Forced to Have a Better Home

The biggest impediment to urban renewal projects is the refusal of recalcitrant tenants to sign with a developer. New laws are designed to force their hand for the good of their neighbors, but some call it extortion.

The concept of urban renewal sounds attractive enough: to tear down old, dilapidated buildings and replace them with spanking new ones. Yet all too many nearly derelict buildings slated for urban renewal squat there crumbling because of balky residents. The dwellers hold absolute power over the fate of potential urban renewal plans - or at least they did, until two ground-breaking court rulings weakened their clout.

The court has ruled that resisting urban renewal without reasonable cause is grounds for the neighbors to sue for damages, based on the value of the new apartment they're not getting.

The rulings are based on a 2006 law, "Hadayar Hasarban" - let us call it the Intractable Tenant act. Its purpose was to eliminate a frequent obstacle blocking urban renewal projects. The law gives frustrated tenants who want to replace their hovel tools to deal with neighbors who unreasonably refuse to sign an agreement with a contractor. It also offers a means of overcoming extortion attempts by recalcitrant neighbors - demands for filthy lucre in exchange for their acquiescence.

While the law was passed in 2006, only recently did the courts rule against intractable neighbors and order them to pay compensation. That is mainly because in most cases, when a lawsuit loomed, the balky residents signed on.

The two precedent-setting rulings in question were handed down by the Tel Aviv Magistrate's Court against recalcitrant homeowners in Neve Sharett. In one case three owners who had inherited an empty apartment were ordered to pay their neighbor NIS 860,000. In the second case, a woman - a single mother with a sick son, who lives on the ground floor of the same building - was ordered to pay the neighbors NIS 680,000.

In both cases the neighbors sued on the grounds that the balky owners were refusing to enter an urban renewal arrangement for no good reason, and were hurting the majority of the homeowners, who wanted do go ahead. The court showed leniency in adding that the balking tenants could change their minds and sign the agreement, and thus not pay compensation.

Stuck fast in Neve Sharett

Neve Sharett is an old, middle-class neighborhood of row houses. Various elements have been trying to push rehabilitation projects there for a decade. In 2002 the Housing Ministry earmarked several homes for renewal, with government support. In 2008 its declaration was extended by six years.

The part marked for urban renewal was divided into three areas, for development by three different contractors. Two are being handled by Afridar and Michalson, and construction is expected to begin shortly.

The third included 10 row houses with 154 tenants. After the ministry marked their homes for renewal, the tenants themselves got organized, hiring a lawyer, Yariv Gal, and architect, Gil Shenhav. Later they chose a contractor, and for six years the company Green Park, owned by Electra Real Estate, Direct Capital and SFS, has been promoting the plan to replace the row houses with six high-rises, 9 to 25 stories in height, with 430 apartments.

Out of the 154 tenants, 151 signed the agreement with Green Park, which would give them apartments that are 40 square meters bigger than their present ones on stories 1-8. The apartments will be allocated by lottery. They also get underground parking and a six-square-meter storage room.

During the construction period, Green Park agreed to give each family NIS 3,200 a month to cover rent. Green Park also undertook to provide bank guarantees for the value of the future apartments, plus a NIS 7.5 million guarantee that it would actually do the job, to be given to a representative of the tenants.

Yet three tenants refused to sign what could have been the best deal of their lives.

Gad and Shlomit sue

In one case, Gad and Shlomit Enoch, who live in an apartment on Rama Street, sued their neighbor Sarit Nevet for NIS 871,000 because she refused to sign.

Nevet explained that she was raising an unhealthy son by herself in a ground-floor apartment that suits her needs, and wants to keep her life on an even keel. "My apartment is the only thing I have and I'm not going to risk it," she told TheMarker. "I'm happy where I am today and don't want to go through upheavals with my son."

The Intractable Tenant act doesn't define what reasonable grounds for refusal are, but the court didn't find Nevet's argument persuasive. The builders say she was offered unlimited rental assistance because of her special situation. They offered to adapt the temporary apartment and the new permanent one to her needs, and offered to help her move.

Nevet refused on the grounds that she didn't want to move temporarily and then again in several years. The builders then offered to buy her a new apartment immediately, instead of the one she was supposed to receive in the project, but she refused.

Judge Oded Maor ruled that the developers had convinced him that they had tried sincerely to solve her problems. "But the defendant would not allow the facts to confuse her and maintained her unreasonable refusal," Maor wrote in his ruling, adding that her resistance was utterly pointless.

At this point Nevet can sign the agreement and the fine will be voided; the lawyer representing Gad and Shlomit says she is welcome to join the project. Nevet insists she will do no such thing and plans to appeal to the District Court. Green Park says the project will go on and predicts building permits will be issued in December.

"We have been working on this project for six years and have already invested NIS 6 million," reports Yaron Shamia of SGS. He notes that the government housing company Amidar owns 17 of the apartments in the old building, and it spent two years studying the terms of the agreement. It brought in assessors. "Could any doubt remain about the good sense of the project?" Shamia argues.

The developers have shown consideration for tenants in difficult circumstances by increasing their rental aid. "We have gotten 98% of the signatures we need. The project will happen," he vows.

Extortion sponsored by law?

The Intractable Tenant act recently was amended through the Economic Arrangements Law, in order to lower the proportion of tenants needed, to 67% from 80%, for an urban renewal project to proceed. This means it's harder to oppose the projects.

In 2008 the Knesset amended the law again: The developers must provide an immediate substitute home for disabled intractable tenants.

Doron Ariel, a lawyer who has represented both neighbors and developers against reluctant tenants, thinks the act is good, but it has replaced one evil with another. Yet again poor families without means may find themselves battling deep-pocketed developers in court: There is no balance of power between the parties.

"If the court is going to impose fines of NIS 700,000 and NIS 800,000 on balking tenants, will that solve the problem of urban renewal - or create extortion sponsored by law?" he presses.

He thinks a better solution would be to force the remainders to sign once there is a majority in favor, not to resort to courts and compensation mechanisms.

Sophia Eldor, manager of the city planning division at the Housing Ministry and chairwoman of the urban renewal committee, says she never met a person who really doesn't want a new home. What happens is that they want to squeeze out the most they can, which is human nature, she says. Refusal is always about the reward, in her experience.

Therefore, since the main obstacle holding back urban renewal projects is financial, and since developers have difficulty engendering trust among tenants, what's missing in the equation is a disinterested party, postulates Eldor. That party's job is to reassure the tenants that the deal is a good one. In the Economic Arrangements Law, the Housing Ministry introduced an amendment to the Urban Renewal Law, under which the ministry provides an assessor unaffiliated with the builder. The assessor's services would be available once 51% of the tenants want the project to proceed, says Eldor.

So how many urban renewal projects have proceeded under the Housing Ministry's wing? Two - one in Kfar Sava and one in Kiryat Ono. But there are 30 in stages of signing agreements with the developers, Eldor says.

"People have difficulty believing that it's happening. How often does a person hear he's going to get an apartment worth three or four times the one he owns now? But the more these projects get off the ground and people realize they're real, the more the public's confidence will grow," Eldor predicts. "Then even the intractable tenants will start to believe that it's a good deal."