The Metro project: What will be the fate of protected tenants?

The Metro project is expected to change the face of Gush Dan, but alongside the immense transportation benefit, it also involves land expropriation and the evacuation of residential buildings and businesses. The Metro Law establishes compensation mechanisms for owners of expropriated land and property, including the possibility of receiving additional consideration derived from future real estate development. However, between the property owners and the state, there is often another group whose status does not receive explicit regulation in the law: protected tenants who live in apartments or manage businesses in buildings designated for expropriation.

The Metro Law does not include a unique mechanism for compensating protected tenants and does not regulate the relationship between them and the property owners. It focuses on the compensation to be paid for the acquisition of rights required for the project's establishment. Therefore, the status of protected tenants continues to rely mainly on the Tenant Protection Law, expropriation laws, and the Planning and Building Law. The result is a significant gap: while landowners enjoy compensation mechanisms tailored to the Metro project and its development potential, the law does not explicitly state how the compensation due to a protected tenant who will be forced to vacate that land will be calculated.

Not an owner – but a right holder

A protected tenant is not an owner of the property. As a general rule, he is also not a partner in future building rights or the entrepreneurial profits that will be created following the development of the land. The accepted compensation for a protected tenant is mainly based on the value of key money. When it comes to forced evacuation, the tenant may be entitled to the full value of the key money and even additional payments. However, he is not automatically entitled to full ownership value or a share of the future appreciation of the property. Yet, the lack of ownership does not mean that the protected tenant's right has no significant economic value. It has already been established in case law that for the purpose of recognizing a right to compensation, one should not always examine only who is registered as the owner in the Tabu (Land Registry). One must also examine the economic interest in the property and the intensity of the damage caused to those who hold it legally. The Supreme Court has previously recognized that the right of a protected tenant is also worthy of protection, similar to the right of a tenant or lessee.

The bargaining power of the protected tenant

The Metro Law does not grant the owner special authority to evict a protected tenant. A property owner seeking to hand over the land to the state while it is vacant is still required to act according to the grounds for eviction existing in general law or to reach an economic arrangement with the tenant. This may strengthen the bargaining power of the protected tenant. The property owner is usually interested in completing the evacuation quickly in order to receive the compensation and realize the rights granted to him by law. However, as long as the protected tenant holds the property legally, he cannot be ignored. Practically, the tenant becomes a necessary partner in completing the evacuation process, even if he is not a partner in ownership.

What expenses should the compensation cover?

Alongside the compensation for the property itself, an owner of expropriated property may be entitled to payments for expenses accompanying the expropriation, such as attorney fees, purchase tax, brokerage fees, moving expenses, and compensation for the reduction in the enjoyment of the use of the property until the date of expropriation. However, when it comes to a protected tenant, the expenses arising from the need to find alternative property and move to it are borne by the tenant. Therefore, the compensation package for purchasing alternative property should be granted to the protected tenant — not the landlord. When it comes to a business, advertising expenses and capital gains tax applicable to key money should also be included.

The solution: increased monetary compensation

The proper solution is to establish in the Metro Law or in regulations enacted under it an explicit mechanism for compensating protected tenants. The starting point could be the principles applicable to forced evacuation under the Tenant Protection Law, but they must be adapted to the economic reality and the exceptional characteristics of the Metro project. Instead of relying on the outdated requirement to provide the tenant with alternative housing or an alternative business in practice, an increased monetary compensation should be established, based on the principles of forced evacuation and adapted to the compensation mechanisms established in the Metro Law.

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• The article is in collaboration with the Israeli legal website PsakDin

• Adv. Moshe Lin deals with real estate and the Tenant Protection Law

• Ynet is a partner of the PsakDin website