TAMA 38/1 vs. 38/2 — Complete Legal Guide for Tenants in Urban Renewal

What are TAMA 38/1 and TAMA 38/2? The Legal Foundation

TAMA 38 is a national program for home repair and urban renewal in Israel, which enables residents in old buildings to participate in a process of demolition and reconstruction — dismantling the old building and constructing a new one in its place. The program is divided into two main tracks: TAMA 38/1 and TAMA 38/2. Each track grants different rights to residents, imposes different obligations and carries unique risks.

In TAMA 38/1, residents hold dominant rights in the process. In TAMA 38/2, there is greater flexibility, but the risks may be greater. The choice between the two tracks can significantly impact your final outcome — the price of the new apartment, construction quality, timelines and your legal rights.

TAMA 38/1 — Residents' Track

TAMA 38/1 is also called the residents' track or tenants' track. In this track, the residents (or a group of residents) are the ones leading the project. Residents must bear the project costs, hire the construction contractor and make important legal and financial decisions.

Advantages of TAMA 38/1 for Residents:

• Full control of the process — Residents decide on the contractor, timelines, quality of materials and construction standards.
• Right to a lower price — The new apartment may be cheaper, since there is no developer's profit margin.
• Ability to add apartments — In TAMA 38/1, additional apartments can be built (in accordance with building plans) and sold to finance the project or for profit.
• Strong legal protection — Residents are protected by urban renewal laws and building regulations.

Risks and Challenges in TAMA 38/1:

• Full financial responsibility — If the project exceeds budget, residents must cover the shortfall from their own funds.
• Complex management — Residents must establish a committee, manage votes, communicate with contractors and authorities.
• Construction risk — If the construction contractor fails or the project is delayed, residents bear the burden of the problem.
• Legal delays — The process of acquiring land, obtaining permits from authorities and conducting construction may take years.
• Risk of construction defects — If there are construction flaws, residents must deal with claims against the contractor.

TAMA 38/2 — Developer Track

TAMA 38/2 is also called the developer track or real estate track. In this track, a developer (or real estate company) manages the project. The developer finances the project, hires the construction contractor, makes major decisions and bears the main risks. Residents are primarily more passive participants.

Advantages of TAMA 38/2 for Residents:

• No management burden — Residents do not need to establish a committee, manage votes or deal with project management details.
• Financial stability — The developer typically provides financial guarantee and insurance for the project, which reduces financial risk for residents.
• Professional experience — The developer typically has experience managing large construction projects.
• Guaranteed new apartment — Usually, the developer is obligated to provide residents with a new apartment within a certain period.

Risks and Challenges in TAMA 38/2:

• Higher price — The new apartment may be more expensive, since the developer adds a profit margin and insurance.
• Limited control — Residents cannot significantly influence construction quality, timelines or apartment design.
• Developer risk — If the developer fails financially or legally, residents may be adversely affected or even lose their apartment.
• Unforeseen delays — If the developer faces financial or legal problems, the project may stall.
• Limited housing rights — In TAMA 38/2, residents may be required to accept an apartment of a certain size or characteristics, with little flexibility.

Detailed Comparison: Legal and Economic Table

Below is a table comparing Tama 38/1 and 38/2 across all dimensions of legal and economic decision-making:

The table above reflects the general principles of both tracks. However, each project is unique, and details may vary according to the specific contract, project conditions, and the agreement between the residents/developer and the authorities.

Tenant Rights under Tama 38/1

Under Tama 38/1, tenants have strong legal rights. Here are the main rights:

• Right to a new apartment — Every dwelling unit in the old building is entitled to a new apartment similar in size and type to the original unit (or larger).
• Right to participate in decisions — Tenants must vote on significant decisions (contractor selection, budget approval, plan modifications).
• Right to information — The tenants' committee must provide information about project progress.
• Right to legal action — If a contractor or developer violates your rights, you can file a lawsuit in court.
• Protection from illegal eviction — A dwelling unit cannot be evicted from the building without the tenant's consent (typically requiring an 80% majority of tenants).

Tenant Rights under Tama 38/2

Under Tama 38/2, tenants have more limited rights, but are still protected:

• Right to a new apartment — A tenant is entitled to a new apartment in accordance with the contract with the developer.
• Right to information — The developer must provide tenants with information about project progress.
• Right to legal action — If the developer breaches the contract, a tenant can file a lawsuit.
• Protection from illegal eviction — A tenant cannot be evicted without consent, unless the developer obtains a court order.
• Right to temporary housing — Typically, the developer must provide temporary housing or a housing subsidy during construction.

However, under Tama 38/2, tenants cannot significantly influence project decisions. The developer determines most details.

Legal and Financial Risks in Each Track

Risks under Tama 38/1:

Under Tama 38/1, tenants bear significant financial risks. If the project exceeds budget, tenants must cover the gap. If the contractor fails or construction defects are discovered, tenants must deal with the problem — usually through legal action against the contractor. If there is project delay, tenants must find temporary housing at their own expense. Additionally, managing the project requires substantial effort — establishing a committee, voting, communicating with contractors and authorities.

Risks under Tama 38/2:

Under Tama 38/2, financial risks to tenants are lower, but there are other risks. If the developer fails financially, the project may stall. If the developer proves unreliable, tenants may be negatively affected. Additionally, tenants cannot influence construction quality, timelines, or apartment specifications — this could be problematic if the developer chooses cheap materials or delays the project.

Legal Process in Each Track

Process under Tama 38/1:

The process under Tama 38/1 involves several important legal stages. First, tenants must establish a committee (or hire legal counsel to assist them). Second, tenants must obtain approval from local authorities (municipality, Ministry of Construction) for the construction plan. Third, tenants must hire a construction contractor and sign a contract. Fourth, tenants must make payments to the contractor (typically in installments according to construction stages). Fifth, after construction completion, tenants must receive the new apartments and register them in the land registry (National Registration Office).

Process under Tama 38/2:

The process under Tama 38/2 is less complex for tenants. The developer handles most details — permits from authorities, contractor contracts, payments, etc. Tenants mainly need to sign a contract with the developer, make payments (typically in installments according to construction stages), and receive the new apartment upon construction completion. However, tenants must be careful — a contract with a developer may contain unfavorable terms, and it is important to read the contract carefully and seek legal advice before signing.

How Mandelbaum, Gor, Witzman-Gor & Co. Can Help You

Choosing between Tama 38/1 and 38/2 is a significant legal and economic decision. Mandelbaum, Gor, Witzman-Gor & Co. provides professional legal counsel to residents in urban renewal projects. Our attorneys have over 18 years of experience in real estate law, property law, and urban renewal.

We can help you:

• Understand your rights — In both tracks, residents have important legal rights. We explain what they are and how to protect them.
• Choose the right track — We help you assess the risks and benefits of Tama 38/1 and 38/2, and select the track that suits you.
• Review contracts — We read and analyze contracts with developers and help you understand the terms.
• Establish a committee (in Tama 38/1) — We assist residents in Tama 38/1 to establish a strong committee and manage the project.
• Handle legal issues — If there is a dispute with a developer, contractor, or another resident, we help you protect your rights.
• Register the new apartment — After construction is completed, we assist you in registering the new apartment in the Land Registry.

First consultation meeting at no cost. We are located in Ramat Gan and Petah Tikva, and available for in-person or digital consultation.