Compensation as a planning compass: decision making in light of future claims and lawsuits

ABSTRACT

Local governments around the world are typically required to compensate property owners for decline in property values due to planning actions. This has impacted and constrained the ability of cities to manage and plan their environments. We explore how issues of compensation, or the fear of compensation payments, influence the planning process and system. Delving into Israel’s planning system, renowned for its generous compensation regime, we examine Tel-Aviv‘s largest conservation plan, which afforded heritage protection to a thousand buildings, and inquire how issues of compensation affected decisions during the planning and implementation stages of the city’s most significant conservation policy.

KEYWORDS:

• Compensation
• property rights
• takings
• Tel Aviv
• heritage
• preservation

Introduction

When considering how capital influences planning, issues like profit, supply and demand, or real estate prices are likely to come to mind. This paper takes a different path, examining how issues of compensation, or the fear of lawsuits over property values, influence the planning process, its implementation, and the planning system. Specifically, we focus on what Alterman (2010) refers to as partial takings due to direct injuries, that is, regulatory compensation of property owners for a decline in property value caused by planning actions. We explore how possible diminution in land value can guide planners and affect their decisions; how their fear of having to pay large sums of money to property owners shifts the trajectories of plan-making and policy implementation; and how significant planning policies are formulated out of fear of facing lawsuits that could fiscally harm local governments. Moreover, we demonstrate how the fear of lawsuits, like fear of compensation itself, could be a crucial motivator for adopting certain policies that affect land use.

Planning actions can violate individual property rights and depreciate property values, in which case compensation may be legally required. The literature indicates that the key justifications for compensation are: safeguarding the rights of property owners by restoring their economic position to its pre-taking level; balancing public interest or necessity with the protection of private property rights; distributing the individual burdens of specific properties among the general public (i.e. the fairness principle); and in an era of economical thinking, allowing the interests of property owners to be taken into consideration by governing agents (Lewinsohn-Zamir 1996; Ziegler 2022). The last point illustrates how the fear of taking money out of public budgets to compensate owners compels planning authorities to weigh the negative impacts of their actions against the benefits.

These justifications are easily recognizable when dealing with single lots or individual cases. However, as the number of properties affected by planning actions or regulations increases, so does the likelihood of multiple compensation lawsuits brought before courts. Tensions over compensation may become a serious problem when promoting city-wide plans such as those dealing with climate change, urban intensification, and renewal projects. In these instances, enacting far-reaching policies can lead to cities being forced to compensate many property owners for a decline in property values, which can quickly become a considerable financial burden (Putters 2010). This is especially challenging in times of austerity, rescaling, and reduction in governmental fiscal assistance, when many local governments are already in constant financial distress (Carmeli 2008; Pugalis and Townsend 2013).

Having to compensate many owners simultaneously increases financial risks and adds uncertainty to a city’s ability to manage and plan itself (Savini 2017). This may lead local governments to abandon much-needed plans or refrain from advocating certain regulatory actions in order to protect their budgets from impending financial consequences (Havel 2017; Linkous and Skuzinski 2018). Furthermore, due to a lack of public funds to pay out compensation, municipalities may be left with no alternative but to curtail their planning activities (Havel 2017).

To reduce the prospect of future compensation payments, some local governments have adopted non-financial compensation mechanisms that grant property owners additional development rights or other benefits to even-out additional costs incurred by property owners (Sheppard et al. 2017; Van der Veen, Spaans, and Janssen-Jansen 2010). These mechanisms reduce financial risks to both owners and municipalities, and may even stimulate new investments (Savini 2017). However, they can have a significant impact on the physical form of the city and on the administrative capabilities of local governments (Pike et al. 2019), as well as affect the geographical distribution of building rights in the city. This might result in prioritizing the interests of private developers and landowners at the expense of the general public’s interest (Havel 2017; Linkous and Skuzinski 2018). Furthermore, these planning mechanisms are usually based on agreements and negotiations between stakeholders, adding discretion to decision-making and weakening transparency (Moore 2013; Searle 2018).

