From Malls to Purchase Tax: The 10 Most Important Judgments of the Year in Real Estate

Towards the end of 2019, real estate lawyers selected the top ten most important tax rulings and tax decisions over the past year, which will have the biggest impact on sellers, buyers and landowners in Israel sum up 2019

1. Mall as a real estate union

Adv. Meir Mizrahi

74/15 Director of Real Estate Taxation Rehovot N. Melisron, Gazit Globe et al

■ Background: One of the important issues in real estate taxation is the question of whether a company is a "real estate association". Classification that has advantages (liquidation exemption) and disadvantages (purchase tax payable to those who buy shares of the company). This issue has been examined in many judgments and has recently been discussed in the Supreme Court. The question that arose was whether a company operating a mall that owned it would go out of the definition of a real estate association, so whoever buys the company's shares would not be charged with purchase tax.

■ Decision: The Supreme Court has determined that a mall will be classified as a real estate association The only test relevant to the classification of a real estate association is the test of the assets held by the companies, and no further tests such as the business activity test should be used.

■ Importance: The issue of real estate union classification has been clarified by the Supreme Court and the emphasis is on the property test. The judgment states that goodwill is a form of property. However, as far as shopping centers are concerned, the reputation is not an independent asset, but one that is swallowed up in real estate, like the entire rental business. In the end, it was held that even if the claim could be made that there could be a separate property of a shopping center reputation, then there was a very heavy burden of proof on the claimant, which in this case the companies did not meet.

The Supreme Court ruled that in the circumstances of the case, companies holding shopping centers should be regarded as "real estate union". Only an association that holds real assets that are not assimilated to the land itself, and these assets are not neutral and do not treat for the purposes of the union, can be considered a non-real estate association.

We note that the judgment also stated a number of important incidental statements regarding other types of assets such as hotels and nursing homes.

The author of the Meir Mizrahi & Co. office, active in the field of taxation, represented companies in earlier discussions on this matter.
2. The inclusion of VAT in calculating the improvement levy

Attorney Sharon Petel

Bram 1621/18 Etabondment Samond v. Local Sharon Planning and Building Committee

■ Background: The improvement levy is a mandatory payment of 50% of the increase in the value of the land that occurred due to a planning event, such as a plan approval. If we include in the calculation of the value of the land the VAT component, both in the value before and during the promising planning event, then we will also increase the improvement levy in the VAT rate.

■ Decision: The Supreme Court ruled that in order to include the VAT component, it must first decide which "market" belongs to the real estate property - whether a market for private purchasers or dealers, or a mixed market for private and dealers.
When it comes to the market for private purchasers, the VAT component must be included, as a private buyer sees before his eyes the price of the property as VAT; When it comes to the dealers market, the VAT component should not be included, as the "dealer" offsets the VAT and therefore the price in his eyes does not include VAT; and when it comes to the "mixed" market, as a general rule, the VAT component should not be included, except in cases Exceptions, which are affected by the asset data - its value, physical size and realization complexity.

■ Importance: Until this decision, conflicting judgments were rendered by the courts and various decisions were made by crucial appraisers and appeals committees.

The writer is a partner in Herzog Attorney's Office, Fox, a trustee
3. Appreciation layout - only for individuals and not for companies

Adv. Ami Ben Jacob

CA 3012/18 Haifa Land Taxation Manager v. Twenty Hundred Nahariya Ltd. et al

■ Background: Under the Real Estate Taxation Law, a tax is paid when the real estate property is realized on the consideration (i.e., the profit) that the seller has in the course of a sale transaction. As such, tax is paid as part of the seller's annual income, and we were part of the total income accrued to the taxpayer in the tax year (January-December) in which the sale transaction was made. The tax levy is calculated on real appreciation, which means that part of the praise goes beyond the increase in value that comes from inflation.

A real estate seller can deploy real appreciation over a period not exceeding four years of taxation or a property ownership period, whichever is shorter. Such a layout allows the seller to attach the praise in equal annual portions to each of the years of deployment, and pay the tax in sections that correspond to the tax rates that apply to him each year and year, rather than imposing the entire praise on the tax year in which he sold the property. This option is of course particularly applicable to those sellers whose other income in the low-tax years, such as citizens in pensions.
The question that came up in the debate is whether the right to deploy real praise is given only to a single taxpayer, or to society as well.

