Classification of an empty building for property tax purposes: according to the plan or the building permit?
Aug 30, 2018
John Geva and Shlomi Hadar, Attorneys and Mediators
Introduction Recently, the Supreme Court issued an important ruling raising the following questions: How should a vacant property be classified for municipal tax (arnona) purposes? Should the classification be based on the planning designation according to the plan applicable to the property, or on the uses permitted in the building permit? These questions are significant in relation to the amount of arnona charged for a “vacant property” after exhaustion of exemptions and discounts for a vacant building that has not been used for a cumulative period, in accordance with Section 13 of the Regulations for State Economy Arrangements (Arnona Discount), 1993. In the circumstances of this case, the Supreme Court ruled on two appeals raising a similar issue.
Case Background
Case 1:In the first case, Africa Israel Investments Ltd., which owns two properties in the city of Tel Aviv, received a six-month exemption from paying arnona due to the properties being vacant. At the end of the exemption period, the properties were classified as “non-residential buildings,” and arnona charges were determined accordingly. Africa Israel filed an objection to the classification, which was rejected by the Municipal Tax Administrator of Tel Aviv-Yafo. Africa Israel then appealed to the General Municipal Tax Appeals Committee of Tel Aviv-Yafo Municipality.
Both parties agreed that for arnona purposes, the lowest property classification should be applied. However, Africa Israel argued that the lowest classification should correspond to the uses permitted under the planning scheme of the Africa Israel building, whereas the Municipal Tax Administrator argued that the properties should be classified according to the lowest use permitted by the building permit. The Appeals Committee accepted Africa Israel’s appeal and ruled that, according to the Supreme Court’s precedent, a property should be classified according to the lowest planning use permitted by law, and that this definition includes both uses permitted by the plan and uses authorized in the permit.
The Municipal Tax Administrator appealed the Appeals Committee’s decision to the Administrative Court, which ruled that the legal uses are limited only to those defined in the building permit. This led to the appeal by Africa Israel Investments Ltd.
Case 2:In the second case, the question of classifying a vacant property for arnona purposes arose again, when the Municipal Tax Administrator and Tel Aviv-Yafo Municipality challenged an Administrative Court ruling in favor of Beit Arlozorov Ltd., according to which the property classification for arnona purposes could be derived from both the plan and the building permit.
In both cases, the position of the Municipal Tax Administrator, the Tel Aviv-Yafo Municipality, and the State Attorney (who joined the proceedings) was that only the specific building permit issued for the property defines the uses legally permitted for the property.
John Geva and Shlomi Hadar, attorneys and mediators
introduction
Recently, the Supreme Court issued an important ruling that raises the following questions: How will an empty property be classified for property tax purposes? Is it according to the planning designation that corresponds to the plan applicable to the property or is it according to the uses permitted in the building permit? These questions are important in relation to the amount of property tax that will be collected for an "empty property" after exhausting the exemption and discounts on property tax for an empty building that is not used for an accumulated period according to Section 13 of the State Economy Arrangements Regulations (Property Tax Discount), 5753-1993. In the circumstances of the case, the Supreme Court ruled on two appeals that raised a similar question.
Circumstances of the case
In the first case, Africa Israel Investments Ltd., which owns two properties in the city of Tel Aviv, was granted a six-month exemption from paying property taxes because the properties were empty. At the end of the exemption period, the properties were classified as "non-residential buildings" and their property tax liability was determined accordingly. Africa Israel filed an objection to the classification, which was rejected by the property tax director at the Tel Aviv-Yafo Municipality. Africa Israel filed an appeal against this decision with the Appeals Committee for General Property Tax Matters at the Tel Aviv-Yafo Municipality. Both parties agreed that for property tax purposes, the cheapest property classification should be determined, but Africa Israel argued that the cheapest classification that is consistent with the permitted uses according to the Africa Israel House plan should be chosen, while the property tax director determined that the properties should be classified according to the cheapest use permitted in the building permit. The Appeals Committee accepted the appeal and determined that, according to the Supreme Court ruling, the property should be classified According to the cheapest planning designation permitted by law and that this definition includes both uses permitted under the plan and uses permitted in the permit. The property tax administrator appealed the decision of the appeals committee to the Administrative Court, where it was ruled that the legal uses are only those defined in the building permit. Hence the appeal by Africa Israel Investments Ltd.
