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From Expropriations to Development Agreements: Developer Obligations for Public Services in Israel*

Published online by Cambridge University Press:  16 February 2016

Rachelle Alterman
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If the term “developer obligations” seems unfamiliar, the policies which it denotes are familiar to anyone who deals with planning law: developer obligation s are requirements placed by planning authorities on developers to supply some public facility or amenity as a condition for granting a development permit. Developer obligations come in many forms: land dedication, payment of a fee, construction of a public facility, or supply of a public service. These requirements are known by varying names in many countries: in the U.S.A. they have come to be known as “exactions”, in Britain as “planning gain”, and in France as participation. Other countries may have many terms to indicate each separate tool, or no specific term at all. The term “developer obligations” is here proposed as an international term that, hopefully, has fewer culture-specific connotations than the other terms mentioned. I will use “developer obligations” in the broadest sense, to include some indirect mechanisms for financing public services, such as the land betterment tax, while “exactions” will be used to indicate the methods directly focused at financing such services.

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Articles
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Israel Law Review , Volume 24 , Issue 1 , Winter 1990 , pp. 28 - 81
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Copyright © Cambridge University Press and The Faculty of Law, The Hebrew University of Jerusalem 1990

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References

1 The author has recently edited a book, Alterman, R., ed., Private Supply of Public Services: Evaluation of Real Estate Exactions, Linkage and Alternative Land Policies (N.Y.U. Press, 1988, paperback ed., 1990)Google Scholar, which analyses and evaluates what is currently known about developer obligations in the U.S.A.

2 Alterman, “Exactions American Style: The Context for Evaluation” in Private Supply of Public Services …, supra n. 1, at 3-21.

3 See Julian C. Juergensmeyer, “Exactions Law in the United States” in Private Supply of Public Services …, supra n. 1, at 51-65 and Bauman, G. and Ethier, W. H., “Development Exactions and Impact Fees: A Survey of American Practices” (1987) 50 L. & Contemp. Prob. 51–68CrossRefGoogle Scholar.

4 See Alterman, , “Evaluating Linkage and Beyond: Letting the Windfall Recapture Genie Out of the Exactions Bottle” (1988) 34 J. Urban & Contemp. L. 3–49Google Scholar; Alterman, , Evaluating Linkage and Beyond (Lincoln Institute for Land Policy, Cambridge, Mass., 1989)Google Scholar.

5 Until recently, the Israel Lands Authority did not publish a precise figure. Its current director, Mr. Gideon Vitkon, has recently indicated this estimate in a memorandum (1990).

6 Hallett, Graham, ed., Land and Housing Policies in Europe and the U.S.A. (London, Routledge, 1988)Google Scholar.

7 Alterman, et al. , Municipal Land Policy in Israel: Does it Exist? Center of Urban and Regional Studies, Research Report (Haifa, Technion, 1990)Google Scholar.

8 The Basic Law: Israel Lands (14 L.S.I. 48) dictates a fixed cumulative total of 10,000 hectares which the Lands Authority is allowed to sell. The Authority's spokespeople indicate that they are not sure whether to consider land transferred to the municipalities as included in this total. Since the Authority has not published figures on the amount of land sold, we do not know whether or not it has reached the ceiling allowed.

9 See Borukhov, Elihu, “Land Policy in Israel” (1980) 4 Habitat International 505–515CrossRefGoogle Scholar.

10 The reason is that planning controls are under different legislation and institutional responsibility than leasing of national land.

11 For a detailed discussion of this trend and the possible changes that mass immigration may be bringing, see Alterman, , “A Retrospective View of Israel's ‘Project Renewal’: Lessons for Planning for New Immigrants in the 1990s” Working Paper, Center for Urban and Regional Studies (Haifa, Technion, 1990)Google Scholar.

12 In the U.S.A., this arises from the constitutional supremacy of higher levels of government. Some of the federal or state laws, such as in the area of environmental control, do apply to state and federal government, and these levels of government sometimes comply voluntarily.

13 19 L.S.I. 330.

14 Some argue that the concept of expropriation docs not apply to state land, but others see no reason why expropriation cannot imply a statutory requirement that one government jurisdiction transfer land to another, especially given the specific clause that subordinates government authorities to the planning law. In the agreement between the Israel Lands Authority and the Association of Municipalities, the Lands Authority has in fact been somewhat more generous than the law requires.