■ The decision: The court unanimously ruled that eligibility for the deployment of real praise is only for individual taxpayers and not companies.

■ Importance: The verdict is substantial because the court chooses to take a more narrow interpretation of a linguistic term that is seemingly unequivocal and clear - "recognized."

It is not disputed that since corporate tax rates are not ranked, the significance, and as a result, the possibility of using the right of deployment, is applicable in most cases to individuals in the flesh and blood. However, certainly when dealing with taxation laws, it is desirable and worthwhile to ensure the stability of the tax regime when a company plans its steps and considerations when it comes to making a real estate transaction. Although the Court emphasizes the legal principle that tax laws are also intended to create a stable and clear tax regime as much as possible, but as can be seen - the end result deviates from this principle.

It would be interesting to see the tax authorities' position in the event of the realization of a property by a home or family business where the income is attributed to the shareholders who are of course flesh and blood, a matter the court chose not to enter and left it for future reference.

The writer from the law firm Ami Ben Yaakov
4. Transfer of rights to carry out an urban renewal project - no purchase tax

Attorney Sagiv Ron

OU 60313-05-17 Ayoga Ltd. v. Land Taxation Center Manager

■ Background: The dispute that arose was whether a partnership, and its companies, which signed a 38-year TMA agreement with tenants constituted a "real estate association" within the meaning of the Real Estate Taxation Law and, as a result, whether a transaction to purchase its shares was subject to purchase tax.

■ Decision: The Appeals Committee held that, in the present case, the preconditions stipulated in the TAMA 38 agreement on the date of sale of the shares did not exist, the partnership did not hold a "real estate right" within the meaning of the law, and therefore the company that sold the shares and held the partnership did not hold either. As such, the Company does not constitute a 'real estate association' and the transfer of its shares is not subject to purchase tax.

■ Importance: According to the judgment, as long as the conditions that do not exist in the municipal renewal agreement did not exist, municipal renewal agreements should not be regarded as agreements that give the entrepreneur "rights in real estate" in accordance with the Real Estate Taxation Law, and therefore do not tax these sales rights under the Real Estate Taxation Law. It has recently become clear that land taxation authorities do not intend to appeal to the Supreme Court for the ruling.

The writer is a partner in the Benimini & Co. office specializing in real estate taxation
5. A warning note is not always safe for urban renewal deals

Attorney Elder Adato

Para 14785-05-18 Ben Menachem et al. V. Sapir Luxury Residential Projects Ltd. et al.

■ Background: With a view to securing home buyers 'investments in new projects, the Sales Law - Securing Home Buyers' Investments - stipulates that one of the sureties is the registration of a buyer's warning note. In the project in question, several new apartments were sold to private buyers, and warning notes were registered in favor of the buyers. The company later went into difficulties and was appointed a special manager. The special manager tried to contract with six different entrepreneurs to get in the shoes of the company and finish the project. All the developers contacted the manager to deny any possibility of purchasing the project, subject to the sales agreements and the warning notes, and even refused to be bound in any way by the company's commitment to the purchasers.

In view of the foregoing, the Special Manager filed a motion with the court to revoke the warning notes recorded on behalf of the purchasers.

■ The decision: The court acceded to the special manager's request, stating that in this case there is no alternative and that this is the only way to extract the project from its current state. The court also ordered the deletion of the warning notes, defining them as "onerous assets". The verdict means that, in this case, the buyer has not remained safe.

■ Importance: The judgment has far-reaching implications in light of the fact that a warning is one of the safest means of securing purchasers' money under the Sales Law. The court's decision leads to a slippery slope, where new home buyers will refuse to receive a warning note as a safe-to-purchase home, which depletes the law. Against this ruling, an appeal was filed with the Supreme Court by two purchasers of the new apartments in the project. For this appeal, the Bar Association requested to join.