In the second case, the question of classifying the vacant property for property tax purposes arose again, when the property tax director and the Tel Aviv-Yafo Municipality challenged an administrative court decision in favor of Arlozorov House Company Ltd., according to which the classification for property tax purposes can be learned from both the plan and the building permit.
In both cases, both the position of the property tax administrator and the Tel Aviv-Yafo Municipality and the position of the Attorney General (who joined the proceedings) is that only the specific building permit granted to the property defines the legally permitted uses of the property.
decision
According to the court, when it comes to classifying a vacant property for property tax purposes, it is not possible to rely on the test of the use made of the property to assist in its classification, and therefore a two-stage test must be applied. In the first stage, from among all the theoretical uses of the property, only the "basket" of uses that are appropriate for its planning designation must be selected. In the second stage, after the framework of possible uses according to the law has been identified, the cheapest classification that is consistent with the uses permitted by law for the property must be selected.
The court added that the appeals before it are in the first stage. The question is whether the "basket" of possible uses under the law is limited solely to uses permitted in the building permit or whether it can also include uses that are consistent with the designations established in the plan applicable to the property.
The court ruled that the Planning and Building Law prohibits the use of a property that is inconsistent with the planning norms that apply to it, including the building permit, if any. The court added that if a building permit is issued for a particular property, the planning and building laws consider it an exhaustive arrangement regarding the permitted uses of the property and prohibit any other use of it, even if this use was originally permitted in the plan. In other words: once a building permit has been issued for a property, any use made of it that is not in accordance with the permit is unlawful, even if it is a use that was permitted in the plan applicable to the property.
Regarding the question of classifying the property, whether it will be done according to the plan or according to the permit, the court ruled that for the purposes of classifying the property, the use options available to the owner of the vacant property as a result of the planning and building laws must be identified. These options are only those permitted in the building permit. Hence, use made in violation of the permit, even if it complies with the plan, is not a possible use available to the taxpayer.
In conclusion
Africa Israel's appeal was dismissed because the court below ordered the classification for property tax purposes in accordance with the use specified in the building permit. Since, in the case of the Arlozorov House property, the court below ordered the classification of the property not in accordance with the purpose specified in the building permit, the appeal filed by the Property Tax Administrator and the Tel Aviv-Yafo Municipality was accepted so that the property will be classified in accordance with the decision of the Appeals Committee.
According to the court, when it comes to classifying a vacant property for municipal tax (arnona) purposes, the test of actual use of the property cannot be relied upon to assist in its classification. Therefore, a two-step test must be applied. In the first step, among all the theoretical uses of the property, only the “set” of uses appropriate to its planning designation should be selected. In the second step, after the framework of possible uses under the law has been identified, the lowest classification corresponding to the uses permitted by law for the property should be chosen.
The court added that the appeals before it concern the first step. The question is whether the “set” of possible uses under the law is limited solely to the uses authorized in the building permit, or whether it may also include uses consistent with the purposes set out in the plan applicable to the property.
The court determined that the Planning and Building Law prohibits using a property in a manner inconsistent with the planning norms applicable to it, including the building permit, if one exists. The court further added that once a building permit is issued for a particular property, planning and building law treats it as a comprehensive arrangement regarding permitted uses and prohibits any other use, even if such use was originally permitted in the applicable plan. In other words, once a building permit is issued for a property, any use made of it that does not comply with the permit is unlawful, even if it is a use allowed by the plan applicable to the property.
Regarding the question of whether the property should be classified according to the plan or the permit, the court ruled that for the purposes of property classification, the possible uses available to the holder of the vacant property must be determined based on planning and building law; these possibilities are limited solely to those permitted by the building permit. Therefore, a use made contrary to the permit, even if it is consistent with the plan, does not constitute a possible use available to the taxpayer.
In conclusion: Africa Israel’s appeal was dismissed because the lower court had instructed classification for municipal tax purposes in accordance with the use specified in the building permit. In contrast, regarding the Beit Arlozorov property, the lower court had instructed classification not in accordance with the use specified in the building permit—the appeal filed by the municipal tax authority and the Tel Aviv-Yafo Municipality was accepted, and the property will be classified in accordance with the decision of the Appeals Committee.
מסמכים