15 For more detail on the Israeli planning system and its operation, see Alterman, and Hill, , “Land Use Planning in Israel” in Int'l Handbook on Land Use Planning, Patricias, Nicholas N., ed.( (Greenwood Press, 1986) Chap. 6, pp. 119–150Google Scholar; Alexander, Alterman, Yone, Law, Evaluating Plan Implementation: The National Planning System in Israel (Pergamon Press, 1983) vol. 20, pp. 97–192Google Scholar.

16 See Alterman, , Comparison of Planning Law Systems in Selected Countries (Haifa, Center for Urban and Regional Studies, Technion, 1990, in Hebrew)Google Scholar.

17 Planning and Building Procedures (Temporary Provision) Law, 1990, S.H. no. 1323, p. 166.

18 The new committees have been operating for only 2-3 months as this article goes to press.

19 See Jerald S. Kayden, “Planning Gain: Developer Provision of Public Benefits in Britain” in Private Supply of Public Services …, supra n. 1, at 163-172.

20 See Vincent Renard, “Exactions in France” in Private Supply of Public Services …, supra n. 1, at 171-181.

21 Even though Israel does not have a full written constitution, it does have an unwritten one, composed of a set of Supreme Court decisions on most issues of constitutional import on matters of civil rights, supplemented by several Basic Laws on constitutional matters, such as the electoral system, government structure, etc.

22 Cf. Frank Schnidman, “Land Readjustment: An Alternative to Development Exactions” in Private Supply of Public Services …, supra n. 1, at 250-163.

23 The British Development Land Tax, instituted in 1976, was a hefty betterment-recapture tool that taxed away up to 60% of appreciated land value. It was reduced in import gradually by Prime Minister Thatcher, and was finally abolished in 1985.

24 From the establishment of Israel until the 1980s, private initiatives to establish a new town or village were almost unheard of. Israel's 30-odd new towns and several hundred cooperative villages and kibbutzim were all created on public land, through public initiatives and with public financing for the major infrastructure. The 1980s saw pioneering examples of privately initiated “communal” settlements or small towns (neither dogmatically cooperative nor openly urban.) These too, however, are usually located on national land. There, the residents have had to bear the burden of all or most of the infrastructure. One example is-Givat Elah in the lower Galilee. This trend toward privatization is, in my opinion, expected to grow (discounting the current massive public initiative for housing the new immigrants). In the near future, we are likely to see that the arrangements surrounding infrastructure financing, which have until now been decided in an ad hoc manner for each new initiative, are likely to become a broader legal and public issue. Public policy questions that will arise concern the proper division of labour between the public and private sectors. Legal questions may include alleged discrimination of those villages or towns where the residents have paid for all infrastructure compared with other, “regular” settlements, where the financing is partly public.

25 Our research has shown that the major variable that determines amount of land needed for public services, aside from roads and parking, is the proportion of children in the neighborhood. See Vitek, M., Alterman, R., with Hill, M., A Guidebook for Calculating Land Requirements for Public Services (Haifa, Center for Urban and Regional Studies, Technion, forthcoming 1991, in Hebrew)Google Scholar.

26 Lands (Acquisition for Public Purposes) Ordinance, No. 25, 1943 (P.G. 1943, vol. 1, p. 463).

27 Edith Feizer et al. v. Ramat Gan Local Planning and Building Commission et al., (1981) 35(ii) P.D. 645.

28 For a more detailed legal analysis see Alterman, , “Exactions of Land for Public Services: Toward a Revaluation” (1985) 15 Mishpatim 179–245Google Scholar.

29 See Juergensmeyer, supra n. 3 and Taub, T. C., “The Current Status of the Taking Issue” (1987) 14 Florida Environmental and Urban Issues 10Google Scholar.

30 SirHeap, Desmond, “The British Experience” (1987) 50 L. & Contemp. Prob. 31–50CrossRefGoogle Scholar. Kayden, supra n. 19; Town and Country Planning Act 1971 — Planning Gain, Great Britain Dept. of the Environment, Joint Circular 22/83 and 46/83, Welsh Office (1983)Google Scholar.

31 Section 188(b) presents a long list of public services that are included under “public needs”. These include the types of services mentioned in section 190(a)(1), but also ports, airports, bus depots, markets, slaughter houses, cemeteries, sewerage and water installations, garbage dumps, communal services, and more. The reader will recall that the shorter list of section 190(a)(1) that applies to compulsory dedication includes only roads, playgrounds, parks, and facilities for sports, education, culture, religion, and health. I have argued elsewhere, Alterman, supra n. 28, that a conceivable direction for interpretation might have been to seek the rationale behind the differences between the two lists. Such a rationale might have followed the “threshold level” argument: the shorter list applies to neighborhood-level needs, while the longer list applies to city-wide and regional facilities.