The author is a partner and head of the real estate department at Barna Attorney's Office, Jaffa, Lande
6. Extensive authority for the Land Inspector

Adv. Amit Nissim

Yael Antebi Sharon File No. 5/583/2017

■ Background: Echo City promoted a 38/1 TAMA project in Bnei Moshe Street 9-17 in Tel Aviv. 21 out of 22 condominium owners signed the contract with the company, while one tenant refused the project, claiming, among other things, that certain parts They were removed from the common property, for parking purposes and for gardening purposes, not for the purpose of building and strengthening by virtue of the 38/1 TAMA, and therefore 100% of the owners' consent is required.

■ Resolution: The Land Commissioner has the power to approve agreements, as long as they are signed in good faith, fairness and equality. It also stated that parts of the common property could also be taken out in the absence of a majority's consent and for the promotion of the TAMA project. In addition, the Supervisor stated that there was no impediment to reaching individual agreements with the landlords, provided that they were approved by the majority of owners and meet the equality and balance test.

■ Importance: In principle, the superintendent of land registration sharpens the subject of confessions and makes it clear that it is not for its function to examine the issue of equality among the landlords and to formulate new arrangements for them, as long as the vast majority approved and insofar as the agreement does not significantly exceed the level of reasonableness. On the practical level, for the first time, the possibility of attaching to some of the existing apartments, as opposed to the new, courtyard areas was recognized. As a result, the owners of the apartments and entrepreneurs who can give required changes in the 38/1 TAMA projects, such as a yard that will be attached to land apartments that do not enjoy, for example, the elevator. The developers also benefit from the rape, as it gives certainty, which is so lacking in the field, that individual agreements To be signed with apartment owners will not stand up to them.

The writer is a partner in the office of Mintzer, Carmon, Nissim
7. Landowners who were previously expropriated will not receive compensation from the Chief of Staff
Attorney Yossi Guy Moral

P. 8717/17

■ Background: Landowners in the Lower Galilee appealed the expropriation compensation that RPM had set for them in the 1970s and had not yet paid them compensation. They sought, in addition to the basic compensation agreed by the state, the supplementary compensation in the form of lease payments for the period between expropriation and payment. The district court accepted the recommendation of a decisive appraiser who, in the conventional way, recommended that the compensation be based on the value of the land at the time of its expropriation, adding a 6% annual return to approach the compensation that allows the landlords to purchase alternative land. Similar.

■ The decision: The Supreme Court overturned the district's ruling and ruled that compensation for agricultural land expropriated many years ago would be determined in accordance with its market value for rent. Judge Alex Stein also ruled that the plaintiffs "must prove the profit the state earned from using the land before paying them compensation or alternatively the rents they could actually earn from renting the land."

■ Meaning: This is bad news for farmers and agricultural settlements whose lands have long been confiscated and will probably remain without compensation. The judge states exclusivity for the comparison approach, but since there are almost no such rental deals - it will be difficult to determine the value. ¿
The writer from the law firm Joseph Guy Mori
8. Another blow to the rights of moshavim and kibbutzim in the state lands

Adv. Gad Stillman

18/436 Kibbutz Heftsiba et al. V. Existing Fund for Israel et al.

■ Background: Following the "Eastern Rainbow" ruling, the Israel Lands Authority (REMI) determined that, with the purpose of changing the designation of agricultural land to another designation, the agricultural lessee must immediately return the land to the state against compensation at a rate that reflects the loss of the right to agricultural use only. As a result, for almost two decades, the moshavim and kibbutzim have been freezing any self-initiative for a change of purpose and even strongly opposed the initiative of institutional entities.

However, in the "Eastern Rainbow" ruling, Honorable Judge Theodore Orr left open kibbutzim and long-standing seats stating that the judgment was not to block the way those who took part in its purchase and invested money in its promise to submit individual claims to prove their right.

■ The decision: The Supreme Court ruled that no privileges could be claimed for investments made decades ago. Justice Grosskopf explained that rights that justify the recognition of seats and kibbutzim must be extremely unusual and not "generic" arguments such as land investment arguments, land conservation or discrimination in favor of the agricultural sector's preferred sector when zoning changes. The Supreme Court's method, moral considerations and historical considerations have no legal weight to justify deviation from the general norms set by the Chief of Staff.