Aims and scope

How does the possibility of compensation claims, or the fear of paying out compensation, influence the planning process and decision-making? This is the question the paper seeks to address. It explores if and how ambitious citywide regulations and the specter of compensation claims can have far-reaching effects on a variety of issues – on heritage policies, on city government and its decision-making, and on historic preservation practices.

Despite the fact that regulatory compensation for decline in property value has been discussed in the literature (e.g. Alterman 2010; Jacobs 2010; Kalbro 2007; Mohamed 2013), there are only a limited number of works that address the day-to-day implications of compensation payments and their influence on decision making. Some notable exceptions are: Linkous and Skuzinski (2018) who review the effects of Florida’s property rights legislation on institutional responses and decision making; Havel (2017) who examines the dilemmas Polish cities face when enacting planning policies that generate compensation payments; and Van der Veen et al. (2010) who discuss how municipalities are increasingly using non-financial compensation approaches as antidote for future compensation claims by disgruntled landowners.

In this paper we contribute to the existing body of literature by examining the city-wide conservation plan of Tel Aviv (known as TA.2650.B.2), the largest conservation plan in the country to-date which provides heritage protection for 976 buildings (See Figures 1 and 2). Hence, its potential impacts on property, property values, and by extension on planning trajectories, are significant.

Figure 1. Infographic depicting the primary characteristics of Tel Aviv’s conservation plan.

Figure 2. Heritage buildings as determined by Tel Aviv’s conservation plan.

We chose this case for two reasons: First, Israel is known for having ‘one of the world’s most generous regimes of compensation rights for decline in property values due to planning decisions’ (Alterman 2010). Israeli policy regards property as a basic legal right, and offers compensation even for partial takings in similar fashion to other countries such as Poland, Sweden, Germany, and the Netherlands, which stands in contrast to countries such as Canada, Australia, the United Kingdom, France, and Greece, which typically do not compensate for partial takings, with few exceptions (Alterman 2010). Israeli law provides a substantial safety net for owners whose property has been devalued due to planning regulations. Under section 197 of the Israeli Planning and Building Act, owners and others holding title (long-term leases, for example) who believe their property rights have been injured by a statutory plan may file a claim for compensation against the local planning authority (LPA). Unlike American courts, Israeli courts do not require proof that no reasonable or economical use of the land remains as a prerequisite for compensation (Lewinsohn-Zamir 1996). Thus, owners may be entitled to compensation even if their property remains functioning and intact. Furthermore, Israeli courts do not require owners to demonstrate a direct loss, and therefore the decline in value may remain ‘on paper’ (Alterman 2010). As a result of these provisions, LPAs in Israel are likely to incur higher compensation payments compared to other countries. Thus, the fear of being sued by property owners lurks behind practically every statutory plan and may influence nearly every land-use decision, including heritage protection (Alterman 2007).

Second, this paper focuses on built heritage, an issue that incorporates many tensions between owners and public authorities (Mualam and Alterman 2018). Conservation can be inherently intrusive, regulating and limiting the future development of historic properties (Been et al. 2016; Salinger et al. 2022). As a result, heritage protection may prevent owners from realizing the full economic potential of their property (e.g. Hobson 2003; Costonis 1989). Furthermore, the situation in Tel Aviv’s conservation plan’s stipulations increases the probability of property owners pursuing compensation. Most heritage properties listed in the plan are private residential apartments, usually owned by multiple owners. They are typically dilapidated, meaning that considerable effort and labor are required to restore them. In addition, they are located on plots that contained unrealized development rights that the plan had to take into consideration. Many owners hoped that due to their building’s dilapidated state, the municipality would grant them permission to demolish them and rebuild taller structures (see Figure 3) – a sentiment which led to a widespread disappointment felt by owners.

