When Does Betterment Levy Apply — A Comprehensive Legal Guide

What is Betterment Levy and When Does It Apply?

Betterment levy is a tax imposed by the local authority (municipality or regional council) on landowners following the appreciation of their property due to public works or engineering projects. The law regulating this levy is the Betterment Levy Law, 5721-1961, and it is designed to enable the local authority to participate in the results of land appreciation created as a result of public investment.

When does betterment levy apply? Betterment levy applies primarily when there is a significant increase in land value due to public actions, such as: construction of infrastructure (roads, water, sewage, electricity), establishment of public facilities (schools, hospitals, parks), planning changes (change of zoning or building density), or general neighborhood development. The local authority calculates this appreciation based on the difference between the land value before and after the public action.

It is important to emphasize that betterment levy does not necessarily apply to every sale or purchase transaction. It applies to landowners whose properties benefited from appreciation due to public investment, and under certain conditions — even if the property has not yet been sold. This means that landowners may encounter a betterment levy obligation even without selling the property, especially when the local authority decides to impose this levy following a significant development project in the area.

How Is Betterment Levy Calculated?

Calculation of betterment levy follows a set legal formula: the local authority determines the land value before the public action ("base value") and the land value after the action ("new value"), and the difference between them constitutes the appreciation. The local authority imposes a levy on this appreciation, the rate of which is set in regulations and can reach up to 50% of the appreciation (under certain conditions).

In practice, this calculation is not straightforward: the local authority uses valuers on its behalf, landowners may raise objections against these assessments, and there is an explicit appeals process under the law. Each case is examined on its merits, considering factors such as: size of the land, its location, zoning (residential, commercial, industrial), level of development in the area, and more.

It is important to know that there are exemptions and offsets. For example, if the landowner contributed land or funds to the public project itself, or if the appreciation was created as a result of the landowner's private investment (not public), they may be able to avoid paying the levy or receive a significant discount.

Calculation Steps in Practice

• Determination of Base Date: The authority defines the date "before" and "after" the public action. Typically, the base date is the date when the plan was approved in the local authority's building plan.
• Valuation Assessment: Valuers on behalf of the authority assess the land value on both dates. Landowners can commission an independent assessment and compare.
• Calculation of Appreciation: The difference between the "after" value and the "before" value is the appreciation. If the appreciation is negative (decrease in value), there is no levy obligation.
• Determination of Rate: A levy is imposed on the appreciation at a rate set in regulations (up to 50%), and this constitutes the amount due for payment.

Who Pays Betterment Levy and in Which Cases?

The landowner is obligated to pay the betterment levy — this can be a private individual, corporation, or company. If the land is jointly owned, each owner pays according to their share in the property.

Betterment levy is imposed on landowners primarily in the following scenarios:

• Infrastructure Development in the Area: When the local authority invests in building new roads, public transportation stations, or water and sewage infrastructure, nearby properties often experience significant appreciation.
• Change of Zoning or Building Density: When a building plan changes the designation of the land (for example, from agricultural to residential) or allows building at higher density, the appreciation can be substantial.
• Establishment of Public Facilities: Construction of schools, hospitals, parks, or shopping centers in the area can appreciate adjacent land.
• Urban Renewal Plans: In TAMA 38 projects and similar initiatives, residents of buildings participating in the plan may encounter a betterment levy obligation, especially if the area is built at higher density than before.

It is important to emphasize: not every increase in property value triggers a levy obligation. If the appreciation resulted from the private investment of the landowner themselves (for example, renovations, building expansion, or landscaping improvement), betterment levy typically does not apply.

Impact of Betterment Levy on Real Estate Transactions and Development Plans

When purchasing or selling real estate, a betterment levy can significantly affect the property's pricing and the amount of funds the landowner actually receives or must pay. If a landowner sells a property subject to an unpaid betterment levy, the buyer will typically demand a discount in consideration or require the seller to pay the levy itself before closing.

In urban renewal plans (Tama 38) and infill projects, betterment levy is a significant consideration. Residents in buildings participating in such plans may face levy obligations due to increased density or planning changes. It is important to check with the local authority and consult with an experienced attorney to determine whether a betterment levy applies, its amount, and at which stage of the process it must be paid.

Legal mechanisms exist that allow landowners to object to the imposition of a levy or appeal its calculation. An appeal against a local authority's decision regarding betterment levy is made to the Small Claims Court (if the amount is low) or to the District Court, depending on the amount in dispute.

Steps for Verification and Planning

• Check with the local authority whether a betterment levy applies to your property.
• Request an independent valuation from an experienced real estate appraiser.
• If you are interested in a purchase or sale transaction, obtain legal advice to understand the financial implications.
• If the authority has imposed a levy, review the appeals process and your legal options.

Exemptions, Offsets, and Reductions in Betterment Levy

The law contains provisions that permit exemption or reduction in betterment levy payment under certain circumstances. Understanding these options can save substantial sums:

• Land or fund contribution: If the landowner contributed part of the land or funds to the public project itself, there may be an offset or partial exemption from the levy.
• Betterment resulting from private investment: If the betterment was created primarily as a result of the landowner's own investment (rather than as a result of public action), they may be able to avoid paying the levy.
• Properties for public use: Land used for public purposes (religious, educational, medical) may be exempt or eligible for a substantial reduction.
• Agricultural land under certain conditions: Land used for agriculture, under certain circumstances, may be eligible for a reduction or exemption.

Every exemption or offset requires filing a request with the local authority, sometimes with supporting documents (valuations, contribution certificates, etc.). If the authority denies the request, an appeal to court is available.

When Betterment Levy Must Be Paid — Timelines and Procedures

The local authority notifies landowners of betterment levy liability typically through a notice of assessment or formal notice. Upon receiving the notice, the landowner is usually given a certain period (typically between 60 and 90 days) to file an objection or appeal request.

If the landowner does not file an objection in time, the levy becomes a final decision and can be collected through enforcement procedures. Therefore, it is very important to respond promptly to any legal notice relating to betterment levy.

In urban renewal plans, betterment levy is often paid in installments, especially when connected to a long-term construction project. It is important to understand payment terms and the consequences of payment delays.

Professional Legal Advice on Betterment Levy and Real Estate Transactions

Issues related to betterment levies can be complex and require a deep understanding of Israeli real estate law. Mandelblit, Gor, Witzman-Gor and Co., with over 18 years of experience in real estate transactions, construction projects, and legal proceedings related to property matters, is well-equipped to assist. We represent buyers, sellers, landowners, and tenants in urban renewal projects in matters concerning betterment levies, appreciation tax, and other local charges.

When dealing with a betterment levy obligation, it is important to respond quickly and efficiently. We can help you:

• Review the betterment levy calculation and identify errors or inaccuracies.
• File an appeal or objection with the local authority.
• Document and submit a request for exemption or offset if you are entitled to it.
• Represent you in court if necessary.
• Plan the betterment levy matter when buying or selling real estate.

Our initial consultation is free of charge, and it is an opportunity to understand your situation, your rights, and your legal options. We will help you navigate professionally and protect your interests.