What is the Difference Between Taboo and a Mortgage Company?

Introduction: Tabo and Housing Company — Two Different Ways to Own Real Estate

When purchasing an apartment or property in Israel, one of the most important steps is understanding the form of ownership you will choose. The two most common forms are Tabo and Housing Company, and they differ fundamentally from one another — in terms of legal rights, financial obligations, taxes, inheritance, and property protection.

Many property buyers in Israel are not fully aware of the differences between the two forms, and a wrong choice can lead to legal complications, financial losses, and difficulties in the future — when selling, inheriting, divorce, or litigation. In this guide, we will explain exactly what the difference is between Tabo and a Housing Company, and what considerations should guide your choice.

What is Tabo? Definition and Rights

Tabo is a registration with the Land Registry of the Ministry of Interior, which evidences the direct ownership of a person or group of people in a specific property. When you own a Tabo, you are the legal and direct owner of the property — the land, the building, and everything on it, according to the share listed in the registry.

Rights of a Tabo owner:

• Direct and legal ownership of the property — you can sell, rent, transfer by inheritance, or use the property as you wish.
• Full legal protection — the Tabo proves your rights before any external party (bank, tax authority, court).
• Complete control of the property — you are not dependent on the decisions of other parties (such as a housing company or other tenants).
• Ability to use the property as collateral for a loan — banks primarily accept Tabo as collateral.
• Simpler inheritance arrangement — the Tabo passes by inheritance directly and clearly.

What is a Housing Company? Definition and Rights

A Housing Company is a private company or partnership that holds the Tabo of the property, and tenants or owners of various units in the property hold shares of ownership in the company. In other words, you are not the direct owner of the property, but rather the owner of a share in the company that holds the property.

Rights of a Housing Company shareholder:

• Right to use the apartment or part of the property — you are entitled to use the apartment for residence or another purpose, but the property itself is owned by the company.
• Right to rent the apartment — under the terms specified in the company's bylaws and rental agreement.
• Right to participate in company decisions — such as repairs, renovations, or changes to common facilities.
• Right to receive dividends or a discount on management fees — in accordance with the company's bylaws.
• Right to transfer the share by inheritance — but with certain restrictions, in accordance with the company's bylaws.

Detailed Comparison: Tabo vs. Housing Company

In order to understand clearly the differences between the two forms, let us examine them in various aspects:

1. Form of Ownership

Tabo: Direct ownership of the property. You own the land, the building, and everything within it. The Tabo is registered in your name at the Land Registry.

Housing Company: Indirect ownership through a company. You own a share in the company, and the company is the Tabo holder of the entire property. This is similar to ownership in a partnership.

2. Legal Rights

Tabo: Full rights — sale, rental, renovation, expansion, transfer by inheritance, use as collateral for a loan — all without needing the consent of other parties.

Housing Company: Limited rights — you may rent or transfer the share, but with restrictions defined in the company's bylaws. Renovations or changes require company or other tenant approval.

3. Taxes and Fees

Tabo: Purchase tax (VAT on the purchase price), capital gains tax (upon sale), registration fees at the Land Registry. You pay directly to the authorities.

Housing Company: Purchase tax on the company share, capital gains tax on the share (not on the entire property), registration fees at the Companies Registrar. Additionally, you pay annual management fees to the company for maintenance, insurance, and common management.

4. Management Fees and Obligations

Tabo: You are responsible for all property expenses — repairs, insurance, property tax (in cities with property tax), maintenance. If there is a shared building, there may be a building committee or shared management with fees.

Housing Company: The company is responsible for all shared expenses (insurance, maintenance, repairs to common areas). Management fees are usually higher than for Tabo, because they include company management, legal reviews, and coordination among owners.

5. Sale and Transfer

Tabo: Relatively simple sale — you sign a purchase agreement with the buyer, pay taxes, and transfer the Tabo to the buyer's name at the Land Registry.

Housing Company: More complicated sale — you sell your company share, and the company must approve the new buyer (usually through the company board). Additionally, there are legal restrictions on who can purchase the share (sometimes institutions, companies, or people outside the family are prohibited).

6. Inheritance

Tabo: The Tabo passes by inheritance directly. The heirs become owners of the property and can transfer or sell it without special legal restrictions (except for inheritance taxes).

Housing Company: The company share passes by inheritance, but the company may restrict the number of heirs or require approval. In some companies, there are restrictions on ownership by people who are not blood relatives of the original shareholder.

7. Flexibility and Renovations

Taboo (Tabo): Full flexibility — you can perform renovations, extensions, or modifications to your property without requiring the consent of other parties (of course, within planning and building laws).

Mortgage Company: Limited flexibility — shared renovations or their impact on the building require company approval or a majority vote of owners. This can lead to delays or refusals.

Advantages and Disadvantages: Which Form of Ownership Is Right for You?