Figure 3. The building was designed by architect Yossef Kashdan in 1936 on Menachem Begin Street, Tel Aviv. Prior to the conservation plan, the building’s owners sought approval for a plan to demolish the structure and construct a tower in its place. Throughout the approval process of the conservation plan, the owners fought to have their building removed from the plan. To their dismay, the plan designated the building for protection with strict restrictions. Following, the owners applied for a planning permit for an extra floor, utilizing the lot’s unrealized development rights. This request was denied and the building continues to remain a dilapidated eye sore. (photo taken by authors).

The combination of these conditions – an overarching heritage policy, and the pro-owner compensation regime of Israel – together provide an ideal setting to explore the potential impact of future compensation payments on planning and urban management. Our analysis explores how fear of compensation claims affected, and in many cases drove, different decisions by Tel Aviv’s planners and public officials with respect to the city’s conservation plan. First, we review the approval phases of the plan, during which fear of compensation lawsuits took shape. Specifically, we demonstrate how the plan’s trajectory was foreshadowed by owners’ threats of suing local government over the devaluation of their property and how these threats corresponded with internal conflicts within the municipality. In addition, we review the non-financial incentives incorporated into the plan, how the reduction of compensation payments was prioritized as a main planning issue, and how it affected the number of designated buildings. Moreover, we examine how concerns by public officials affected the implementation process and how 15 years after the plan’s approval, the issue of compensation still looms over the city, with millions of dollars hanging in the balance. Lastly, we examine how Tel Aviv’s conservation plan affected the willingness of other cities to undertake heritage protection.

Methods

To explore these issues, we reviewed planning documents, regulations, municipal and regional meeting minutes, as well as secondary sources such as articles and scholarly reports. Additionally, we drew information from a series of sixteen interviews with key stakeholders. These hour-long interviews took place between 2021–2023, focusing on various aspects relating to Tel Aviv’s conservation plan. The interviewees were selected using a non-probabilistic purposive sample (Guest et al. 2006). To gain a broad perspective on tensions relating to conservation in Tel Aviv, we selected interviewees who were significantly involved in the city’s conservation actions or in the creation process leading to the approval of the conservation plan.

The conservation plan’s approval phase

The motivation for promoting Tel Aviv’s conservation plan was twofold – revitalizing its city center and protecting its modern (international) heritage (Alfasi and Fabian 2008). Despite the compelling economic rationale for promoting heritage protection, the plan became the focal point of numerous internal struggles that divided the municipality into two major coalitions. The pro-conservation coalition, which comprised of the planning and conservation professionals, as well as the mayor; and the anti-conservation coalition, which consisted of the municipal Chief Executive Officer (CEO) and several other departments.

The discussions in City Hall focused primarily on the plan’s economic and real estate impacts, rather than its aesthetics or the promotion of urban vitality. Heritage preservation was considered by many city officials as a ‘nice to have’ resource, but first and foremost planners had to make sure that the plan would not backfire, landing the city in unexpected debt due to lawsuits filed against it. As an interviewee stated:

The city was hysterical; many municipal officials claimed the city would not be able to handle future compensation claims. There were endless shouting matches at the municipal CEO’s office and the city Economic Department … We had to bring more and more appraisal data and economic research. And the CEO didn’t trust us, so he hired another appraiser and conducted additional appraisal. The fear of the city related to the economic commitment it had to make. This was a huge concern for the system. (former head of planning department, pers. comm., October 7, 2021)

Fear of lawsuits and potential compensation payments played a key role in slowing down the approval process, which lasted sixteen years, a long time even by Israeli standards (see Figure 4). As one interviewee indicated:

Figure 4. Timeline of the approval and implementation process of Tel Aviv’s conservation plan.