32 Supra n. 27.

33 See Juergensmeyer, supra n. 3.

34 Snyder, Thomas P. and Stegman, Michael A., Paying for Growth (Washington, Urban Land Institute, 1986) 28–29Google Scholar.

35 Problems of proportionality also arise where dedication and expropriation are mixed — see below.

36 Supra n. 34.

37 Mr. Yehezekel Levi, the legal advisor to the Ministry of Interior, discussed this issue briefly in a lecture to practitioners about the new law, presented on July 29, 1990. He recommended that the planning authorities “use reason” in interpreting this clause.

38 (1978) 32(iii) P.D. 785.

39 Ibid., at 792.

40 See supra n. 27.

41 See Alterman, supra n. 28.

42 For a discussion of this issue in the U.S.A, see Alterman, supra n. 4.

43 Section 26(a) indicates that land expropriated by a local planning commission (and this refers to expropriation and exaction alike) is to be registered in the name of the relevant municipality or, if so stated explicitly in the plan — in the name of the State of Israel.

44 For a more detailed analysis of this issue, see Alterman, supra n. 28, at 197-201.

45 Ibid.

46 Supra n. 38.

47 Section 188 is subtitled “public purposes”, ostensibly defining the entire spectrum, while section 190(a)(1) reads at first sight as if it is procedural only. However, careful reading of the law clearly indicates that section 19(a)(1) includes the substantive list of public purposes that applies to mandatory dedication — a shorter list than the list in section 188, which should be interpreted to apply to expropriation with compensation.

48 This increase in awareness may be due in part to the author's article (supra n. 28) which appeared in a widely read Israeli law journal, and to a series of lectures subsequently given by the author to lawyers, land assessors, and planners in several parts of the country.

49 See supra n. 17.

50 C.A. (Tel Aviv) 1336/78 Zoran Construction and Investment Co. Ltd., Netanya v. State of Israel (never published). However, this decision does not directly deal with the issue of the remainder of the lot. Indeed, the explicit clause in the law about the remainder is not mentioned anywhere in the decision. Possibly, the relevant part of the lot was not actually expropriated, but was passed over voluntarily, as often happens in practice (see the discussion of exaction through agreements, below). Alternatively, since we are dealing with a criminal case which focuses on the legality of the building permit issued, the Court did not find it necessary to look into the legality of the dedication that reduced the size of the lot.

51 (1979) 33(iii) P.D. 122.

52 (1983) 37(iii) P.D. 215.

53 Ibid., at 223.

54 See Renard, supra n. 20.

55 Regarding cases where land was designated for expropriation but expropriation was delayed, see Kalmas v. Local Building and Planning Commission of Tel Aviv-Jaffa (1987) 11 P.D. 1601; Sanitovski et al. v. Israel Electricity Company et al. (1978) 32(ii) P.D. 561. Regarding cases where expropriation had taken place but there was no implementation of the public use, see Leah Shmuelzon v. State of Israel et al. (1980) 34(i) P.D. 281; (expropriation not according to the Planning and Building Law). These cases are reviewed in Amitai v. Central District Planning Commission (1988) 42(iv) P.D. 89.

56 Amitai v. Central District Planning Commission, supra n. 55. A request for a further hearing by the High Court was declined. See Central District Planning and Building Commission v. Amitai (1989) 43(i) P.D. 318. The judge explains that the Amitai decision did not carve out a new area of law and therefore does not merit a further hearing (recall that the Court was split). Rather, the decision implemented a longstanding rule that overly long delays in actually carrying out an expropriation may be reason to nullify the designation for expropriation.

57 The only decision I found that explicitly deals with the relationship between delay and sections 195 or 196 is the District Court decision of Celia Mendel Borki v. City of Ramat Gan (1977) 1 P.M. 469. The Court did not find the facts to merit the remedy, but the gist of the decision is not quite clear. It says, on the one hand, that the Planning and Building Law does not provide an explicit clause stating that delay in public use warrants return of the land to the original owner, but on the other hand, the Court says that justice requires that longterm delay in implementing the public use will be treated as tantamount to change in use, and will allow the owner the remedy of returning the land. This, the decision says, is especially valid “where compensation has not yet been paid” (at 473). Can one deduce from this that the protection will also apply in cases of expropriation without compensation?

58 Connors, Donald L. and High, Michael E., “The Expanding Circle of Exactions: From Dedication to Linkage” (1987) 50 L. and Contemp. Problems 69–83CrossRefGoogle Scholar.