Advantages of Taboo

• Full and Direct Ownership: You are the legal owner of the property, with no dependence on other factors.
• Legal Flexibility: You can freely sell, rent, renovate, or transfer by inheritance.
• Strong Legal Protection: The taboo is irrefutable evidence of your rights against any external party.
• Loan Option: Banks prefer taboo as collateral, and loan terms are generally better.
• Lower Management Fees: You pay only for your property expenses, not for company management.
• Simple Inheritance: Transfer by inheritance is direct and without special legal restrictions.

Disadvantages of Taboo

• Full Responsibility: You are responsible for all repairs, insurance, and maintenance of the property.
• High Costs During Emergency Repairs: If the building roof or external walls require repair, you may be responsible for the entire cost.
• Complexity in Divorce or Shared Property: If the property is jointly owned (spouses, partners), division or sale can be complicated.

Advantages of Mortgage Company

• Shared Management: The company handles maintenance, insurance, and shared repairs — you don't need to worry.
• Shared Protection: You are part of a group of owners, providing shared legal protection in case of lawsuits or disputes.
• Financial Transparency: Management fees are clear in advance, with no surprises.
• Shared Control: You participate in decisions concerning the property (through the company's board or voting at general assembly).

Disadvantages of Mortgage Company

• Indirect Ownership: You are not a direct owner of the property, but of a share in the company — this can be legally complicated.
• Restrictions on Sale and Transfer: The company may restrict who can purchase the share or exclude buyers.
• High Management Fees: Annual fees are significantly higher than with taboo, as they include company management and legal administration.
• Loan Difficulties: Banks are less willing to use a mortgage company share as collateral, and terms are generally worse.
• Disputes Between Owners: If other owners fail to pay fees or oppose repairs, it can affect your property.
• Complicated Inheritance: Heirs may be limited in their rights or in transferring the share.

Typical Scenarios: Which Form of Ownership Is Suitable?

Choosing a form of ownership depends on your circumstances. Here are a few scenarios:

Scenario 1: You Purchased an Apartment in a New Building in a TAMA 38 Project

In urban renewal projects (TAMA 38) or new projects, apartment owners typically receive a taboo for their apartment. This is the common pattern in Israel. Taboo grants you full direct ownership, flexibility in sale and rental, and strong legal protection. Choose taboo if you are purchasing a new apartment.

Scenario 2: You Purchased an Apartment in an Old Building with an Existing Mortgage Company

In some old buildings in Israel, the entire property is owned by a mortgage company, and residents are shareholders in the company. If you purchase an apartment in such a building, you may have difficulty obtaining a loan, and your flexibility in sale or renovation will be limited. Check the company's bylaws before purchasing.

Scenario 3: You Are an Investor or Developer in a Shared Project

If you are an investor or developer, you may want to hold a share in a mortgage company to control the project together with other owners. Choose a mortgage company if you want shared control and clear management of expenses.

Scenario 4: You Plan to Inherit the Property

If you expect the property to be passed down by inheritance in the future, taboo is a better choice. Transfer by inheritance with taboo is direct and clear, with no special legal restrictions. With a mortgage company, heirs may be limited.

Taxes, Costs, and Financial Implications

One of the most important aspects in choosing a form of ownership is the financial implication. Here is a complete breakdown of costs in each form:

Taxes on Land Registration (Tabo)

Purchase Tax (VAT): When you purchase an apartment registered in the Land Registry (Tabo), you pay VAT on the purchase price. The VAT rate depends on the property value and the buyer's status (first residence, second residence, company, etc.). For a first residence, the VAT rate is typically lower than for a second residence or investment.

Capital Gains Tax: When you sell the apartment, you pay capital gains tax on the difference between the sale price and the purchase price (plus the obligations you invested in renovations). The capital gains tax rate varies depending on the holding period and the type of buyer (private or business).

Property Tax: In some cities in Israel (such as Tel Aviv, Bnei Brak, and Givatayim), there is an annual property tax on real estate owners. The tax rate depends on the estimated value of the property.

Land Registry Registration Fees: When you purchase or sell land registered in the Land Registry (Tabo), you pay fees to the Land Registry for registration and changes to the Tabo. These fees are typically low (tens of shekels per transaction).

Taxes in a Housing Company (Merkantile Company)

Purchase Tax: As with Tabo, you pay VAT on purchasing a share in the company. The rate is similar to Tabo.

Capital Gains Tax: When you sell your share in the company, you pay capital gains tax on the difference between the sale price and the purchase price. However, in a housing company, the calculation of capital gains tax can be more complicated, as you need to calculate the gains on the share in the company (not on the entire property).

Annual Management Fees: This is a significant cost that does not exist in Tabo. Management fees include insurance, maintenance, company management, legal inspections, and coordination between owners. These fees are typically higher than in Tabo due to the company's management expenses.