The municipal internal approval procedure was all an uphill fight due to the fear of compensation claims and because of the traditional view that conservation is anti-development. (former head of Planning Department, pers. Comm., October 7, 2021)

In 2003, in the midst of the approval process, UNESCO designated Tel Aviv’s city center as a world heritage site (WHS) known as ‘The White City’. The difficulty in promoting the plan and the heightened tensions within the city’s administration led several interviewees to speculate that the true motivation behind promoting the WHS designation was to give city officials a substantial push towards approving the conservation plan. As one interviewee stated:

The [UNESCO] designation hastened the approval process, at least from the point of view of the planning professional staff; suddenly we had to meet the goals of the [declaration]… The designation allowed us to brand the conservation plan in a festive way. It turned it into something that was not only technical or a municipal statutory issue, but something with a vision and an ethos. (Former Planning Department employee, pers. comm., February 6, 2023)

Reduction of compensation payments as a primary planning concern

Economic concerns about compensation payments were among the chief issues addressed by the plan, and this preoccupation with its economic impact set the tone for the Planning and Conservation Departments’ work, resulting in the neglect of other crucial concerns. According to one interviewee:

Social issues were not at the forefront because conservation created such a financial challenge. The CEO sat down and calculated how much the program would cost him. We were so preoccupied that it never occurred to us to consider what the plan would mean for the community (Former conservation department employee, pers. comm., February 6, 2023)

As seen in this case, adopting a compensation-oriented mindset may encourage decision makers to prioritize economic issues above others and lead to the dismissal of public concerns in favor of economic considerations. Public objections are evaluated solely in terms of whether compensation is required, rather than whether broader qualitative concerns are justified. However, not all injuries to property owners can be viewed or rectified through a financial prism (Lewinsohn-Zamir 1996). Therefore, focusing solely on economic challenges might dilute the planning conversation and harm the process and quality of planning itself.

Non-financial incentives incorporated into the plan during its approval phase

The issue of compensation acted as a strong force in introducing changes in the conservation plan and enhancing the non-financial compensation provided to owners. To mitigate the risk of potential lawsuits concerning property devaluation, the Tel Aviv municipality introduced innovative, albeit costly, tools to offset financial losses incurred by property owners. These tools attempted to even-out the increased costs of upkeep and preservation that property owners were expected to bear. They were embedded in the plan’s statutory provisions and included a range of ‘bonuses’ and incentives. Specifically, the plan allowed owners of 787 buildings designated for conservation without strict restrictions to utilize unrealized development rights within their lot by relaxing construction restrictions, such as expanding building lines and lot coverage; increasing the number of buildings and housing units; recalculating service areas; expanding permitted uses; and adding new balconies, roof apartments, or underground basements (see Figure 5).

Figure 5. The building was designed by architect Shlomo Gepstein in the 1930s on Hovevei Zion Street, Tel Aviv. The conservation plan designated the building for heritage protection without strict restrictions. In 2014–15, as part of its conservation process, an extra floor and underground parking facility were added. Currently, the building accommodates twelve luxury apartments, featuring an exclusive rooftop pool. (photo taken by authors).

Paradoxically, to protect the past and deflect future lawsuits, the plan had to change the future of the buildings, de facto altering the urban landscape of the entire city center. Although many city officials initially viewed this solution as a suboptimal compromise between development and conservation, many practitioners around the world consider Tel Aviv’s non-financial compensation solutions as a ‘best-practice’ approach to historical urban landscapes. As one interviewee explained: ‘People come to us from around the world to see how we integrated development and conservation. They view it as a success story. To us, it seems like a compromise that resulted from having no other option; we needed to allow additional rights, so we did’ (former Conservation Department employee, pers. comm., February 6, 2023).

Non-financial compensation instruments were also adopted by the city to help expedite the preservation of buildings that were subjected to strict restrictions. Specifically, the city implemented a Transfer of Development Rights (TDR) mechanism to expedite the preservation of buildings, that were subjected to strict restrictions, by allowing owners to transfer unused development rights to another (receiving) lot (See Figure 6).