59 Perhaps the earliest statement of this rule is in Rachel Sax and M. Eliash v. Local Planning and Building Commission of Jerusalem (1961) 15 P.D. 1516. For a recent summary of earlier cases and a clear repeat of this rule, see Local District Commission of Rishon Le'Zion v. Ezra Hamami (1987) 41(iii) P.D. 370.

60 Supra n. 28.

61 Supra n. 59.

62 Citing Alterman, supra n. 28.

63 See ibid.

64 See the decision of the Tel Aviv District Court in Pri Ha'aretz Co. v. Kfar Saba Local Planning Commission, delivered by the same District Court judge who sat in the Hamami decision. There, the landowner argued that the two-stage rule applies also to compulsory dedication where less than 40% of a tract is taken and the rest is lucratively developed. The judge ruled — correctly in my opinion — that the dedication falls within section 200 of the Planning and Building Law that exempts the local authorities from paying compensation for worsement. The list of exemptions is very broad and includes most situations where the decline in value is not unreasonable. This clause has never been fully interpreted by the courts, but it is clear that the long list of exempted situations actually leaves only a very narrow range of situations where the owner has the right to compensations, such as where no commercial value is left at all. The case of 40% dedication is in my opinion definitely not one of these cases. The protection against decline in the proportionate value of the remaining part of the lot ensures that the development value will never be severely hurt. Furthermore, as argued below, the marketplace adjusts land values under the assumption that compulsory dedication is built in. An appeal to the Supreme Court was probably settled out of court.

65 NIMBY is an American acronym for Not In My Back Yard, to moan all those land uses that people recognize as necessary, but would like someone else to live next to them.

66 This author and a colleague have carried out what is probably the pioneering research in Israel on negotiated development. See Alterman, and Vitek, , From Expropriations to Agreements: Ways of Obtaining Land for Public Services (Haifa, Center for Urban and Regional Studies, Technion, forthcoming 1991, in Hebrew)Google Scholar.

67 Research about allocations needed for the various public services in neighborhoods with varying demographic characteristics has shown that education is the single largest land consumer. Vitek, Alterman, with Hill, supra n. 25.

68 Vitek, Alterman, with Hill, supra n. 25.

69 See Callies, David L., “Developers' Agreements and Planning Gain” (1985) 17 The Urban Lawyer 599–612Google Scholar; Richard Cowart, “Developer Agreements in California as an Alternative to Exactions” in Private Supply of Public Services …, supra n. 1; Goldwick, David S., “Developer Agreements: A Critical Introduction” (1989) 4 Fla. State U. J. of Land Use and Environmental L. 249–269Google Scholar.

70 Jowell, Jeffrey, “Bargaining in Development Control” (1977) J. of Planning and Environment L. 414–433Google Scholar; David Henry, “Planning by Agreement: A Local Survey” (1984) ibid. 395-400.

71 See Renard, supra n. 20.

72 For a more in-depth theoretical and legal analysis of this theoretical division, see Alterman and Vitek, supra n. 66.

73 For earlier decisions, see Ben Zvi v. Director of the Land Value Increment Tax (1978) 32(i) P.D. 785, at 786-787. See also Walman v. Minister of Interior et al. (1962) 16 P.D. 766. Both these cases are cited in Shikun Amami Co. Ltd. et al. v. City of Ramat Gan et al. (1981) 35(iii) P.D. 295, at 299-300.

74 Ibid.

75 Luft v. Minister of Interior (1988)42(ii) P.D. 157.

76 To the best of my knowledge, this is one of the first times in a Supreme or High Court decision that there is reference to the format of agreements.

77 See Mandelker, Daniel R., Land Use Law (Charlottesville, Va., Michie Co., 1982) 179–182Google Scholar.

78 Zoran Construction and Investment Co. Ltd., supra n. 50.

79 Berlitski et al. v. Director of the Land Value Increment Tax (1967) 58 P.M. 225. For another decision in a similar vein, see Dr. A. Meller et al. v. Shalom Hazozra et al. (1971) P.M. 250. See also Michael Schneider et al. v. Local Planning and Building Commission and the City of Jerusalem (1978) P.M. 210.

80 Supra n. 73.

81 See Murray, Benjamin, Exactions of Land for Public Services: Case-Study of Haifa, M.Sc. thesis (Haifa, Technion, 1985)Google Scholar; Alterman, supra n. 28.

82 Supra n. 75.

83 Shalev, G., Government Contracts in Israel (Jerusalem, Avisar Pub. Co., 1985, in Hebrew) 101Google Scholar.

84 See Young, E. and Rowan-Robinson, J., “Section 52 Agreements and the Fettering of Powers” (1982) J. of Planning and Environment L. 673–685Google Scholar.

