Guarantees in Urban Renewal (TAMA 38, Evacuation and Construction) That We Recommend Requesting
Urban Renewal Projects: Key Guarantees to Secure Your Investment
Urban renewal projects, including Tama 38 (a program for reinforcing buildings) and evacuation-reconstruction projects, offer significant potential to enhance your living conditions in your apartment, building, and neighborhood. One critical aspect that should be prioritized during negotiations with developers is securing appropriate guarantees to protect your interests in these projects.
Before signing a contract with a developer for an urban renewal project, it is advisable to request several specific guarantees from the developer and the construction contractor involved. Currently, there is no specific legislation mandating certain guarantees or regulating standard commercial practices in this area. Therefore, consulting with a specialized attorney experienced in Tama 38 or evacuation-reconstruction projects is crucial before entering into such an agreement.
This article provides an overview of the types of guarantees you should request for Tama 38 and evacuation-reconstruction projects.
Performance Bond
In projects involving the demolition of apartments, it is essential to require a performance bond from the developer and/or the contractor for each resident whose apartment will be demolished. This bond, issued under the Israeli Housing Law, is designed to provide protection to buyers in case the developer or contractor goes bankrupt or the company enters liquidation.
The performance bond is a bank guarantee that ensures the delivery of the new apartment from the developer, even if the developer fails to fulfill their commitment and complete the construction project. If no one is found to continue the project through the bank that issued the bond, residents holding this bond can claim its value in cash.
Autonomous Bank Guarantee for Rent
For projects where residents must vacate their apartments for demolition, it is crucial to require an autonomous bank guarantee from the developer or contractor. This guarantee ensures the payment of monthly rent as promised in the agreement to the residents. The autonomous guarantee is independent and does not rely on legal proceedings, with the issuing bank committed to paying the rent if there is a delay in payment.
Performance Guarantee
In Tama 38 reinforcement projects where there is no element of apartment demolition, it is necessary to request a performance guarantee from the developer or contractor. This bank guarantee, equal to the cost of project execution, ensures that construction work will meet the contractual requirements and protects the rights of the building’s residents. Additionally, if the contractor goes bankrupt and fails to meet their obligations, the performance guarantee allows the developer to complete the construction work and be compensated for any resulting losses.
Tax Guarantee
The purpose of a tax guarantee is to ensure payment of taxes related to urban renewal transactions, and it is examined based on the project’s nature and tax exposure. For projects where residents are exempt from certain taxes (especially in evacuation-reconstruction projects), a tax guarantee may not be necessary.
It is important to note that taxes applicable to the developer for purchasing land or building rights may be subject to tax guarantees. The developer should be required to present purchase tax certificates for payments. In such cases, the developer will not need to issue a tax guarantee, avoiding unnecessary costs that burden the project.
Betterment Tax Guarantee
In evacuation-reconstruction projects, it is customary to demand an autonomous bank guarantee for the exposure to betterment tax in case of non-compliance with the exemption conditions if any owner sells their rights.
This guarantee can be claimed if a demand for betterment tax payment is issued and the obligation to pay lies with the developer according to the agreement, and the developer fails to make the payment on time.
Defects Liability Guarantee
The defects liability guarantee replaces the performance bond after the completion of construction work, usually for a period of one year. It covers the costs of repairs for construction defects discovered during the defect liability period.
It is important to clarify that the defects liability guarantee is only provided to existing building residents and not to buyers of new apartments being built in the project. For new residents, the developer or contractor must issue a sale guarantee.
Registration Guarantee
The registration of the property at the end of the project is the responsibility of the developer and/or contractor and is funded by them. The registration guarantee ensures the registration of the shared building and/or the correction of the property registration order. The amount of the guarantee varies based on the project’s scale and includes the legal fees required for the registration process.
Parent Company Guarantee
The choice of the development company and/or contractor for the project is typically based on the company’s reputation and achievements in the construction industry. If the developer signs the binding agreement with residents through a special purpose company established for the project, rather than through the parent company, there are legal implications for the property owners. A special purpose company created solely for the project without backing from or direct connection to the parent company lacks financial stability. It is advisable to require the developer or contractor to ensure that the parent company guarantees the commitments of the special purpose company to the residents.
Guarantee for Legal Expenses
In evacuation-reconstruction projects, it may be necessary to request a guarantee for legal expenses related to enforcing the housing law guarantee if residents need to take legal action to claim the guarantee provided to them. This guarantee covers the legal expenses of residents, represented by an evacuation-reconstruction attorney, for any legal proceedings required to enforce the housing law guarantee if applicable grounds for its enforcement arise.
Conclusion
The real estate sector, particularly urban renewal projects, involves numerous guarantees, each with its own significance and implications. When signing agreements for urban renewal projects, it is crucial to focus on the issue of guarantees to protect yourself as much as possible against the developer or contractor. Therefore, it is highly recommended to engage the services of an attorney experienced in Tama 38 or evacuation-reconstruction projects.
Our firm specializes in extensive urban renewal projects and provides professional and personalized legal support to property owners. Our legal services cover all stages of the transaction, from identifying the developer and contractor, assessing the project’s financial viability, negotiating and signing the agreement, to receiving the new apartment and completing the shared property registration process. Feel free to contact us if you need assistance.