Figure 6. The Vilozny House (constructed in 1936–7 on Mikvei Israel Street, Tel Aviv) was designed by architect Mordechai Rosengarten. Over time the building deteriorated and many of its residential flats were converted into office and warehouse spaces. Its front court was converted into a parking lot, serving a garage located on the entrance floor of the building. Due to its historical and architectural values, the conservation plan listed it as a heritage building with strict restrictions. Thus, the owners could initiate a transfer of development rights (TDR) as part of its conservation. In 2012 two developers struck a deal, and a year later, the obligatory statutory plan was approved, transferring 886 square meters of unrealized development rights to a new residential building in Yehuda Ha-Levi Street. The building currently incorporates thirty small apartments, two penthouses, and a bustling coffee shop that is frequented by many locals. (photo taken by authors).

The TDR mechanism created two new tensions in the public realm. First, it transferred unrealized building rights far away from the protected buildings, spreading potential tensions to new locations in the city. Second, when the conservation plan was approved, TDR was a relatively novel and underutilized tool in Israel, mostly unknown to the real-estate market. Much time and effort had to be expended to realize it. Owners of heritage buildings and receiving lots needed to collaborate and overcome many technical hurdles and transaction costs. Furthermore, TDRs could only be implemented through an additional statutory plan, which made it both time-consuming and expensive, not to mention adding additional backlog to the planning system.

Reducing the number of designated buildings in the plan

Fear of compensation payments led decision makers to also change the scope of the plan. Initially, the plan intended to conserve many of the city’s buildings and its urban fabric. The latter was to be accomplished by protecting the layout and design of the city, including its streets, landscape, and in-between spaces, as planned by created by Sir Patrick Geddes (Mualam 2017). However, designating so many buildings for preservation heightened the city’s economic risk from potential compensation payments. To reduce the amount of payouts, the municipal department charged with city revenues and budgets pressured the Planning Department to keep the number of heritage buildings to a minimum. As one interviewee explained, the Planning Department was put under severe scrutiny:

It was a process. We felt trapped all the time. We felt that if we crossed a certain limit, the CEO and the municipality would not support the plan. On the other hand, we wanted to preserve every building that has value, but we also wanted the plan to preserve the urban fabric” (Former head of Planning Department, pers. comm., October 7, 2023)

The pressure was so intense that for a brief moment, the Planning Department even considered cutting down the plan to protect only a small number of iconic ‘landmark’ buildings. After much deliberation, several compromises were reached.

First, despite the conservation plan’s intended goal to protect both heritage buildings and the urban fabric within the UNESCO declaration area, concerns over pouring compensation claims led the regional planning committee to limit the plan to only addressing buildings. It was assumed that a future plan would eventually protect the urban fabric between listed buildings. However, this ensuing plan was only approved in 2016, leaving the urban fabric vulnerable for many years.

A second compromise was that any building that could gain heritage protection through other means was excluded from the plan. This included buildings that had already been protected by existing plans and those that could be earmarked for protection in future plans. Some of these additional plans were quickly approved, while others are still awaiting approval, exposing architecturally significant structures to the whims of the real estate market.

The decision to exclude these buildings also had a lasting effect on the plan’s appearance and the way it was perceived. Instead of a straightforward policy that brings the city’s built heritage to the fore, the comprehensive conservation plan is riddled with unexplained holes that give the impression that some of the city’s significant buildings are less worthy of protection (see Figure 7).

Figure 7. Principal areas where structures were removed from the conservation plan. These deletions appear to hollow out the city’s conservation strategy. Certain parts of the city appear to be devoid of heritage protected structures, giving the impression that they are inferior to other parts of the city that contain designated structures. This includes areas inside the UNESCO world heritage site.

How compensation claims and lawsuits affected the implementation of the conservation plan

Insofar, this analysis has illustrated how fear of compensation claims affected and hindered the planning and approval of Tel Aviv’s conservation plan while driving decision makers to take a cautious, even pro-owner approach, which granted them more economic benefits than initially intended. In this section we illustrate how looming threats of multiple compensation claims continued to affect the plans’ implementation. We focus on three main concerns: how issues of compensation affected the management of the city itself; how it produced discrimination between owners who filed compensation claims and those who did not; and how it affected other cities in Israel.

