

They added that some damage remained because the landlords had ignored their request to fix water damage they were contractually obligated to repair, and that other claimed damage had been made up by the landlords, who were trying to renovate the property at the tenants’ expense.

Ultimately, Judge Sigal Albo accepted the landlords’ claim in part and ruled that the tenants had to pay them 6,300 shekels for plastering, cleaning and repairing damage they had caused.

Disputes between landlords and tenants often end up in court because the market is a legal jungle. A 2011 report by the Organization for Economic Cooperation and Development ranked Israel second to last on two indexes measuring rental-market regulations — oversight over prices and the landlord-tenant relationship.

In Sweden, one of the most tightly regulated markets, about half the rental market was controlled by municipal housing companies. There, the government set a ceiling for rents. There were no rules over how much rent could rise during the contract period, but there was a maximum rent and it couldn’t be increased more than once a year.

In Sweden, rents owned by both private-sector or municipal landlords are set through negotiations with tenant unions. The renter has to give a month’s notice to end the contract, while the landlord has to give three months’ notice.

Attorney Yael Taeib, working for the Knesset Legal Department found, that many countries set rules in the private rental market. Even in New York City, which has some of the highest rental prices in the world, rents and the tenant-landlord relationship are regulated in an attempt to maintain affordable housing.

The city regulates the market two ways. The first is rent control, which sets a maximum rent at the beginning of a contract, a limit on how and when a tenant may be evicted, and a definition of services a landlord is required to provide. The rules apply to tenants who have been living in their home continuously since 1971, in a building put up before 1947.

The second system, rent stabilization, applies to most renters in the Big Apple. It sets limits on how much rent can increase during a tenant’s stay in an apartment, and after the tenant departs. A landlord can charge a new tenant no more than the old tenant was paying before moving out, plus a fixed increase.

And in Israel? The housing crisis was the main impetus for the cost-of-living protests in the summer 2011 after an evicted Daphni Leef pitched a tent on Tel Aviv’s Rothschild Boulevard. That protest, and the massive rallies it inspired, prompted the government to take steps to solve the housing crisis.

From 2007 to 2011, rents increased by 32%, according to a study by the Trajtenberg committee that was charged after the protests with drawing up economic-reform plans.

Four years later, it seems nothing has changed. The market is as unregulated as ever, and rents continue to increase at a dizzying pace. For the past two years, Leef has led a group of activists seeking to regulate the rental market. Her group, the Renters’ Committee, drafted a charter listing the most pressing topics for 10,000 renters who voted on online.

“Our charter is the basis for our demands as renters from the government (in terms of legislation), landlords, real estate agents and from ourselves,” the group says. “At this time, when more and more people are unable to save to buy a home, renting is our only option. Already 2 million Israelis live in rentals, so this is the time to start regulating the market, as housing is a basic human need.”

Hard for both sides

MK Stav Shaffir (Zionist Union), who was also a leader of the 2011 protests, submitted legislation for fair rental housing her first year in parliament together with MK Hilik Bar (Zionist Union) and Orly Levi-Abekasis (Yisrael Beiteinu).

“The rental market is a jungle. It’s hard to call it a free market when it’s so messy, chaotic and lawless. It’s hard for both sides to live with it,” says Shaffir. “The number of families [with adults] under 40 who rent is on a crazy increase. The dramatic increase in housing prices has made it harder for them to save to buy an apartment.”

The law governing Israel’s rental market dates from 1971 and doesn’t meet the realities of 2015. Several attempts have been made to push legislation on the matter over the past few years.

Noam Bar Levy, who heads Tel Aviv’s fair rental housing project, has also heard lots of complaints about the system. When the city’s youth division launched a hotline to offer advice to renters a year ago, it received 350 requests for help in the first month alone. The hotline aims to offer initial legal advice to renters, who are often at a disadvantage vis-a-vis landlords, says Bar Levy.

Shaffir isn’t the only one trying to intervene in Israel’s rental market. Following in her footsteps, former Finance Minister Yair Lapid and former Justice Minister Tzipi Livni drafted a government bill designed to formalize the tenant-landlord relationship and give tenants more clout. An interministerial committee led by Deputy Attorney General Erez Kaminitz was formed to examine the matter, and in July the Ministerial Committee for Legislation approved Shaffir’s bill.

The current version of the bill aims to stabilize rental prices through transparency and tax incentives. Landlords who don’t increase rents for three years will receive a 5,000-shekel tax benefit. The bill calls for a national registry that would contain all rental contracts, making rents and other terms public knowledge. The registry would enable tenants to view prior contracts on their apartment and neighboring homes.

The bill also lists conditions that a rental property has to meet and what repairs a landlord has to make and how quickly. It also limits the collateral a landlord can demand.

The bill is up for an initial vote in the Knesset after the High Holy Days, alongside a government bill on the matter. Will it pass and be effective?

The pace at which the legislation is proceeding doesn’t suggest the government sees this as an urgent matter. Meanwhile, setting up the enforcement mechanisms will take time, so it’s hard to say that change is going to come in the next few years.