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.
decision
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.
Documents