Managing the city in the face of multi-million dollars compensation claims

Under Israeli law, property owners and others holding title can lodge compensation claims within three years of a plan’s approval, to be adjudicated by special planning tribunals. This means that the planning authority has three years to try and prevent as many compensation claims as possible from being brought against it successfully.

To reduce the number of potential compensation claims, the municipality devised an offensive strategy. Its real-estate appraisers started hyping up the concept of ‘heritage branding’. Municipal real-estate experts opined that the conservation plan was the manifestation of the UNESCO World Heritage declaration and as such it increased the value of the buildings under its protection, as well as boosting their prestige, not unlike Michelin stars or LEED certifications. As such, instead of the city having to pay owners compensation, municipal experts advocated that in fact it was the building owners who ‘owed’ the local government for boosting their property values. Under Israeli law, this windfall mandated owners pay a betterment tax.

For the first three years following the plan’s approval in 2008, the municipality made an effort to persuade property owners to sign ‘mutual waiver agreements’, in which the LPA agreed to waive future betterment taxes in exchange for owners forfeiting their compensation claims. Many owners signed these agreements, though many others did not.

Eventually, 380 compensation claims were filed by property owners, totaling NIS 2.6 billion (US $730 million) – an amount that if paid out, according to all expert interviewees, would bring the city to an economic collapse. Most of the claims revolved around the plans’ prohibition to tear down structures, prevention of using speculative building rights, and the incurring of higher renovation costs as result of heritage restrictions. Facing this alarming figure, the municipality continued to demand owners pay a betterment tax as a negotiating tactic to deflect some of the claims and persuade owners to strike a deal.

However, introducing a betterment tax generated a new dilemma for the judicial system. While the municipality asserted that the conservation plan increased the value of the properties, many owners asserted that in fact the opposite was true. Israel’s case law did not help much in this quandary. While courts have agreed that heritage protection plans may constitute regulatory takings, each case had to be examined on its merits. Thus, initially, each claim brought against the city was evaluated on a case-by-case basis, with varying outcomes. In order to put an end to this ambiguity, it was eventually determined in 2013 that all compensation and betterment tax claims would be evaluated collectively by an appeals tribunal to determine once and for all if the plan increased or decreased property values. This marked the beginning of a lengthy series of hearings that continued for many years without a final resolution, leaving the city and property owners in limbo.

The large sum of money associated with the compensation claims and the ambiguity regarding the need to pay it posed a serious continuous threat to the municipality’s financial stability. As a former regional planner noted: ‘When a city is threatened with having to pay 2.6 billion NIS in compensation, this is not something to be taken lightly. This is public money flowing into private pockets. It can be argued that the common good became the good of specific individuals. This money will not be used to realize important goals, such as education or providing infrastructure’ (former regional planning committee planner, pers. comm., January 22, 2023).

This had drastic effects on the management of the city. First, ever since the plan’s approval, the municipality has resisted promoting or revising big-scale conservation plans. As an interviewee from the regional planning committee remarked:

When we ask the Tel Aviv municipality, and we have asked them multiple times, ‘Perhaps you should create a new conservation plan,’ or ‘Perhaps you should update your conservation plan,’ They always respond with – No way. No way. We will not embark on a new adventure until these existing compensation claims are resolved (regional planning committee planning employee, pers. comm., January 22, 2023)

Thus, in the city that is still regarded by many as Israel’s beacon of modern heritage conservation, future conservation policies are in a deadlock, neither approved nor updated. Furthermore, as theories and trends evolve in the realm of built heritage, some regard the Tel Aviv conservation plan as outdated and in need of revision.

Moreover, economic instability decreased the willingness of municipal decision makers to take on new risks and approve new large-scale plans (even those unrelated to conservation). As an interviewee explained: ‘The city has been very hesitant to promote district masterplans. Even though these plans have been ready for a long time, the municipality has rightly decided to wait and see the output of certain court rulings pertaining to issues of compensation claims. They do not want to take another risk like they did with the conservation plan. 2.6 billion NIS can choke a city’ (former regional planning committee planner, pers. Comm., January 22, 2023). Thus, the fear of paying billions of NIS has de facto paralyzed municipal decisions and has possibly slowed the city’s development.

