What is TAMA 38 and how does it affect non-resident property owners in Israel?

Owning an Israeli apartment from abroad comes with administrative challenges most non-residents underestimate. One of the least-anticipated is a notification from your Israeli building committee (ועד בית / va'ad bayit) — or no notification at all — that the building is entering a TAMA 38 urban renewal scheme. These schemes can fundamentally change your property: its structure, its common areas, your tax exposure, and even your ability to sell freely during construction. Understanding how TAMA 38 works as a non-resident owner matters long before any vote is taken.

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Detailed Explanation

TAMA 38 was enacted by National Outline Plan 38 (2005) and amended several times since. The most commercially active version has been TAMA 38/2, which permits demolition and rebuilding of qualifying pre-1980 buildings in exchange for the developer adding additional floors and selling those floors commercially. The scheme has become the standard mechanism for upgrading Israel's ageing urban housing stock, particularly in Tel Aviv, Ramat Gan, Rishon LeZion, and other coastal cities.

How the binding vote works. Under the Planning and Construction Law 1965 and the supplementary directive implementing TAMA 38, a vote of the apartment owners is required before a permit application can proceed. The required majority is 66.7% of all building owners measured by apartment count and floor area — not unanimous consent. Once that majority passes the resolution, remaining owners, including non-residents who never received or responded to the notification, are bound. Compelling a dissenting minority still requires a Family Court application by the majority in some configurations, but the court's discretion to block the scheme on the basis of a minority veto is narrow. Objections based on inconvenience, personal preference not to sell, or absence from Israel generally fail.

What changes in your apartment. Under TAMA 38/2 (demolish-and-rebuild), the building is entirely demolished and replaced with a new structure. During construction, the apartment is uninhabitable. The developer is typically contractually obligated to provide equivalent rental income to existing owners for the construction gap period — but this obligation is buried in the scheme agreement, and non-residents who do not retain Israeli legal counsel often do not know to demand it. Under TAMA 38/1 (reinforcement and addition), the existing structure is strengthened and floors are added; existing apartments remain habitable but subject to construction disruption. In both versions, existing apartment owners typically receive renovated apartments of equal or greater floor area, plus improvements to common areas and amenities.

Tax implications for the non-resident owner. A TAMA 38 scheme does not constitute a taxable sale of the apartment during construction. However, any betterment levy (מס שבח / mas shevach) exposure shifts to the existing owners' rights upon a subsequent sale. Non-resident owners who later sell an upgraded apartment must account for the increase in market value attributable to the scheme — including additional amenities, elevator, reinforced structure, and building improvements — when calculating capital gains. The Israel Tax Authority (Rashut HaMasim) compares the pre-scheme value of the land fraction to the post-scheme sale price, and the difference forms part of the taxable gain.

In Practice: Under Section 197 of the Planning and Construction Law 1965, a property owner whose property value is adversely affected by an approved plan can claim compensation from the local planning and building committee (va'ada mekomit) within 3 years of the plan's approval. For TAMA 38 schemes where the added floors or increased density reduce natural light or privacy in the existing apartment, this provision can support a compensation claim of NIS 50,000–200,000 for materially affected apartments, subject to professional valuation. The claim must be lodged within the statutory 3-year window — non-residents who learn of the scheme late often miss this window entirely.

Protecting yourself as a non-resident. The single most important step is having someone in Israel monitor your building's correspondence. Scheme developers typically serve notice on the building committee and may send letters to the Israeli address of the apartment — not to the owner's foreign address on file with the Land Registry (Tabu). A local attorney or a property management firm can track building committee minutes, developer proposals, and planning authority notifications on your behalf.

For a broader view of managing Israeli property from abroad — including ongoing maintenance, tenancy management, and tax compliance — see the guide on managing Israeli rental property from abroad.

Key Considerations

• TAMA 38 schemes can proceed with a 66.7% supermajority of building owners, binding non-resident minority owners without their active consent.
• Non-resident owners should appoint a local representative to monitor building committee correspondence — scheme notices are typically delivered to the Israeli apartment address, not to the owner abroad.
• A TAMA 38 upgrade increases market value and affects the capital gains tax calculation on any future sale — plan ahead with Israeli tax advice before selling post-upgrade.
• During demolish-and-rebuild schemes, the non-resident is typically entitled to equivalent rental value from the developer for the construction gap period — confirm this entitlement in writing before the scheme agreement is signed.
• The 3-year window under Section 197 of the Planning and Construction Law 1965 to claim compensation for adverse effects on your apartment value runs from the plan's approval date.

When to Consult a Lawyer

This question typically requires professional legal advice when:

• You receive a building committee circular or developer proposal for a TAMA 38 scheme affecting your Israeli apartment — prompt review of the binding majority position and your individual rights is essential.
• You are about to sell an Israeli apartment that has already undergone TAMA 38 improvements, and you need to understand the capital gains tax calculation including pre- and post-scheme values.
• You are a minority owner who has been notified of a Family Court application to compel your participation — the time to object or negotiate is before the court grants the order.
• The scheme agreement contains provisions about rental gap compensation during construction that you have not independently reviewed.

A qualified Israeli attorney should review the draft scheme agreement on your behalf before any binding vote is held.

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Speak With an Israeli Attorney

TAMA 38 schemes move quickly once a developer and majority owners are aligned. As a non-resident, you may learn about the process after key decisions have already been made — having local legal representation keeps you informed and protects your property rights throughout.

Contact us for a confidential initial consultation.