■ Meaning: The Supreme Court's ruling, in effect, dropped the ground under numerous pending lawsuits in district courts based on identical arguments. It seems clear that the ruling will continue the vigorous opposition of the moshavim and kibbutzim to the zoning of their agricultural land.

The writer from the office of Gad Stillman
9. Financial compensation for breach of positive transaction transactions in real estate transactions

Adv. Galit who created

CA 8389/17 Daniel Alex v. Lexel

■ Background: A party to an agreement to sell real estate, which undertook an effort to act to change the planning status of the land, but the change was not approved at the planning institution.

■ The decision: The Supreme Court delayed financial compensation for breach of contract and determined with a majority opinion that the interrogation charge was violated in light of the fact that the condition stipulated in the agreement - approval of the change plan - did not exist. The hearing was returned to the trial court to determine the amount of compensation to the appellant for breach of the interrogation charge.

■ Importance: Contractual lobbying charges are not frequently discussed in the Supreme Court, in which case the Supreme is required to emphasize two aspects that distinguish the present case from other similar cases. One, within the category of "billing charge", different levels of responsibility can be identified and in this regard the responsibility that the respondent undertook was highest ("take all the necessary steps", as opposed to "act reasonably"). The second, because the breach charge was not due to lack of skill, carelessness or neglect, but because the respondent decided to abandon the contractual charge and its efforts in the face of a government ministry position that would not support the change in planning requested.

The writer is a partner in the law firm Amit Pollak Matalon
10. A company will pay compensation to an Arab customer who refused to sell him an apartment

Adv. Avraham Eberman and Assaf World

RA 1011/17 Water Engineering and Services Ltd. v. Khalid Salman

■ Background: Couples of Arab descent contact Mi-Tal Engineering to purchase an apartment, and during a telephone conversation with the company's representative, they were told that the company did not sell apartments to Arabs. The composition judges, Judges Mazuz, Stein and Handel, were divided on whether the company's position constitutes an offense against the prohibition of discrimination prescribed by law.

■ The decision: Judge Stein held that this law does not apply to apartments and real estate as they are not a "product" for the purposes of the law. However, he did not ignore the severity of the case, in his words: "Rare are the cases, like the case before us, where discrimination was viewed in its full ugliness without it being disguised by one or the other."

The result was that the company must be compensated with a compensation payment, came Stein, to which Justice Handel joined, by virtue of a principle that the principle of equality continues to apply to the contracting company, which should be regarded as the state's "long hand" when it comes to marketing the apartments.

■ Importance: The Supreme actually states that "private" contractors who market apartments built on state land are subject to their actions to broad duties from administrative law that apply to the state itself.

The writers from the law firm Ephraim Abramzon & Co.
And another one for next year: the controversy surrounding AfroP's

7649/18 Bibi Dirt Roads and Development v. Israel Railways

■ Background: The conflict between the companies touched on the expansion project of Kibbutz Naan and Be'er Sheva. Bibi Roads claimed that she had done additional work entitling her to pay at least NIS 60 million, claiming that the contract she signed had set a clear mechanism for changes and additions.

■ Decision: Judge Stein ruled that the contractor had to claim the consideration in real time, and not after the work was done. In his approach, the contractor should not be allowed to submit a price analysis in retrospect in relation to other work he has performed.

■ Importance: As soon as it was published, FSD drew a series of responses from several directions. At the industry level, the practice of claiming for additional payment for infrastructure projects is very common in the field of infrastructure, and the judgment was seen as a warning sign for operations in the industry. If the PSD changes the rule of apropos that was set in the Supreme Court in 1995, according to which a contract must be interpreted not only according to what is written therein but also according to the intent of its members. Either way, a request for further discussion on the matter has already been filed, and it is likely that the hearing on Bibi Roads will be continued in 2020.

Full disclosure: All participants in the project were asked not to choose a case in their care or such that has a personal, business or other interest

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