Lastly, to minimize compensation payments, the city needed to prove that the conservation plan benefited property owners, that development rights could be realized despite heritage restrictions, and that the TDR mechanisms worked. Furthermore, due to their demand that property owners pay a betterment tax, the municipality had to demonstrate that the conservation plan tangibly increased property values. This presented the municipality with substantial organizational, legal, and administrative challenges. It required large administrative resources, investments in time, money, and manpower, as well as the formation of a new department dedicated solely to implementing the conservation plan. This redirected funds and resources away from other city initiatives. Moreover, conservation-related permits and plans were prioritized in the approval pipeline, delaying the approval of permits for other buildings.

Discrimination between owners who filed compensation claims and those who did not

Over the years, the city has endeavored to reduce compensation payments by signing agreements with owners who filed compensation claims. If property owners were willing to give up on their claim, the municipality was willing to forfeit betterment tax payments and to tailor a planning solution to meet the owner’s needs (e.g. approving easements or nonconforming uses, or by adding buildable spaces to the existing building). Filing compensation claims in essence served as a negotiation tool. Indeed, a conservation Architect we interviewed noted that:

When the conservation plan was approved, I encouraged all my clients to file claims and everyone who did still thanks me today … the claims were a great bargaining tool (Conservation Architect, pers. comm., February 20th, 2022)

These agreements between the city and property owners have proven effective. With much hard work, the municipality was able to reduce the number of compensation claims from 380 down to approximately 200, adding up to 1.7 billion Israeli Shekels in damages (approx. $US 461 million). However, they have also created a fragmented system in which certain owners were able to optimize their position vis-à-vis the municipality just because they filed compensation claims, thereby encouraging future claims.

Interviewees indicated that owners who filed compensation claims were given preferential treatment and economic benefits by officials:

When you went to the municipal conservation department, the first question they would ask was: ‘did you file a compensation claim or not?’ If you answered yes, they would speak with you and assist. If you answered no, they would advise you to go examine the plan by yourself (Conservation Architect, pers. comm., February 20, 2022)

This discrimination between owners extended to issues of betterment tax payments. While all owners were asked to pay a betterment tax, not every owner filed a compensation claim. Those who did file a claim had the option to negotiate a mutual waiver agreement with the LPA, while those who did not file a claim came out on the losing end, forced to pay the tax or else challenge it in court. According to a real-estate appraiser we interviewed, single-family homeowners who did not file a compensation claim were the ones who suffered the most:

When an owner who had multitude apartments approached me, I would advise him to fight and file a claim, but if single-family homeowners came, I would regretfully advise them to pay the unfair betterment tax. The retainer fees for myself and an attorney would exceed the tax (Appraisal, pers. comm., February 19, 2023)

How compensation issues affect other cities in Israel

The conservation plan’s handling of compensation payments has had a chilling effect throughout the country. In retrospect, the difficulties that compensation imposes on cities may help explain the lack of impetus to initiate restrictions in the form of statutory plans across the country. In Israel, conservation efforts are promoted with great trepidation. Few cities have followed Tel Aviv’s lead and adopted a comprehensive conservation plan; most have shied away from promoting conservation plans and settled instead on non-binding (and flexible) heritage lists. When speaking with experts, compensation is frequently cited as a reason for this policy approach. Indeed, the Tel Aviv experience has sparked panic in the hearts of many Israeli municipalities, who cannot afford to pay substantial sums. As one interviewee notes:

Municipalities see Tel Aviv and think - I want to approve a conservation plan, but I’m terrified to do the same as Tel Aviv. How can I handle so many compensation claims if Tel Aviv cannot find a way out of it? I am just a small city with a strained budget. Am I willing to jeopardize my residents with such a debt? (regional planning committee employee, pers. comm., February 2, 2023)

When municipal governments do promote conservation plans, they vigorously debate the number of privately owned buildings that should be earmarked for protection and how they can reduce potential compensation claims. For instance, the municipality of Rishon LeZion has prioritized granting heritage protection to publicly-owned structures in the city, while the municipality of Givatayim is promoting ‘voluntary conservation’, by which owners can choose whether or not to have their buildings listed in exchange for additional development rights.

