Improvement levy is one of the issues that often surprises apartment owners at the most sensitive moments: selling an apartment, reviewing a transaction, obtaining a municipal approval, or assessing the economic feasibility of a project. In recent years, a significant dispute developed over whether a local authority may charge improvement levy for an increase in value attributed to TAMA 38 or to plans based on it, even where no building permit was actually issued and the rights were not realized.
On October 16, 2025, the Israeli Supreme Court issued the central ruling in the Levitan case, holding that the effect of TAMA 38 must not be artificially neutralized from the value of the “previous condition” when calculating improvement levy. On July 5, 2026, Justice Yael Wilner rejected the requests filed by the Tel Aviv and Jerusalem municipalities to hold a further hearing, making the ruling final for practical purposes.
The significance for apartment owners and anyone involved in apartment sale transactions is broad: not every increase in apartment value is an improvement that entitles the local committee to payment. It is necessary to examine what actually caused the increase in value, when the improvement was created, and whether the matter involves actual planning rights or merely general potential.
What Is Improvement Levy and Why It Matters in an Apartment Sale
Improvement levy is a payment to the local planning and building committee, usually at a rate of half of the increase in value created in real estate as a result of a planning act: a plan, a variance, or an exceptional use. The charge usually arises upon realization of rights, such as selling an apartment or obtaining a building permit.
At first glance, the mechanism is simple: if a new plan increased the value of the property, the owner shares part of the improvement with the public. In practice, the difficult question is what actually caused the increase in value. Was there a specific plan that granted clear rights? Was it only potential? Did the market already reflect that potential in the apartment price before the later local plan?
These were precisely the questions addressed in the proceedings concerning TAMA 38, the Tel Aviv Quarters Plan, and the Rehavia plan in Jerusalem.
What the Supreme Court Held on October 16, 2025
The judgment of October 16, 2025 dealt with a focused appraisal and legal question: when calculating improvement levy, should the effect of TAMA 38 on the property value before approval of the later local plan be ignored? The Supreme Court’s answer was no.
The central principle is that improvement levy requires a causal link between the improving plan and the increase in value. If the increase in value results from another factor, or from general potential that did not create a taxable event under the law, there is no basis to charge improvement levy for it.
In simple terms: the local committee cannot disregard the contribution of TAMA 38 to the market value of the property in the previous condition, and then argue that the later plan created the entire improvement. If the market had already priced the planning possibility, that must be taken into account in the appraisal.
What Happened in the Latest Decision of July 5, 2026
After the judgment, the Tel Aviv and Jerusalem municipalities requested a further hearing. A further hearing is an exceptional procedure, generally reserved for cases in which a new, difficult, or far-reaching legal rule has been established and justifies reconsideration by an expanded panel.
On July 5, 2026, Justice Yael Wilner rejected the requests. The meaning of the rejection is that the rule established in the judgment remains in force, without a further hearing. Practically, this is an important endpoint to a dispute that concerned apartment owners, developers, appraisers, attorneys, and local authorities.
The Supreme Court thereby reinforced the idea that improvement levy cannot be charged merely because general planning potential exists. There must be a real planning improvement that stems from the plan under which the charge is sought.
Why the Tel Aviv and Jerusalem Municipalities Tried to Charge the Levy
In certain municipalities, especially Tel Aviv and Jerusalem, it was argued that local plans based on TAMA 38 created significant improvement potential. Therefore, when an apartment was sold, local committees sought to charge improvement levies even where no project was carried out and no permit was issued.
For the authorities, this represented a significant source of revenue. For apartment owners, it sometimes meant a very high payment demand in an ordinary sale of an older apartment, while the planning rights were still uncertain, unrealized, and sometimes not feasible at all in the specific building.
The Supreme Court placed a limit on this approach. It is not enough that a general plan or theoretical possibility exists. One must examine what was actually granted to the property, what its value was before the later plan, and what real improvement was created by that plan.
The Meaning for Apartment Owners Selling a Property
A person selling an apartment in an area affected by TAMA 38, a quarters plan, an urban renewal plan, or another local plan should not automatically assume that every improvement levy demand is final. The appraisal, the calculation basis, and the connection between the plan and the alleged increase in value should be reviewed.
In some cases, there may be no liability at all. In other cases, the liability may be much lower than the initial demand. The difference can be substantial, especially in transactions where the levy affects the seller’s net consideration and the economic viability of the transaction.
Therefore, before signing a sale agreement, it is important to clarify whether there is exposure to improvement levy, whether an appraisal has been issued, whether there is room to file an objection or appeal, and how responsibility for payment should be regulated in the agreement.
The Meaning for Apartment Buyers
Buyers should also pay attention to the issue. Seemingly, improvement levy is a seller’s matter, but a transaction that does not address it properly can become stuck. If the seller has not obtained municipal approval for registration, if there is a dispute with the local committee, or if no clear mechanism was set for payment and delivery of approvals, transfer of rights may be delayed.
In cases involving older apartments in areas with urban renewal potential, it is advisable to review not only the Land Registry extract and the planning condition, but also the local committee’s policy and the possibility of future charges. A good transaction is measured not only by price, but also by the ability to complete it without surprises.
Does the Judgment Cancel Every Improvement Levy Connected to TAMA 38?
No. This is an important point. The judgment does not say that improvement levy will never be payable in any case connected to urban renewal. It says that a levy cannot be charged merely on the basis of theoretical improvement or by artificially neutralizing the effect of TAMA 38 from the previous condition.
If a specific plan granted additional, clear, and feasible rights, or if a building permit was issued that realizes rights, liability may arise. Each case must therefore be examined according to the documents, the date of the plan, the type of rights, the condition of the property, and the appraisal that was issued.
What to Do If You Receive an Improvement Levy Demand
First, do not rush to pay before reviewing the demand. The appraisal, the plan on which it is based, the date of realization, and the method for calculating the previous and new conditions should all be examined.
Second, deadlines must be checked. Improvement levy law includes deadlines for filing an objection, appointing a decisive appraiser, or taking the appropriate proceeding. Missing a deadline may harm the ability to challenge the demand.
Third, in a sale transaction, the agreement should state who bears the levy, what happens if the appraisal changes, whether an amount is held in escrow, and when the registration of rights can be completed.
The Bottom Line
The Supreme Court’s decision reinforces a basic principle of improvement levy law: the authority may charge when it has granted a real planning improvement, not when it seeks to tax general potential or an increase in value that already existed in the market.
For apartment owners, sellers, and buyers, this is an important reminder: improvement levy is not a technical clause discovered at the end of a transaction. It is a legal and economic component that should be reviewed in advance, especially in areas affected by TAMA 38 and urban renewal. Proper review can prevent unnecessary payment, a dispute with the municipality, and delay in completing the transaction.
Disclaimer: The information in this article is provided for general informational purposes only and does not constitute legal advice, a legal opinion, or a substitute for individual advice from an attorney. Each case should be reviewed according to its specific circumstances, and it is recommended to consult an attorney before making any decision or taking action.