Companies Registry Registration Fees: When you buy or sell a share in a housing company, you must register the change with the Companies Registry. These fees are typically higher than the Land Registry registration fees for Tabo.

Typical Cost Comparison

Assuming you are purchasing an apartment worth 1,000,000 shekels:

• Tabo: VAT ~150,000–200,000 shekels (depending on housing status), registration fees ~100 shekels. Total cost: ~150,000–200,000 shekels at purchase. Annual management fees: 0–500 shekels (only if there is a building committee).
• Housing Company: VAT ~150,000–200,000 shekels (similar to Tabo), registration fees at the Companies Registry: ~500–1,000 shekels. Annual management fees: 3,000–8,000 shekels per year (depending on the property size and type of management).

As can be seen, the main difference is in the annual management fees, which in a housing company are typically higher.

Legal Disputes and Risks

One of the most important aspects in choosing a form of ownership is the legal risk. Here is what you need to know:

Risks in Tabo (Land Registration)

Claims Against the Property: If there is a claim against the property (for example, a debt claim from a previous seller that was not paid), it may directly affect your Tabo. Check the Tabo before purchase to ensure there are no liens or prior claims.

Full Liability: You are responsible for all repairs and insurance of the property. If an external wall collapses or there is a leak, you may be liable for the entire cost.

Disputes Over Shared Property: If the property is held in joint ownership (spouses, partners), division or sale can be complicated and legally difficult.

Risks in a Housing Company (Merkantile Company)

Disputes Between Owners: If other owners do not pay fees or oppose repairs, this can affect your property and the property's ability to be properly maintained.

Restrictions on Sale: The company may restrict who can purchase the share, which may make it difficult to sell or lower the price.

Majority Vote Decisions: If a majority of owners decide on a repair or change that you do not agree with, you may be obligated to contribute to the cost, even if you do not wish to.

Company Bankruptcy: Rarely, if the company enters bankruptcy, this may affect your rights as a shareholder.

Cases Where You Need a Real Estate Attorney

In both forms of ownership, it is advisable to consult a real estate attorney before purchase. In particular:

• Prior Tabo inspection — to ensure there are no liens, claims, or legal issues.
• Housing company rules inspection — to understand your rights, obligations, and restrictions on sale.
• Disputes between owners — if there is a dispute in a housing company, an attorney can help you protect your rights.
• Inheritance or divorce — if the property is transferred through inheritance or divided in a divorce, a legal attorney is essential.

Practical Tips for Choosing a Form of Ownership

Here are some practical tips to help you make an informed decision:

1. Review the Tabo Certificate Before Purchase

Before you purchase a property, request the Tabo certificate of the property and review it carefully. Look for legal liens, lawsuits, previous mortgages, or restrictions on the use of the property. If there are issues, it could affect your purchase or the value of the property in the future.

2. Review the Condominium Company Bylaws

If you are purchasing in a condominium company, request the company bylaws and review them carefully. Look for restrictions on sales, management fees, heirs' rights, and majority vote decisions. If the bylaws are unclear or unfair, it could be a problem in the future.

3. Consult with a Real Estate Attorney

Before purchase, consult with a real estate attorney who can help you understand the form of ownership, your rights and obligations, and legal risks. A good attorney can save you considerable money and headaches in the future.

4. Consider Your Future Needs

Think about your future plans: Are you planning to sell the property in a few years? Do you want to rent out the apartment? Do you expect the property to be inherited? Based on your plans, choose the form of ownership that best suits you.

5. Compare Costs

Calculate the total costs of purchase, ownership, and management in both forms. With Tabo, management fees are typically lower. With a condominium company, management fees are higher, but shared management may save you money on emergency repairs.

Summary: Tabo vs. Condominium Company

Choosing a form of real estate ownership is an important decision that should be made carefully and with full understanding of the legal and financial implications. Tabo gives you direct ownership, complete flexibility, low management fees, and strong legal protection — but you are responsible for all repairs and insurance of the property. A condominium company gives you shared management, collective control, and shared protection — but management fees are higher, and your flexibility is limited in collective decisions.

There is no form of ownership that is "good" or "bad" for everyone — it depends on your circumstances, your future plans, and your needs. A rule of thumb: if you are buying a new apartment in a project, you will typically receive Tabo, and it is usually a good choice. If you are buying in an old building with an existing condominium company, review the company bylaws carefully before purchase.

At Mandelbaum, Gur, Witzman-Gur & Co., we specialize in real estate and property law, and we have over 18 years of experience representing clients in purchasing, selling, and managing properties. We can help you understand the form of ownership, review your property, and guide you at every stage of the process. First consultation free — contact us in Ramat Gan (Donesh 1) or Petah Tikva (Yoni Netanyahu 8) to schedule a meeting with our real estate attorney.