Another visible evolution is that cities that do promote conservation plans tend to grant owners more development rights than Tel Aviv did. These plans seek to incentivize heritage protections and ensure that the plan is profitable for all parties, thereby decreasing the likelihood of compensation claims. Although this makes a new generation of conservation plans less susceptible to owners’ ire, it also increases their urban footprint.

Conclusion

This paper demonstrates how compensation claims, or the fear of them, influences the planning and implementation of statutory plans. The case of Tel Aviv illustrates how countries with generous compensation regimes can find their planning systems focusing myopically on mitigating financial risks (and particularly on future lawsuits), at the expense of other planning considerations and interests. Furthermore, the preoccupation with compensation claims creates an economically-centered dialogue with the public that leads to a discriminatory implementation process.

This case also demonstrates how generous compensation regimes tend to amplify themselves beyond their intended scope. First, while seeking ways to reduce potential compensation payments, planners may instead encourage future owners to file compensation claims, because property owners recognize the benefits of filing lawsuits. Second, compensation claims have created a market of associated experts such as attorneys, appraisers, and conservation specialists, who continue to fuel the ‘compensation-machine’, generating an economic incentive to prolong the resolution of existing problems.

Having said that, Tel Aviv’s conservation plan has been a great success in many respects and increased the property value of the city center and some heritage-protected buildings (Salinger et al. 2022). Facing multi-million lawsuits over diminution in property values, city administrators changed the conservation plan, equipped it with novel instruments of non-financial compensation, enabled significant changes to existing listed buildings, remodeled its planning department, and allied with politicians and other professionals to push the plan forward. City officials adopted other strategies to reduce the number of lawsuits and negotiated with owners in a skillful manner to save public money. These conflicts and adversities eventually inspired planners in other cities as well.

However, under Israel’s current compensation regime, even if a plan has good intentions, its financial risks might bury a city. The larger the plan, the greater the risk posed by compensation claims. As compensation lawsuits loom over planners in countries around the globe, their impact on plan-making should be considered and studied. Consequently, cities may be unwilling to adopt large-scale plans that address citywide challenges such as climate change, urban intensification, and downzoning.

The above analysis exemplifies how fear of compensation can have a lasting effect on a city’s built environment and the planning system. It not only introduces TDRs and additional building rights which alter the urban landscape, but also impacts the city’s administration, its pace of development, and its willingness to enact statutory plans that promote the common good. The story of Tel Aviv is also one of resilience and resourcefulness: despite said fears and financial challenges, city planners and politicians developed viable solutions to deflect lawsuits, to find mutually beneficial compromises, and to revamp city administration.

In an era of much uncertainty, where cities must reinvent themselves and push for sustainable and resilient environments, the constraints imposed by compensation payments are very real. They can impede progress or depress urban development. As such, the case of Tel Aviv is relevant to other cities facing similar challenges of generous compensation regimes, inflammatory planning initiatives, and disgruntled landowners who utilize planning and court systems to challenge local planning. By unpacking the context of this case and how its conditions affected decision-making, it becomes possible to understand a city’s polity, its ability to govern, and the choices public officials make when shaping the environment. The urban and institutional ramifications of compensation claims can thus be understood in light of government responses to financial risk and instability. Thus, the issue of compensation is both a compass and a forewarning to planners, preparing them towards future battles over city policies. In an age of property-rights protection and property-driven planning, the compass is pointing straight towards where planners meet owners in a battle over city policies.

Acknowledgements

This research was supported by the Ministry of Innovation, Science & Technology, Israel, under Grant No. 3-17371. We also thank Arch. Ahdi Alchalel for her assistance during this research.

Disclosure statement

No potential conflict of interest was reported by the authors.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.