$520,000 for a Laundry Room in Tel Aviv? Judge Says No Way

The purchasers thought they were buying into an urban renewal project, but it turns out the sellers knew otherwise

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The building with the laundry room purchased by the buyers, August 7, 2019.
The building with the laundry room purchased by the buyers, August 7, 2019. Credit: Ofer Vaknin

When two buyers agreed to pay 1.8 million shekels ($520,000) for a nine-square-meter laundry room and another 55 square meters of adjacent rooftop two years ago, it just seemed like a case of Tel Aviv real estate madness on steroids.

But Tel Aviv District Court Judge Einat Ravid said it was a rip-off and in a ruling last week said the buyers were right in asking for their money back because the sellers hadn’t provided a vital piece of information, namely that the urban renewal approval they had promised the building would soon be getting was never going to happen because it wasn’t economically feasible.

The buyers – a man and his grandson—had been led to believe that the building in a high-demand part of Tel Aviv would soon qualify for the government’s Tama 38 program, which allows residents to add floors and apartments as long as they agree to incorporate earthquake-proofing.

The tax breaks and other incentives have made Tama 38 a very popular and widely used program, especially in the greater Tel Aviv area where land is in short supply and very expensive. Tama 38 is the sharp edge of a real estate mania – spurred by a decade of big increases in housing prices – that have seen land and neglected homes change hands at prices way beyond their assessed value.

“As a rule Tama 38 in high-demand areas help raise the value of homes because they really do increase the value of apartments by no small amount,” said Amit Nissim, an attorney with the firm Mintzer-Carmon-Nissim in Tel Aviv. “But in recent years things have reached the point that even talk around a building’s potential for urban renewal is enough to raise the prices of its apartments by a lot.”

In the case of the laundry room, the buyers thought they were getting a bargain because the room could become a 38-square-meter apartment under Tama 38.

The sellers, who claimed they weren’t liable because the contract never mentioned anything about Tama 38, knew that the building wouldn’t apply for the program. Dan Darin, an architect, told the court that the night before the contract was due to be signed, he informed the seller who had tried without success to advance a Tama 38 project at an adjacent building and that it wouldn’t succeed with their building, either.

The buyers, on the other hand, learned just a little too late. A day after they signed the contract and put down the first 270,000-shekel payment, they accidentally met a property developer who had been working on a nearby building who told them the odds of their building undertaking a Tama 38 project were poor.

The court was told by a property assessor that the laundry room and roof without Tama 38 improvements were worth 511,000 shekels. Even if the project had been undertaken, he estimated it was all worth no more than 1.3 million.

Ravid said home buyers were allowed to speculate on the future but sellers weren’t allowed to conceal facts. The buyers had done the usual due diligence around the transaction but lacked the “golden information” that the sellers had.

“This [sale price] wasn’t about a ‘hope for the future’ or due to ‘failed expectations” or ‘hope against hope,’ none of which are a contractual error as claimed by the defendants,” she said. “This was a clear concealment of important information held by the defendants and led them to sell the room without waiting for the Tama that would never come.”