85 Cf. Juergensmeyer, supra n. 3 and N. Marcus, “Exactions Law in New York State” in Private Supply of Public Services …, supra n. 1, at 66-82.

86 See Alterman, supra n. 2 and E. Kaiser and R. Burby, “Exactions: A Planning Process Perspective” in Private Supply of Public Services …, supra n. 1. See also the discussion of fees in-lieu of land dedication at pp. 55-56 above.

87 See Dowall, David E., “Public Land Development in the United States” (1987) 2 J. of Real Estate Development 19–28Google Scholar.

88 Kaiser and Burby, supra n. 86.

89 Doebele, William A., “Introduction to Chapter 2” in Land Readjustment: A Different Approach to Financing Urbanization, Doebele, W. A., ed. (Lexington, Mass., D. C. Heath and Co., 1982) 1–10Google Scholar.

90 Cf. Renard, supra n. 20 and Schnidman, supra n. 22.

91 (1980) 34(ii) P.D. 265.

92 See Tor v. Local Planning and Building Commission for Ramat HaSharon (1980) 34(iv) P.D. 600.

93 Ibid.

94 18 L.S.I. 116 as amended in 23 L.S.I. 57. Sec. 4(1) states: “An acquisition by virtue of repartition under section 20A of the Town Planning Ordinance, 1936 [P.G. 1936, Suppl. I, no. 589, p. 157] or Article Seven of Chapter Three of the Planning and Building Law, 1965, shall not be taken into account” [in calculating the ceiling of 40% of land permitted for exaction].

95 A full discussion of the law pertaining to compensation for “worsement” under section 197 is beyond the scope of this paper.

96 Cf. Schnidman, supra n. 22; Kitay, Michael G., Land Acquisition in Developing Countries (Boston, Oelgeschlager, Gunn & Hain, 1985) 23–27Google Scholar; Nishiynmn, Yasuo, “Kukaku-Seiri (Land Readjustment): A Japanese Land Development Technique” (1987) 1 Land Assembly and Development 1–14Google Scholar.

97 35 L.S.I. 214.

98 37 L.S.I. 25.

99 See Alterman, , “Land Betterment Taxation Policy and Planning Implementation: Evaluation of the Israeli Experience” (1979) 2 Urban L. and Policy 201–240Google Scholar, and Alterman, , Land Value Recapture: Design and Evaluation of Alternative Policies, Occasional Paper No. 25 (UBC, Vancouver Center for Human Settlements, 1982)Google Scholar.

100 For an in-depth analysis of the law and practice, see Gil, Irit and Alterman, R., Israel's Land Betterment Levy: Legal and Implementation Issues (Haifa, Center for Urban and Regional Studies, Technion, 1990, in Hebrew)Google Scholar.

101 Who gets the proceeds is an important question in the design of betterment recapture tools, see Alterman, Land Value Recapture, supra n. 99. In Britain, the short-lived Development Land Tax passed the proceeds on to the central government, and only part of them came back to local authorities. In my assessment, the difficulties encountered in Britain in implementing that tax may reflect the weak interest of the local authorities in it. Over all, the Israeli tax seems more successful — perhaps due to this difference.

102 See Gil and Alterman, supra n. 100.

103 Hagman, Donald G., “Windfalls and Their Recapture” Chap. 2 in Windfalls for Wipeouts: Land Value Capture and Compensation, Hagman, D. and Misczynski, D., eds. (Chicago, Am. Soc'y of Planning Officials, 1978) 15–19Google Scholar; Alterman, “Evaluating Linkage and Beyond …”, supra n. 4.

104 See Lubianiker et al. v. Minister of Finance et al. (1983) 37(ii) P.D. 141. For analyse and criticism of the virtually boundless discretion given to the Minister of Finance in defining “public need”, see Shelach, Hanan P., “Judicial Review of Land Expropriations” (1980) 7 Iyunei Mishpat 618–652Google Scholar.

105 A ten-year study of public services by the present author and colleagues was aimed at developing a method for calculating needs based on national norms yet tailored to each particular context. The series of 7 Guidebooks to Planning Public Services were commissioned by the Ministry of Interior (in charge of planning) and are to be used as guidelines by planners and government bodies: Alterman, and Hill, , Guidebooks to Planning Public Services (Center for Urban and Regional Studies, Technion, Haifa, 1977–1985Google Scholar).

106 See discussion above at pp. 51-52 and 64-65.