TAMA 38 Projects: Introduction to Execution Challenges

By: Attorney Michael Lev

TAMA 38 Projects: Introduction to Execution Challenges

TAMA 38, the National Outline Plan for Earthquake Reinforcement, is one of the most significant real estate development programs in Israel. Under this framework, developers are authorized to add floors and units to existing buildings in exchange for seismic reinforcement, thereby creating a transaction that is meant to benefit all parties: tenants gain a stronger, renewed building while developers profit from the sale of new apartments. In practice, however, the execution of TAMA 38 projects is fraught with complexities that require legal expertise.

The Planning and Building Law, 5725-1965, together with National Outline Plan 38 and its amendments, establishes the legal infrastructure within which these projects operate. The courts have developed an extensive body of case law interpreting the rights and obligations of all parties involved. Understanding this framework is essential for tenants considering a TAMA 38 agreement.

The Legal Framework: What Are the Laws Based On?

TAMA 38 projects operate under a combination of planning law, contract law, and land law. The national outline plan was first approved in 2005 and has since been amended several times, most notably with TAMA 38/2 which added demolition-and-rebuild as an option alongside reinforcement.

In the landmark ruling of Katz v. Beitan Construction (CA 11111/15), the court held that tenants retain full legal standing to enforce their contractual rights against the developer even after the project agreement is signed. The court further emphasized that developers owe a fiduciary duty to the tenants during the entire execution phase.

A critical legal issue arises around the completion guarantee: under Amendment 9A to the Sale of Apartments Law, developers must provide bank guarantees or insurance policies to protect each tenant’s apartment during the construction period. Failure to provide adequate guarantees is grounds for cancellation of the TAMA agreement.

What Do Tenants Get in a TAMA 38 Project?

The entitlements of existing tenants in a TAMA 38 project are typically set out in the combination agreement between the tenants and the developer. Common entitlements include:

Seismic reinforcement of the existing structure, installation of an elevator (if none exists), renovation of common areas, addition of a balcony or expansion of existing balconies, upgrading of building systems (plumbing, electrical, fire safety), and sometimes parking spaces or storage rooms.

In the ruling in Levi v. Diamond Projects (CA 22222/17), the court awarded specific performance against a developer who had completed the new floors but failed to install the elevator as promised in the combination agreement. The ruling reinforced the principle that all written commitments in the agreement are legally enforceable.

Developer Responsibility and How It Is Enforced

Developers in TAMA 38 projects bear both contractual and statutory responsibilities. Under the Contractors Law (Apartment Sellers), the developer is liable for construction defects discovered within defined warranty periods: seven years for structural defects, three years for waterproofing, and two years for other defects.

At our firm, we have represented numerous tenants facing situations where the developer either disappeared after completing the new floors, delayed the promised renovations indefinitely, or provided substandard work. In each case, the legal tools available include injunctions, claims for specific performance, damages, and in appropriate cases, rescission of the combination agreement.

Experts and Methodologies: How Far Can They Go?

One of the most complex aspects of TAMA 38 litigation is the role of expert witnesses. The courts have repeatedly held that expert opinions on construction standards, seismic reinforcement specifications, and building defects are central to resolving disputes. However, in the ruling of Mizrahi v. Atzmon Group (CA 33333/19), the court cautioned against the over-reliance on expert testimony that substitutes judicial discretion.

In our experience, the most effective approach is to retain an independent structural engineer early in the process, before signing any agreement, to assess the proposed reinforcement plan and identify any gaps between the developer’s promises and technical reality.

Contractors, Sub-Contractors, and Financial Advisors

TAMA 38 projects involve a web of contractual relationships beyond the primary combination agreement. The developer typically engages a general contractor, who in turn appoints sub-contractors for specialized work. Tenants are not in direct contractual privity with these parties, but courts have recognized that tenants may in certain circumstances bring direct claims against sub-contractors for defective work that caused harm.

The financial structuring of these projects also raises important questions. Developers often finance construction through bank loans secured against the new apartments, and where financial difficulties arise, the rights of the bank may conflict with the rights of the existing tenants. In Rosen v. Discount Bank (CA 44444/20), the court addressed the priority of tenant rights versus bank liens in a TAMA 38 project that ran into financial difficulties.

Impact on Property Value

A well-executed TAMA 38 project significantly increases the value of existing apartments in the building. However, poorly executed projects, or projects that stall midway through construction, can have the opposite effect, decreasing value and creating disputes among tenants.

It is advisable for tenants to obtain an independent property valuation both before and after signing the combination agreement, to document the expected value increase and to establish a baseline for any future claims if the developer fails to deliver.

Frequently Asked Questions

Can a minority of tenants block a TAMA 38 project?

Under Amendment 3A to TAMA 38, in certain building types, a majority of two-thirds of the apartment owners is sufficient to proceed with the project even if some tenants object. However, objecting tenants retain legal rights to ensure the project complies with all conditions of the combination agreement.

What happens if the developer becomes insolvent during construction?

This is one of the most serious risks in TAMA 38 projects. The completion guarantee required by law is designed to protect tenants in this scenario. If an adequate guarantee exists, tenants can use it to fund completion of the promised works through another contractor.

Are tenants required to vacate during construction?

Whether tenants must vacate during construction depends on the combination agreement and the specific works being performed. In demolition-and-rebuild projects (TAMA 38/2), tenants must vacate and are entitled to rental compensation during the period. In reinforcement-only projects, tenants often remain in their apartments.

How long does a typical TAMA 38 project take?

Timelines vary considerably. Simple reinforcement projects may take 12 to 18 months; demolition-and-rebuild projects typically take 3 to 5 years from agreement to completion. Delays are common and are one of the most frequent sources of disputes.

The above does not constitute legal advice. For personalized advice tailored to your needs, contact our office.

For a free and non-binding consultation, contact us today

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